BAYMONT FRANCHISE SYSTEMS, INC. v. D&T HOTELS, LLC et al

Filing 29

OPINION. Signed by Judge Kevin McNulty on 8/5/15. (cm )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
BAYMONT FRANCHISE SYSTEMS,
INC., successor in interest to
AMERIHOST FRANCHISE SYSTEMS,
INC., a Delaware Corporation,

Civ. No. 13-cv-5322 (KM)(MAH)

OPINION

Plaintiff,
V.

D&T HOTELS, LLC, an Ohio limited
liability company; PALWINDER S.
DHILLON, an individual; and
JAGROOP S. TOOR, an individual,
Defendants.
KEVIN MCNULTY, U.S.D.J.:
This matter comes before the Court on the unopposed motion of Plaintiff
Baymont Franchise Systems, Inc. (“Baymont”) for default judgment against
Defendant D&T Hotels, LLC (“D&T”). For the reasons set forth below, I will
enter a default judgment. Baymont is awarded $256,923.33, comprising:
(i) $65,614.43 in outstanding fees and interest; (ii) liquidated damages of
$122,000; (iii) $58,716.16 in interest on the liquidated damages; and (iv)
$10,592.74 in attorneys’ fees and costs. Post-judgment interest from this date
will be applied at the appropriate rate in accordance with 28 U.S.C.
I.

§ 1961.

BACKGROUND

Baymont is a Delaware corporation with its principal place of business in
Parsippany, New Jersey. (Compi., Dkt. No. 1, ¶1) B&T is an Ohio-based limited
liability company with its principal place of business in Wilmington, Ohio. (Id.
at ¶2)

1

The Agreements
On October 10, 2006, Baymont’s predecessor in interest, Amerihost
Franchise Systems, Inc., entered into a Franchise Agreement with D&T for the
operation of a 61-room Amerihost guest-lodging facility (the “Facility”) in
Wilmington, Ohio. (Fenimore Aff., Dkt. No. 27-3, ¶3) The agreement had a term
of 20 years. (Id. at ¶4) On December 27, 2006, the parties executed an
amendment to the Franchise Agreement according to which D&T agreed to
convert the Facility to a Baymont-branded franchise.
Under Section 7 and Schedule C of the Franchise Agreement, D&T was
required to make periodic payments to Baymont for, inter alia, royalties, system
assessment fees, taxes, interest, and access to its central reservation system
(collectively, “Recurring Fees”). (Id. at ¶6) Section 7.3 of the Franchise
Agreement states that the interest on such Recurring Fees, as well as any other
amounts past due, would accrue at the rate of 1.5% per month. (Id. at ¶7)
Section 11.2 lists the circumstances under which Baymont could
terminate the Franchise Agreement, including when D&T “discontinue(sl
operating the Facility as a Chain Facility,” or “lose[s] possession or the right to
possession of the Facility.” (Franchise Agreement, Section 11.2, Ex. A,
Fennimore Aff., Dkt. No. 27-3, at 21) In the event that the Franchise Agreement
is terminated pursuant to Section 11.2, Section 13.2 requires D&T to pay “all
amounts owed to [Baymont]” no later than 10 days after termination. (Id. at 29)
Additionally, Section 12.1.1 requires D&T to pay within 30 days liquidated
damages equivalent to $2,000 multiplied by the number of rooms in the
Facility. (Id. at 28; see also Fenimore Aff., ¶11)
Section 17.4 states that if legal action is necessary “to enforce this
Agreement or collect amounts owed under this Agreement,” then the “non
prevailing party will pay all costs and expenses, including reasonable attorneys’
fees.” (Fenimore Aff., ¶12)

2

On the same day that the parties executed the Franchise Agreement, the
ed a
constituent members of D&T—Palwinder Dhillon and Jagroop Toor—execut
personal guaranty of D&T’s obligations under the agreement. (Id. at ¶13)
The Defendant’s Default and Termination
Baymont alleges that on January 4, 2012, D&T unilaterally terminated
nt
the Franchise Agreement by ceasing to operate the Facility as a Baymo
nt
branded franchise. (Id. at ¶16) In a letter dated February 17, 2012, Baymo
stated that it had “received photographs on January 4, 2012 (the termination
Aff.,
date) verifying that D&T Hotels, LLC. ..closed the Facility.” (Ex. C, Fenimore
was
Dkt. No. 27-3, at 47) The letter advised D&T that the Franchise Agreement
terminated as of that date and demanded payment of $22,337.96 in
outstanding Recurring Fees, as well as $122,000 in liquidated damages. (Id.)
This Action
On September 12, 2014, Baymont filed this action for a declaratory
judgment against D&T, Dhillon, and Toor. l3aymont seeks (i) $65,614.43 in
outstanding fees and interest; (ii) liquidated damages of $122,000; (iii)
fees
$58,716.16 in interest on the liquidated damages; and (iv) attorneys’
totaling $7,800 and costs totaling $2,792.74. Baymont has dismissed the
claims against Dhillon and Toor (Dkt. Nos. 26, 28), leaving D&T as the sole
defendant.
This Court has jurisdiction over this action pursuant to 28 U.S.C. §
1332, as there is complete diversity of citizenship between the parties and the
amount in controversy exceeds $75,000.
II.

DISCUSSION
A. Prerequisites for Entry of Default Judgment

Before a court may enter default judgment against a defendant, the
plaintiff must have properly served the summons and complaint, and the
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defendant must have failed to file an answer or otherwise respond to the
complaint within the time provided by the Federal Rules, which is twenty-one
days. See Gold Kist, Inc. v. Laurinburg Oil Co., Inc., 756 F.2d 14, 18—19 (3d Cir.

1985); Fed. R. Civ. P. 12(a).
Service of a corporate entity, such as D&T, may be made by delivering a
copy of the summons and complaint to “an officer, a managing or general
agent, or any other agent authorized by appointment or by law to receive
service of process” or by following state law for serving a summons in an action
brought in courts of general jurisdiction where the district court is located or
where service is made. Fed. R. Civ. P. 4(h)(1). New Jersey law states in relevant
part that service on a corporation may be made:
[B]y serving a copy of the summons and complaint.. on any officer,
director, trustee or managing or general agent, or any person
authorized by appointment or by law to receive service of process on
behalf of the corporation, or on a person at the registered office of
the corporation in charge thereof, or, if service cannot be made on
any of those persons, then on a person at the principal place of
business of the corporation in this State in charge thereof, or if there
is no place of business in this State, then on any employee of the
corporation within this State acting in the discharge of his or her
duties.
.

N.J. Ct. R. 4:4-4(a)(6).
If, despite diligent efforts, personal service cannot be made in accordance
with N.J. Ct. R. 4:4-4(a)(1), in personam jurisdiction may be obtained over any
defendant by substituted or constructive service, in accordance with N.J. Ct. R.
4:4-4(b)(1)(C) by:
[Mailing a copy of the summons and complaint by registered or
certified mail, return receipt requested, and, simultaneously, by
ordinary mail to: (1) a competent individual of the age of 14 or
over, addressed to the individual’s dwelling house or usual place of
abode; (2) a minor under the age of 14 or a mentally incapacitated
person, addressed to the person or persons on whom service is
authorized by paragraphs (a)(2) and (a)(3) of this rule; (3) a
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corporation, partnership or unincorporated association that is
subject to suit under a recognized name, addressed to a registered
agent for service, or to its principal place of business, or to its
principal place of business, or to its registered office.
N.J. Ct. R. 4:4-4(b)(3).
Here, Baymont personally served the Complaint on D&T on September
19, 2013. (Cert. of Bryan Couch in Supp. of Mot. for J. by Default (“Couch
Cert.”), Dkt. No. 27-2, ¶5) D&T’s time to respond to the Complaint has long
since expired. On April 23, 2014, the clerk entered default. (Dkt. No. 23)
Accordingly, I am satisfied that the prerequisites to filing a default judgment
are met. See Gold Kist, 756 F.2d at 18—19.
B. Three Factor Analysis
I must now evaluate the following three factors: (1) whether the party
subject to default has a meritorious defense, (2) the prejudice suffered by the
party seeking default, and (3) the culpability of the party subject to default.
Doug Brady, Inc. v. N.J. Bldg. Laborers Statewide Funds, 250 F.R.D. 171, 177
(D.N.J. 2008) (citing Emcasco Ins. Co. v. Sambrick, 834 F.2d 71, 74 (3d
Cir. 1987)). Those factors, considered in light of the record of this case, weigh in
favor of entry of a default judgment.
1. Factor 1
The evaluation of the first factor is complicated, of course, by D&T’s
failure to answer or oppose this motion. My independent review of the record,
however, does not suggest that the claims asserted by Baymont are legally
flawed or that D&T could mount a meritorious defense. See Doe, 2013 WL
3772532, at *5 Accepting the allegations in the Complaint as true, Comdyrie I,
Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990), I find that Baymont has
successfully stated claims for relief.

5

The Complaint asserts six overlapping causes of action, which, in
essence, amount to a claim for breach of contract against B&T. Under New
Jersey law, a prima facie case of breach of contract requires that the plaintiff
show: (1) a contract between the parties; (2) a breach of that contract; and (3)
damages resulting from the breach. See Coyle v. Englander’s, 199 N.J. Super.
212, 223 (App. Div. 1985); Freclerico v. Home Depot, 507 F.3d 188, 203 (3d Cir.
2007). The facts alleged in the Complaint establish that those elements are
satisfied here. The declaration submitted in support of Baymont’s motion and
the exhibits annexed thereto corroborate those factual allegations. The
Franchise Agreement is a valid and enforceable contract. B&T breached that
contract by failing to operate the Facility as a Baymont-branded franchise for
the agreed upon term. Baymont has accrued damages as a result of this
breach. In sum, the facts alleged by Baymont state a claim for breach of the
Franchise Agreement against D&T. I cannot discern a meritorious defense to
this claim from the record before me.
2. Factors 2 and 3

The second and third factors also weigh in favor of default. D&T was
properly served on September 19, 2014, but has failed to appear and defend
itself in any manner. It is clear that Baymont has been prejudiced by this
dereliction because it has been “prevented from prosecuting [itsi case, engaging
in discovery, and seeking relief in the normal fashion.” See Teamsters Pension
*4
Fund of Philadelphia & Vicinity v. Am. Helper, Inc., 2011 WL 4729023, at
(D.N.J. Oct. 5, 2011) (find that a defendant’s failure to answer prejudices the
plaintiff). Additionally, unless there is evidence to the contrary, D&T’s failure to
answer the Complaint is sufficient to prove its culpability in the default. Id. In
this case, “there is nothing before the Court to show that the Defendant’s
failure to file an answer was not willfully negligent.” Id. (citing Pnidential Ins.
Co. of America v. Taylor, 2009 WL 536043, at *1 (D.N.J. Feb. 27, 2009) (finding

that when there is no evidence that the defendant’s failure to answer the
6

Complaint was due to something other than its own willful negligence, the
defendant’s conduct is culpable and default judgment is warranted).
Overall, then, the three factors support the entry of default judgment
against D&T. I therefore find that default judgment is warranted.

C. Remedies
Baymont seeks the following four forms of monetary relief:
(i) $65,614.43 in outstanding fees and interest; (ii) liquidated damages of
$122,000; (iii) $58,716.16 in interest on the liquidated damages; and (iv)
$10,592.74 in attorneys’ fees and costs.
1. Recurring Fees, Liquidated Damages, and Interest
I will grant Baymont’s request for the amount owed as Recurring Fees
and interest, as set forth in Section 7 and Schedule C of the Franchise
Agreement. The itemized statement submitted in support of Baymont’s motion
details unpaid Recurring Fees dating back to September 2009. (Ex. D,
Fenimore Aff., Dkt. No. 27-3, at 56) The last entry in that statement, dated
March 2013, lists the outstanding balance on the account as $65,614.43.1 This
amount includes interest which accrued at the rate of 1.5% per month as set
forth in Section 7.3 of the License Agreement. I will award the full amount of
$65,614.43.
I will also grant Baymont’s request for $122,000 in liquidated damages
and $58,716.16 in interest. These amounts are determined by Sections 12.1.1
and 7.3 of the Franchise Agreement.

Baymont also says, however, says that this amount reflects the total amount of
Recurring Fees owed by D&T “as of September 2, 2014.” (Fenimore Aff., Dkt. No. 27-3,
¶18)
7

Section 12.1.1 states that if D&T terminates the Franchise Agreement
after the end of third license year, and if Baymont is unable to determine the
occupancy rate of the Facility according to a formula set forth in that section,
then D&T will “pay [Baymonti $2,000 multiplied by the number of guest rooms
[D&T] is then authorized to operate under. this Agreement.” (Franchise
. .

Agreement, Section 12.1.1, Ex. A., Fenimore Aff., Dkt. No. 27-3, at 23)
Baymont has chosen to calculate its liquidated damages in this manner, so I
must assume that it was unable to determine the Facility’s occupancy rate. The
Facility was authorized to operate 61 guest rooms, which yields a figure of
$122,000.
Section 7.3 of the License Agreement establishes a monthly interest rate
of 1.5% on all unpaid sums owed to Baymont. I agree with Baymont that this
interest rate applies to the total amount owed as liquidated damages.
(Fenimore Aff. Dkt. No. 27-3, ¶25) I also agree as to the date on which the
interest began to accrue: February 4, 2012 (i.e., 30 days after D&T terminated
the License Agreement. (Id.) The amount of interest owed by D&T is calculated
from that date through October 6, 2014, which was the return date for
Baymont’s motion for default judgment. The $58,716.16 figure is calculated by
multiplying $122,000 by 18% (i.e. 1.5% per month), which equals $21,960 in
interest per year. That amount is then divided by 365 days to equal $60.16 in
interest per day. When the per diem interest of $60.16 is multiplied by 976
days—the number of days between the date of termination and the return date
of the motion—the interest owed is $58,716.16. That is a permissible method of
calculating interest, and I will uphold it.
2. Attorneys’ Fees and Costs
As to attorneys’ fees and costs, too, I adopt Baymont’s analysis. Baymont
has adequately documented its attorneys’ fees, which do not seem
unreasonable or disproportionate. (See License Agreement, Section 17.4, Ex. A,
Fenimore Aff., Dkt. No. 27-3, at 28 (giving the prevailing party the right to
8

recover reasonable attorneys’ fees); Ex. D, Couch Cert., Dkt. No. 27-2, at 13-40
(detailing fees and costs)) I will therefore award $7,800 in attorneys’ fees and
$2,792.74 in costs, for a total of $10,592.74.

III.

CONCLUSION

For the foregoing reasons, a default judgment will be entered against
defendant D&T and in favor of plaintiff Baymont, in the total amount of
$256,923.33, with post-judgment interest from this date at the appropriate
rate pursuant to 28 U.S.C.

§ 1961.

An appropriate order and judgment will issue.

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‘I

/

KEVIN MCNULTY, U.S.D.J.

Dated: August 5, 2015

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