HOWARD JOHNSON INTERNATIONAL, INC. v. SSR, INC. et al

Filing 13

OPINION AND ORDER granting 10 Motion to Set Aside Default, vacating the Default, terminating as moot 8 Motion for Default Judgment. Defendants shall file an Answer to the Complaint by 7/27/15. Signed by Magistrate Judge James B. Clark on 7/20/15. (sr, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

HOWARD JOHNSON
INTERNATIONAL, INC.,
Plaintiff,
v.
SSR, INC., et. al.
Defendants.

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Civil Action No. 14-4611 (KM)

OPINION & ORDER

CLARK, United States Magistrate Judge
THIS MATTER comes before the Court upon Defendants’ SSR and Kanigiri
Gade (collectively, “Defendants”) cross-motion to vacate default against all Defendants.
(Dkt. No. 10). Plaintiff Howard Johnson International (“HJI” or “Plaintiff”) filed an
opposition to this motion. (Dkt. No. 11). The Court has fully reviewed and considered all
of the papers submitted in support of and in opposition to the motions, and considers the
same without oral argument pursuant to L. Civ. R. 78.1(b). For the reasons set forth below,
Defendants’ motion to vacate default is GRANTED.
I.

BACKGROUND
This matter arises out of a franchise agreement dated September 3, 2010 between

HJI and SSR for the operation of a 100-room Howard Johnson hotel for a fifteen-year term.
(Dkt. No. 8-3, Ex. A). On or about July 23, 2014, Plaintiff Howard Johnson filed a
Complaint against Defendants alleging, inter alia, breach of contract and a violation of
section 32 of the Lanham Act, 15 U.S.C §1114(1)(a), as a result of Defendants’ alleged

failure to meet financial obligations in accordance with the franchise agreement between
the parties. (Dkt. No. 1).
On September 2, 2014, Plaintiff filed a summons purporting to have personally
served Defendant Kangiri Gade both individually and on behalf of corporate Defendant,
SSR, Inc., on August 12, 2014 at 1381 Masoma Rd, North Brunswick, NJ. (Dkt. No. 6).
On October 13, 2014, Plaintiff requested entry of default against Defendants as a result of
Defendants failure to plead or otherwise defend the suit. (Dkt. No. 7). The Clerk’s Office
entered default on October 14, 2014 and a copy of the default was mailed to Defendants at
the above address. (Dkt. No. 8-2, Ex. A).
On December 8, 2014, Plaintiff filed a Motion for Final Judgment by Default
requesting judgment in the amount of $398,319.83 for liquid damages, recurring fees,
Lanham Act damages, attorney’s fees and costs. (Dkt. No. 8). On February 25, 2015,
Defendants filed the instant cross-Motion to Vacate Default and opposition to Plaintiff’s
Motion for Final Judgment by Default. (Dkt. No. 10). Defendants claim to have not
received any papers regarding this matter until late January 2015. (Dkt. No. 10). Plaintiff
opposes the motion. (Dkt. No. 11.)
II.

LEGAL STANDARD
The Third Circuit has expressed a strong preference for deciding cases on the

merits. Hritz v. Woma Corp., 732 F.2d 1178, 1181 (3d Cir. 1984). As a general matter,
entry of default is disfavored in the Third Circuit, and all doubts should be resolved in favor
of setting aside the default. See Lorenzo v. Griffith, 12 F.3d 23, 27 n.4 (3d Cir. 1993); U.S.
v $55, 518.05 in U.S. Currency, 728 F.2d 192, 194 (3d Cir. 1984). Under the Federal Rules
of Civil Procedure, a district court “may set aside an entry of default for good cause . . . .”

FED. R. CIV. P. 55(c). In considering a motion to set aside a default, a district court must
consider three factors: “(1) whether the plaintiff will be prejudiced; (2) whether the
defendant has a meritorious defense; and (3) whether the default was the result of the
defendant’s culpable conduct.” Miles v. Aramark Corr. Serv., 236 F. App’x. 746, 751 (3d
Cir. 2007) (quoting Gold Kist, Inc. v. Laurinburg Oil Co., 756 F.2d 14, 19 (3d Cir. 1985)).
III.

DISCUSSION
Defendants contend that the entry of default should be vacated because the factors

weigh in Defendants’ favor. (Dkt. No. 10). Defendants claim they have a meritorious
defense, that Plaintiff will not suffer prejudice, and that service was improper. (Id.)
Plaintiff opposes Defendants’ request to vacate default. (Dkt. No. 11).
First, the Court finds that Plaintiff will not be prejudiced by vacating default.
“[L]oss of available evidence, increased potential for fraud or collusion, or substantial
reliance upon the [default] judgement” may support a finding of prejudice. Feliciano v.
Reliant Tooling Co., 691 F.2d 653, 657 (3d Cir. 1982). Plaintiff has not suggested any
reliance or loss of evidence that would prejudice its claim if default is vacated. Allowing
Defendants to answer the Complaint will allow the Court to reach a decision on the merits
of this case. Accordingly, the Court finds that Plaintiff will not be prejudiced.
Next, the Court finds that Defendants have made a prima facie showing of a
meritorious defense through their answer. Defendants’ answer largely neither admits nor
denies the allegations in Plaintiff’s Complaint and asserts twenty-three affirmative
defenses. While these defenses ultimately may be unsuccessful, it is the preference of the
Court to allow claims to be heard on the merits. See Dizzley v. Friends Rehabilitation
Program, Inc., 202 F.R.D. 146, 147 (D.N.J. 2001).

Finally, the Court finds that default was not a result of Defendants’ culpable
conduct. Plaintiff contends that Defendants have demonstrated culpable conduct through
their willful and repeated course of inaction with regard to the defense of this action.
Defendants, however, claim they were improperly served and therefore unaware of the
action until late January 2015.

The Court will apply the general rule that “the

party asserting the validity of service bears the burden of proof on that issue.” Grand
Entm’t Group, Ltd. v. Star Media Sales, Inc., 988 F.2d 476, 493 (3d Cir. 1993).
Plaintiff contends that Gade was personally served at 1381 Masoma Road, North
Brunswick, NJ (“North Brunswick property”). (Dkt. No. 6). Plaintiff points to the signed
return of service showing that Defendant Gade was personally served with the Complaint
and Summons at the North Brunswick property both individually, and on behalf of
corporate defendant SSR. (Dkt. No. 10-1, at 4). A signed return of service generally serves
as prima facie evidence giving rise to a presumption of valid service. See, e.g., Gottlieb v.
Sandia Am. Corp., 452 F.2d 510, 514 n.5 (3d Cir. 1971) (stating that “although a marshal’s
return is not conclusive on the question of service on an agent, it will stand in the absence
of proof to the contrary”) (internal citation omitted); Blair v. City of Worcester, 522 F.3d
105, 111 (1st Cir. 2008); Homer v. Jones-Bey, 415 F.3d 748, 752 (7th Cir. 2005); In re
Graves, 33 F.3d 242, 251 n.16 (3d Cir. 1994) (noting that the court “give[s] weight to an
objective indication that process has been served”). The presumption of valid service,
however, may be rebutted if the defendant demonstrates that service was not
received. See Blair, 522 F.3d at 111-12; Homer, 415 F.3d at 752. Because Plaintiff has
provided prima facie evidence that Defendants were properly served with process, the
burden shifts to Defendants to prove that service was not properly effectuated.

In response, Defendants contend that Gade was not personally served. In support
of this, Defendants provided a signed Certification of Nagireddy Pallapolu, dated February
3, 2015, (“Pallapolu Cert.”) (Dkt. No. 12-1), Gade’s father, and a signed Certification of
Defendant Kanigiri Gade, dated February 3, 2015, (“Gade Cert.”) (Dkt. No. 12-1). 1
Pallapolu certifies that the North Brunswick property is currently used as a rental property.
(Dkt. No. 12-1, Pallapolu Cert., at ¶3). He explains that he visits the property every six to
eight weeks or so to check on the property and tenants. (Id., at ¶4). Pallapolu explains that
his last visit was approximately two weeks ago 2 and that he had not been to the property
since Thanksgiving of 2014. (Id., at ¶5). It was during this trip that the tenant handed him
the papers in this case, which he then gave to his daughter, Gade. (Id., at ¶¶5-6). Gade
also certified that she has not lived at the North Brunswick property since 2007, and that
she has not been to the property in quite some time. (Dkt. No. 12-2, Gade Cert., ¶¶3-4).
She also explains that she was not aware of the suit until her father gave her the papers.
(Id., at ¶5). Gade also explains that she has owned and operated the property in question
since 2003 and that in the past any and all notices concerning the property at issue were
always sent to the property at issue, which is located in Virginia. (Id., at ¶8).
The Court is not convinced that Defendants had actual notice of the instant action
prior to January 2015. These Certifications raise doubt as to whether Gade was properly
served in this case and are sufficient to rebut the presumption of valid service.
See, e.g., Blair, 522 F.3d at 112 (holding that the defendant’s affidavits were sufficient to

1

Defendants recently re-filed the Certifications because when they were initially filed,
counsel erroneously mixed up the second pages, attaching page two of the Certification of
Nagireddy Pallapolu to the Certification of Kanigiri Gade and vice versa. (Dkt. No. 12).
2
Approximately two weeks before February 3, 2015 would be around January 20, 2015.

rebut the prima facie presumption created by a return of service). Accordingly, the Court
finds that the entry of default was not a result of Defendants culpable conduct.
Finally, the Court notes that setting aside default in this case is consistent with
longstanding Third Circuit precedent that disfavors default judgments in favor of resolving
disputes on the merits. See Hill v. Williamsport Police Dep’t, 69 F. App’x 49, 51 (3d Cir.
2003) (“Our Court ‘does not favor entry of defaults or default judgments,’ . . . as it prefers
adjudications on the merits.”) (quoting $55,518.05 in U.S. Currency, 728 F.2d at
194)); Hritz v. Woma Cor., 732 F.2d 1178, 1181 (3d Cir. 1984) (“[W]e have repeatedly
stated our preference that cases be disposed on the merits when practicable.”).
Accordingly, Defendants’ Motion to Vacate Default is GRANTED.
IV.

CONCLUSION
For the foregoing reasons,
IT IS on this 20th day of July, 2015
ORDERED that Defendants’ motion to vacate default is GRANTED; and it is further
ORDERED that default is hereby VACATED; and it is further
ORDERED that the Clerk of Court is directed to terminate the aforementioned motion

(Dkt. No. 10) accordingly; and it is further
ORDERED that the Clerk of Court is directed to terminate Plaintiff’s Motion for Entry
of Final Judgment (Dkt. No. 8), as such motion is now moot; and it is further
ORDERED that Defendants shall file an Answer to the Complaint by July 27, 2015.
IT IS SO ORDERED.
s/ James B. Clark, III
JAMES B. CLARK, III
United States Magistrate Judge