SUPER 8 WORLDWIDE, INC. v. 3082649 NOVA SCOTIA, LTD. et al
Filing
13
OPINION. Signed by Judge Kevin McNulty on 03/22/2016. (JB, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
SUPER 8 WORLDWIDE, INC., formerly
known as SUPER 8 MOTELS, INC.,
No. 14—cv—6275 (KM)(JBC)
Plaintiff,
OPINION
V.
3082649 NOVA SCOTIA, LTD.,
DARTMOUTH MARANOVA HOTEL
PARTNERSHIP, and PACRIM
DARTMOUTH LIMITED PARTNERSHIP,
Defendants.
KEVIN MCNULTY, U.S.D.J.:
This matter comes before the Court on the unopposed motion of plaintiff
Super 8 Worldwide, Inc. (“Super 8”), for default judgment against defendants
3082649 Nova Scotia, Ltd. (“NSL”), Dartmouth Maranova Hotel Partnership
(“Dartmouth”), and Pacrim Dartmouth Limited Partnership (“Pacrim”). (ECF No.
11)
For the reasons set forth below, I will enter a default judgment against
defendants NSL and Dartmouth, but not against Pacrim, as to which proof of
service is not adequate. Super 8 is awarded $551,938.77, comprising (i)
$240,277.73 in outstanding fees and interest and (ii) $305,431.89 in liquidated
damages and interest; $5,769.00 in attorney’s fees; and attorney’s costs of
$460.15. Post-judgment interest will accrue from this date at the appropriate
rate pursuant to 28 U.S.C. § 1961.
1
I.
BACKGROUND
A. The Parties
Super 8 is a South Dakota corporation with its principal place of
business in New Jersey. (Compi. ¶ 1 (ECF No. 1)) the defendants are NSL,
a
corporation organized and principally conducting business in Nova Scotia
,
Canada, and Dartmouth and Pacrim, partnerships also located in Nova Scotia
.
(Compi. ¶J 2—4)
B. Jurisdiction
The complaint alleges diversity jurisdiction. (Compi. 5) It also alleges
¶
that this Court has personal jurisdiction over NSL because of a clause
assenting to jurisdiction in New Jersey in section 17 the franchise agreem
ent
between Super 8 and Pacrim, which Pacrim assigned to NSL. (Compi.
¶ 6) The
complaint asserts jurisdiction over Pacrim and Dartmouth through a guaran
ty
document, which binds them to section 17 of the franchise agreement.
(Compi.
¶ 7)
C. Relevant Facts
On April 24, 2007, Super 8 entered into a franchise agreement with
Pacrim to operate a hotel. (Compl. ¶ 9; see Ex. A) On July 30, 2008,
Super 8
entered into an assignment agreement with Pacrim and NSL, in which NSL
assumed Pacrim’s rights and responsibilities as to the franchise agreem
ent.
(Compi. ¶ 10; see Ex. B) The franchise agreement provided that NSL was
required to operate a Super 8 franchise for 20 years and make period
ic
payments to Super 8 for royalties, system assessments, taxes, interest,
and
other fees (“Recurring Fees”); NSL pay 18% interest on past due payme
nts;
NSL pay liquidated damages upon termination of the agreement; and
the non
prevailing party pay costs and attorney’s fees related to enforcing the
franchise
agreement. (Compi.
11—13, 17—18) It also provided that Super 8 could
terminate the franchise agreement with notice to NSL if NSL discon
tinued
¶J
operating as a Super 8 or lost possession of the hotel premises. (Comp
i.
2
¶
16)
Dartmouth and Pacrim guaranteed NSL’s obligations to Super 8 as part of the
assignment, including attorney’s fees. (Compi.
¶J 19—21)
On April 4, 2013, NSL terminated the franchise agreement when it lost
possession of the hotel premises. (Compi. ¶ 22) In a letter dated May 24, 2013,
Super 8 acknowledged that termination and advised NSL that it was required
to pay liquidated damages of $213,733.89, as well as all outstanding Recurring
Fees. (Compi.
¶
23; see Ex. D)
D. Claims
1.
Super 8 requests enforcement of provisions of the franchise agreement
that allow it to audit NSL’s financial information in order to confirm the
amount that NSL owes Super 8. (Compl.
2.
25—27)
¶
Super 8 requests enforcement of provisions of the franchise agreement
that require NSL to pay Super 8 liquidated damages in the amount of
$213,733.89. (Compi.
¶J
28—33)
3.
In alternative to claim 2, Super 8 requests damages for premature
termination of the franchise agreement. (Compl.
¶f 34—37)
4.
Super 8 alleges breach of contract due to NSL’s failure to pay Recurring
Fees in the amount of $217,395.88. (Compi. ¶j 38—41)
Super 8 alleges unjust enrichment due to NSL’s failure to pay Recurring
5.
Fees in the amount of $217,395.88. (Compl.
6.
¶J
42—45)
Super 8 requests enforcement of Dartmouth and Pacrim’s guarantee of
NSL’s obligations of $213,733.89 for liquidated damages and
$217,395.88 in Recurring Fees. (Compl.
¶J
46—49)
E. Procedural History
Super 8 filed its complaint on October 9, 2014. A summons issued the
next day. (ECF No. 2) On March 23, 2015, Super 8 initiated service by
international registered mail, and Super 8 filed an affidavit of service on April
15, 2015. (ECF No. 7) On August 4, 2015, Super 8 made a request for default
after defendants failed to respond in any manner, and the clerk’s office made
3
an entry of default the next day. (ECF No. 10) On August 14, 2015, Super 8
moved for default judgment against the defendants. Super 8 seeks Recurring
Fees of $240,277.73 inclusive of interest calculated at a rate of 1.5% per
month, $213,733.89 in liquidated damages, $91,698.00 in interest on the
liquidated damages, calculated at 18% per year; attorney’s fees of $5,769.00;
and attorney’s costs of $460.15. (Fenimore Aff.
¶J 18, 24—26 (ECF No. 11—3)) In
total Super 8 seeks $551,938.77. (Fenimore Aff. ¶ 27) The motion remains
unopposed.
II.
ANALYSIS
A. Standard of Review
“[T]he entry of a default judgment is left primarily to the discretion of the
district court.” Hritz v. Woma Coip., 732 F.2d 1178, 1180 (3d Cir. 1984) (citing
Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 244 (3d Cir. 1951)).
Because the entry of a default judgment prevents the resolution of claims on
the merits, “this court does not favor entry of defaults and default judgments.”
United States v. $55,518.05 in US. Currency, 728 F.2d 192, 194 (3d Cir. 1984).
Thus, before entering default judgment, the Court must determine whether the
“unchallenged facts constitute a legitimate cause of action” so that default
judgment would be permissible. DirecTV, Inc. v. Asher, 2006 WL 680533, at *1
(D.N.J. Mar. 14, 2006) (citing Wright, Miller, Kane, 1OA Fed. Prac. & P. Civil 3d
§ 2688, at 58—59, 63).
“[D]efendants are deemed to have admitted the factual allegations of the
Complaint by virtue of their default, except those factual allegations related to
the amount of damages.” Doe v. Simone, 2013 WL 3772532, at *2 (D.N.J. July
17, 2013). While “courts must accept the plaintiff’s well-pleaded factual
allegations as true,” they “need not accept the plaintiff’s factual allegations
regarding damages as true.” Id. (citing Chanel, Inc. v. Gordashevsky, 558 F.
Supp. 2d 532, 536 (D.N.J. 2008)). Moreover, if a court finds evidentiary
support to be lacking, it may order or permit a plaintiff seeking default
4
judgment to provide additional evidence in support of the allegations. Doe,
2013 WL 3772532, at *2.
B. 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
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).
NSL, Pacrim, and Dartmouth are located in Canada. Service of a
corporation in a foreign country, such as NSL, or a partnership in a foreign
country, such as Pacrim or Dartmouth, may be made by any of the means
specified in Rule 4(f) for service of individuals, with the exception of personal
delivery. Fed. R. Civ. P. 4(h)(2). One acceptable Rule 4(1) means of service in a
foreign country is “by any internationally agreed means of service that is
reasonably calculated to give notice, such as those authorized by the Hague
Convention on the Service Abroad of Judicial and Extrajudicial Documents.”
Fed. R. Civ. P. 4(f)(1). Both the United States and Canada are contracting
members of the Hague Convention on the Service Abroad of Judicial and
Extrajudicial Documents in Civil or Commercial Matters, November 15, 1965,
20 U.S.T. 3161 (“Hague Service Convention”). See
https:/ / www.hcch.net! en / instruments / conventions! status-table ?cid= 17
/
(last visited March 21, 2016).
In a supplemental letter requested by the Court (ECF No. 12), Super 8
stated that it had served defendants by international certified mail, citing
Article 10(a) of the Hague Service Convention. In relevant part, the Hague
Service Convention states:
Provided the State of destination does not object, the present
Convention shall not interfere with
—
a) the freedom to send judicial documents, by postal channels,
5
directly to persons abroad,
b) the freedom of judicial officers, officials or other competent
persons of the State of origin to effect service of judicial documents
directly through the judicial officers, officials or other competent
persons of the State of destination,
c) the freedom of any person interested in a judicial proceeding to
effect service of judicial documents directly through the judicial
officers, officials or other competent persons of the State of
destination.
Hague Service Convention Article 10. Both the United States and Canad
a have
not stated any opposition, declarations or reservations as to Article 10.
See
https: / / assets.hcch.net/ docs/ 6365f76b-22b3-4bac-82ea-395bf75b225
4 .pdf
(last visited March 21, 2016). In particular, Canada has not objecte
d to service
by postal channels. See Moody Nat. FF1 Meadowlands MT, LLC. v. Gager,
No.
CIV. 12-2 124 JLL, 2013 WL 622128, at *6 (D.N.J. Jan. 24, 2013) (Hamm
er,
U.S.M.J.), report and recommendation adopted, 2013 WL 623509 (D.N.J
. Feb.
19, 2013) (citing EOICorp. v. Medical Mktg., 172 F.R.D. 133, 138 (D.N.J
.
1997)).
There is a circuit split as to whether Article 10(a) ‘s “freedom” to send
documents by postal channels authorizes service by that method. The
Third
Circuit has yet to weigh in on this issue. The Second and Ninth Circui
ts have
concluded that service by mail is permissible under Article 10(a), while
the
Fifth and Eighth Circuits have limited Article 10(a) to post-service judicia
l
documents. See generally Graphic Styles/Styles Int’l LLC v. Men’s Wear
Creations, 99 F. Supp. 3d 519, 521—23 (E.D. Pa. 2015) (summarizing
the
reasoning behind the circuit split); Eli Lilly & Co. v. Roussel Coip., 23
F. Supp.
2d 460, 470—74 (D.N.J. 1998) (surveying law prior to the Ninth and Fifth
Circuit decisions). The majority of courts in this District have agreed with
the
Second and Ninth Circuits and accepted postal channels as a permitted
means
of service under the Hague Service Convention, and therefore under Rule
4(f)(1). See, e.g., Moody Nat., 2013 WL 622128 at *49; Rogers v. Kasaha
ra, No.
CIV 06-2033 PGS, 2006 WL 6312904, at *2_5 (D.N.J. Oct. 16, 2006);
Trump Taj
Mahal Associates v. Hotel Servs., Inc., 183 F.R.D. 173, 176—79 (D.N.J
. 1998); Eli
6
Lilly, 23 F. Supp. 2d at 470—74; EOI Corp. v. Med. Mktg. Ltd., 172 F.R.D. 133,
135—42 (D.N.J. 1997). I will follow that majority view and find acceptable
service of process through postal channels under the Hague Service
Convention and Rule 4(f)(1).
As to NSL and Dartmouth, then, I find service adequate. Super 8
initiated service by international registered mail on March 25, 2015. (Couch
Aff. Of Service
3-7 (ECF No. 7)). The USPS tracking data confirm that the
mail was delivered between April 1 and April 6, 2015. (Id. and attached Exs. B—
E) These facts are confirmed by affidavit of service filed on April 15, 2015. (ECF
¶J
No. 7)
As to Pacrim, however, uncertainty as to actual delivery prevents me
from finding that service has been accomplished. Super 8’s affidavit of service
states that process was mailed. (Couch Aff. Of Service
¶
3) The last entry on the
attached USPS tracking printout, however, states as follows: “April 1, 2015
6:00 pm Attempted Delivery Item being held, addressee being notified.”
—
(Couch Aff. Ex. A, ECF no. 7 at 5) The court will not countenance
gamesmanship, but here there is no record of Pacrim’s having dodged process.
I find service insufficient as to Pacrim only.
The prerequisites to a default judgment have therefore been met as to
NSL and Dartmouth only.
C. Three Factor Analysis
After the prerequisites have been satisfied, a court must 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.
7
1. Factor 1: Meritorious Defense
The evaluation of the first factor is complicated, of course, by defendants’
failure to answer or to oppose this motion. My independent review
of the
record, however, does not suggest that the claims asserted are legally
flawed or
that defendants could mount a meritorious defense. See Doe, 2013
WL
5. Accepting the allegat
3772532, at
ions in the Complaint as true, Comdyne I,
Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990), I find that Super
8 has
successfully stated a claim for breach of both the franchise agreement
and the
guaranty.
Under New Jersey law,’ the elements of a breach of contract are that (1)
the parties entered into a valid contract; (2) the defendant failed to perform
its
contractual obligation; and (3) the plaintiff sustained damages as
a result.
Sheet Metal Workers Int’l Ass’n Local Union No. 27, AFL-CIO v. E.P. Donne
lly,
Inc., 737 F.3d 879, 900 (3d Cir. 2013) (citing Coyle v. Englander’s,
488 A.2d
1083 (N.J. Super. Ct. App. Div. 1985)); Peck v. Donovan, 565 F. App’x
66, 6970 (3d Cir. 2012) (citing Murphy v. Implicito, 920 A.2d 678 (N.J. Super.
Ct. App.
Div. 2007)).
I am satisfied that Super 8 has set forth a sufficient claim for breach
of
contract, and I cannot, from the limited materials before me, see any
meritorious defense. Super 8 has demonstrated the existence of three
valid
contracts: the franchise agreement, the assignment, and the guaranty.
(See
Compi. Exs. A—C) Super 8 has alleged that termination of the franch
ise
agreement was proper after NSL lost possession of the hotel premises.
(Compi.
22; see Ex. A § 11.2) Super 8 also alleges that it has been damaged
¶
by NSL’s
I Section 17.7 of
the franchise agreement provides that New Jersey law governs
the franchise agreement (Compi. Ex. A § 17.7), and the guarantee specifi
cally adopts
section 17 (Compi. Ex. C). Further, section 17.7.3 provides that the parties
consent to
personal jurisdiction in New Jersey. (Compi. Ex. A 17.7.3); see Ins. Corp.
§
of freland v.
Compagnie des Bauxites de Guinee, 456 U.S. 694, 703—04, 102 S. Ct. 2099
(1982).
8
breach of the contract when NSL failed to pay liquidated damages or Recurr
ing
Fees. (Compi. ¶f 31—33, 39—41) Super 8 also has properly alleged that the
guarantee agreement, which made Pacrim and Dartmouth liable for liquida
ted
damages and Recurring Fees, has been breached because Pacrim and
Dartmouth have not paid Super 8 the damages and fees. (Compi. ¶j 47—4
9)
Therefore, I cannot discern any meritorious defense to Super 8’s
allegations.
2. Factors 2 and 3: Prejudice to Super 8 and Culpability of the
Defendants
The second and third factors also weigh in favor of default. The
defendants were properly served between April 1 and April 6, 2015 (Couch
Aff.
Exs. A—E), but have failed to appear and defend themselves in any manner.
See
Teamsters Pension Fund of Phila. & Vicinity v. Am. Helper, Inc., No. CIV.
11*4 (D.N.J. Oct. 5, 2011)
624, 2011 WL 4729023, at
(“Plaintiffs have been
prejudiced by the Defendants’ failure to answer because they have been
prevented from prosecuting their case, engaging in discovery, and seeking
relief
in the normal fashion.”). Absent any evidence to the contrary, “the
Defendant[s’] failure to answer evinces the Defendant[s’] culpability in [the]
default. Id. And “[t]here is nothing before the Court to show that the
Defendant[s’] failure to file an answer was not willfully negligent.” Id. at *4
(citing Prudential Ins. Co. of America v. Taylor, No. CIV. 08—2 108, 2009 WL
536403, at *1 (D.N.J. Feb. 27, 2009) (finding that when there is nothin before
g
the court to suggest anything other than that the defendant’s willful
negligence
caused the defendant to fail to file an answer, the defendant’s conduct is
culpable and warrants default judgment)).
The Court’s conclusion based on this record is that the defendants
breached their obligations under the franchise agreement and the guaran
ty;
that they, not Super 8, were culpable for the breach; and that Super 8 was
prejudiced as a result. Accordingly, I find that the entry of a default judgm
ent
is appropriate.
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D. Remedies
Super 8 seeks $551,938.77. (See Fenimore Aff. 27; Ex. F) That figure
consists of (1) $240,277.73 in Recurring Fees, including principal and interest
(id.
18), and (2) $305,431.89 in liquidated damages and pre-judgment
interest (id. ¶J 24—25); attorney’s fees of $5,769.00; and costs of $460.15 (id.
18).
¶
¶
Super 8 submitted documentary evidence in support of its demands (see
Fenimore Aff. Exs. D—E; Couch Cert. Ex. B (ECF No. 11-2)), while the
defendants have submitted nothing and have failed to appear or respond in any
manner. An ex parte hearing would thus serve little additional purpose, so I
rule based on the record before me.
I will grant Super 8’s request for the principal amount of Recurring Fees
due and interest on those fees. (See Fenimore Aff.
¶ 18) Super 8 documented
Recurring Fees and the interest thereon owed through August 5, 2015, in the
amount of $240,277.73. (Fenimore Aff. Ex. E)
I will also grant Super 8’s request for liquidated damages (see Fenimore
Aff. ¶[ 24-25) Super 8 calculated $213,733.89 in liquidated damages based on
the formula set in
§
12.1 of the franchise agreement. (Id.) Super 8 then properly
calculated 18% yearly interest over 870 days from May 4, 2013 (30 days from
the date of termination) to September 21, 2015 (the return date of this motion
to dismiss) to reach $91,698.00 in interest owed on the liquidated damages
payment. (Id. ¶ 25) Thus, the total amount I will award for liquidated damages
is $305,431.89.
I will also grant Super 8’s request for attorney’s fees and costs. (See
Fenimore Aff. ¶ 26) Super 8 has adequately documented its attorney’s fees,
which do not seem unreasonable or disproportionate. (See Couch Cert.
¶J 8—9,
Ex. B; Compl. Ex. A § 17.5 (non-prevailing party is to “pay all costs and
expenses, including reasonable attorney’s fees, incurred by the prevailing party
to enforce this Agreement or collect amounts owed under this Agreement”)
Super 8 has also adequately documented its costs, which I also find to be
10
reasonable. (See Couch Cert.
¶ 10, Ex. B) I will enter a judgment that includes
5,769 in attorney’s fees and $460.15 in costs.
The total judgment awarded is, therefore, $551,938.77. Post-judgmen
t
per diem interest will accrue from this date at the appropriate
rate pursuant to
28 U.S.C.
III.
§ 1961.
CONCLUSION
For the foregoing reasons, the motion is granted as to defendants
NSL
and Dartmouth only. A default judgment will be entered agains
t defendants
NSL arid Dartmouth and in favor of Super 8 in the total amoun
t of
$551,938.77, with post-judgment interest from this date at the approp
riate
rate pursuant to 28 U.S.C. § 1961.
An appropriate order and judgment will issue.
Dated: March 22, 2016
Hon. Kevin McNulty
United States District Ju ge
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