DAYS INNS WORLDWIDE, INC. v. CYPRESS REAL ESTATE HOLDINGS, INC. et al

Filing 11

OPINION. Signed by Judge Kevin McNulty on 7/27/15. (DD, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

DAYS INNS WORLDWIDE, INC.,

Civ. No. 2:14-6544
(KM)(MAH)

Plaintiff,
V.

OPINION

CYPRESS REAL ESTATE
INC. and Greg Wright,

HOLDINGS,

Defendants.

KEVIN MCNULTY, U.S.D.J.:
This matter comes before the Court on the unopposed motion of
Plaintiff Days Inns Worldwide, Inc. (“DIW”) for default judgment against
Defendants Cypress Real Estate Holdings, Inc. (“Cypress”) and Greg
Wright, pursuant to Fed. R. Civ. P. 55(b)(2). (ECF No. 10) This action
arises from an alleged breach of a licensing agreement. For the reasons
set forth below, I will enter a default judgment in the amount of
$162,926.31. Post-judgment interest will accrue from this date at the
appropriate rate pursuant to 28 U.S.C. §1961.
I.

BACKGROUND
a. The License Agreement and Guaranty
DIW is a Delaware corporation with its principal place of business

in Parsippany, New Jersey. (Am. Compi. ¶1, ECF No. 6) Cypress is a
Florida corporation with its principal place of business in Orlando,
Florida. (Id. ¶2) Greg Wright, a Florida citizen, is a principal of Cypress.
(Id. ¶3)
On or about September 13, 2000, DIW entered into a License

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Agreement with Cypress. (Id. ¶8 (citing Ex. A (“Agreement”))) The License
Agreement authorized Cypress to operate a 118-room Days Inn guest
lodging facility located at 6320 Windmere Road, Brooksville, Florida
34602, designated Site No. 13356-90 1 16-0 1 (the “Facility”). (Id.)
Cypress was obligated to operate the Facility for a fifteen-year
term. (Id. ¶9 (citing Agreement §5))
Cypress was required to make certain periodic payments to DIW
for “royalties, taxes, interest, reservation system user fees, and other
fees” (“recurring fees”). (Id.

¶ 10

(citing Agreement §7, Schedule C))

Cypress was required to pay interest “on any past due amount.
at the rate of 1.5% per month or the maximum rate permitted by
applicable law, whichever is less, accruing from the due date until the
amount is paid.” (Id. ¶11 (citing Agreement §7.3))
The License Agreement also required Cypress to submit monthly
reports to DIW disclosing, inter alia, “the amount of gross room revenue
earned by Cypress at the Facility for purposes of establishing the amount
of royalties and other Recurring Fees due to DIW.” (Id. ¶12 (citing
Agreement §3.8)) Cypress also agreed to maintain “accurate financial
information, including books, records, and accounts,” and to allow DIW
to “examine, audit, and make copies” of these records. (Id.

¶ 13

(citing

Agreement §3.8, 4.8))
DIW had the right to terminate the License Agreement, with notice
to Cypress, if Cypress lost possession or the right to possession of the
Facility. (Id. ¶14 (citing §11.2)) In the event of termination, Cypress was
required to “pay all amounts owed to [DIW] under [the License]
Agreement within 30 days.” (Agreement §13.2)
In the event of litigation, the losing party was required to pay “all
costs and expenses, including reasonable attorneys’ fees, incurred by the
prevailing party.” (Am. Compi. ¶15 (citing Agreement §17.4))

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Wright provided DIW with a Guaranty of Cypress’s obligations
under the License Agreement, effective as of the date of the License
Agreement. (Id. ¶17 (citing Ex. D)) The Guaranty required Wright, upon a
default under the License Agreement, to “immediately make each
payment and perform or cause [Cypress] to perform, each unpaid or
unperformed obligation of [Cypress] under the [License] Agreement.” (Id.
¶18 (quoting Ex. D)) Because the License Agreement required the losing
party at litigation to pay the other party’s costs, the Guaranty made
Wright personally responsible for those costs as well. (Id.
b.

¶ 19)

The defaults and termination

On or about October 18, 2011, Cypress lost possession of the
Facility to a third party. (Id. ¶20) At that time, Cypress owed outstanding
recurring fees to DIW. (Id. ¶21) Neither Cypress nor Wright has paid the
outstanding recurring fees to DIW. (Id. ¶22)
DIW now seeks a judgment against Cypress and Wright, jointly
and severally, awarding remedies provided for in the License Agreement.
Specifically, DIW seeks a total of $162,926.31, comprising (1)
$157,150.32 in unpaid recurring fees plus prejudgment interest on those
fees; and (2) $5,775.99 in attorneys’ fees and costs. (See Proposed Order,
ECFNo. 10-1)
This Court has subject matter jurisdiction over this action
pursuant to 28 U.S.C. §1332, as the parties are diverse and the amount
in controversy exceeds $75,000. Cypress and Wright have consented “to
the non-excusive personal jurisdiction of and venue in the New Jersey
state courts situated in Morris County, New Jersey and the United States
District Court for the District of New Jersey.” (Am. Compl. ¶5, Agreement
§17.6.3, Ex. D)
II.

STANDARD FOR ENTRY OF DEFAULT JUDGMENT
“[T]he entry of a default judgment is left primarily to the discretion

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of the district court.” Hritz v. Woma Corp., 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 U.S.
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, 03-cv-1969, 2006 WL 680533, at
*1 (D.N.J. Mar. 14, 2006) (citing Wright, Miller, Kane, iDA Federal
Practice and Procedure: Civil 3d §2688, at 58—59, 63).
“[Djefendants 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, CIV.A. 125825, 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. Gordasheusky, 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 judgment to
provide additional evidence in support of the allegations. Doe, 2013 WL
3772532, at *2.
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).
After the prerequisites have been satisfied, a court must evaluate
the following three factors: “(1) whether the party subject to default has a
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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)).
III.

DISCUSSION
a. Adequate Service & Defendants’ Failure to Respond

The prerequisites for default judgment have been met: Cypress and
Wright have been properly served, and each has failed to file an answer
or otherwise respond to the Complaint within twenty-one days pursuant
to Fed. R. Civ. p. 12(a). The clerk entered default on March 26, 2015.
Service of Cypress, a corporate entity, 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:
on any
by serving a copy of the summons and complaint.
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).
Service of the individual defendant, Wright, may be made under
the Federal Rules by

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doing any of the following:
(A) delivering a copy of the summons and of the complaint to
the individual personally;
(B) leaving a copy of each at the individual’s dwelling or
usual place of abode with someone of suitable age and
discretion who resides there; or
(C) delivering a copy of each to an agent authorized by
appointment or by law to receive service of process.
Fed. R. Civ. P. 4(e)(2).
In this case, DIW successfully served Cypress and Wright on
January 5, 2015. (See ECF No. 7) The time to respond to the Complaint
has long since expired. On March 26, 2015, the clerk entered default as
to both defendants. Accordingly, I am satisfied that the prerequisites to
filing a default judgment are met. See Gold Kist, Inc., 756 F.2d at 18—19.
b. Gold Kist factors
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)).
i. Meritorious defense (Gold Kist factor 1)
As to the first factor, my review of the record reveals no suggestion
that DIW’s claims are legally flawed or that there is a meritorious defense
to them. See Doe, 2013 WL 3772532, at *5• Accepting the factual
allegations as true, I find that DIW has stated a claim for breach of the
License Agreement and the Guaranty.
Under New Jersey law, “[t]o state a claim for breach of contract, [a
plaintiff must allege (1) a contract between the parties; (2) a breach of
that contract; (3) damages flowing therefrom; and (4) that the party

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stating the claim performed its own contractual obligations.” Frederico v.
Home Depot, 507 F.3d 188, 203 (3d Cir. 2007).’
I am satisfied that DIW has set forth a sufficient claim for breach of
contract, and I cannot, from the limited materials before me, see any
meritorious defense. DIW has shown the existence of two valid contracts:
the License Agreement and the Guaranty. DIW has alleged facts
demonstrating that Cypress and Wright are bound by the License
Agreement and Guaranty; that they are obligated to pay recurring fees;
that the License Agreement was terminated when Cypress lost
possession of the Facility; that Cypress and Wright failed to pay
outstanding recurring fees prior to and following the termination of the
License Agreement; and that DIW has incurred damages as a result of
this failure to pay recurring fees. There are no facts indicating that DIW
breached any of its obligations under either the License Agreement or
Guaranty.
Therefore, I cannot discern any meritorious defenses to DIW’s
allegations.
ii. Prejudice suffered by party seeking default &
culpability of the parties subject to default (Gold Kist
factors 2, 3)
The second and third factors also weigh in favor of default. Cypress
and Wright were properly served on January 5, 2015, but have failed to
appear and defend themselves in any manner. See Teamsters Pension
Fund of Philadelphia & Vicinity v. Am. Helper, Inc., CIV. 11-624 JBS/JS,
2011 WL 4729023, at *4 (D.N.J. Oct. 5, 2011) (finding that “Plaintiffs
have been prejudiced by the Defendants’ failure to answer because they
have been prevented from prosecuting their case, engaging in discovery,

Pursuant to Section 17.6 of the License Agreement (and the Guaranty
that incorporates Section 17 of the License Agreement), New Jersey law applies
in this diversity action. (Am. Compi. Ex. A, D)

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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 [thel default. Id. And “[tjhere 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.
08—2 108, 2009 WL 536403, at *1 (D.N.J. Feb. 27, 2009) (finding that
when there is nothing before the court to suggest anything other than
that the defendant’s willful negligence caused the defendant to fall to file
an answer, the defendant’s conduct is culpable and warrants default
judgment)).
The only possible conclusion based on the record is that Cypress

and Wright breached their obligations under the License Agreement and
the Guaranty; that they, not DIW, were culpable for the breach; and that
DIW was prejudiced as a result. Accordingly, I find that the entry of a
default judgment is appropriate.
c. Remedies
DIW seeks two specific types of compensation, totaling
$162,926.31. Specifically, DIW seeks: (1) $157,150.32 for unpaid
recurring fees plus prejudgment interest at the contractual rate; and (2)
$5,775.99 for attorneys’ fees and costs. (Proposed Order, ECF No. 10-1)
DIW has submitted documentary evidence in support of its
demands, while Cypress and Wright have, obviously, submitted nothing.
An exparte hearing would serve little additional purpose, so I rule based
on the record before me.
I will grant DIW’s request for recurring fees, as set forth in Section
7 and Schedule C of the License Agreement. (Fenimore Aff. ¶182) DIW

Fenimore Aff. = Affidavit of Suzanne Fenimore, dated June 8, 2015,
submitted, submitted in support of DIW’s motion for default judgment, ECF No.
10-3.

2

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has documented recurring fees in the amount of $157,150.32, which
includes interest at a rate of 1.5% per month calculated through May 29,
2015. (Id. (citing Ex. E (itemized statement of recurring fees)))
As to attorneys’ fees and costs, I adopt DIW’s analysis. DIW has
adequately documented its attorneys’ fees, which do not seem
unreasonable or disproportionate. (See Agreement

§ 17.4

(giving

prevailing party the right to recover reasonable attorneys’ fees); Fenimore
Aff.

¶ 19;

Couch Cert.
4

¶J 12—14,

Ex. D). I will enter a judgment that

includes $4,000 in attorneys’ fees and $1,775.99 in costs, for a total of
$5,775.99.
CONCLUSION

W.

For the foregoing reasons, a default judgment will be entered in
favor of Plaintiff Days Inns Worldwide, Inc., in a total amount of
$162,926.31, to be paid to Plaintiff, along with post-judgment interest
from this date at the appropriate rate pursuant to 28 U.S.C. §1961.
An appropriate order will be entered in accordance with this
Opinion.
Dated: July 27, 2015

Kevin McNulty
United States District Jud

Ordinarily, a plaintiff would have sought liquidated damages to
compensate for any forecasted recurring fees lost as a result of the premature
termination of a license agreement. (Agreement §12). In this case, DIW has not
sought liquidated damages, but has instead documented some of the actual
recurring fees it lost following the termination of the agreement. I therefore
award DIW damages for recurring fees after the termination date of the License
Agreement.

Couch Cert. = Certification of Bryan P. Couch, dated June 8, 2015,
submitted in support of DIW’s motion for default judgment, ECF No. 10-2.
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