RAMADA WORLDWIDE INC. v. KEY HOTEL OF BREWTON, LLC et al

Filing 8

OPINION. Signed by Judge Kevin McNulty on 7/22/2016. (nr, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

RAMADA WORLDWIDE INC.,

Civ. No. 15-7528 (KM) (MAR)

Plaintiff,
OPINION
V.

KEY HOTEL OF BREWTON, L.L.C.;
DIPAN PATEL; ANAND PATEL;
SARJU PATEL,
Defendants.
MCNULTY, U.S.D.J.:
This matter comes before the Court on the unopposed motion of Plaintiff
Ramada Worldwide Inc. (“Ramada”) for default judgment against Defendants
Key Hotel of Brewton, LLC, which is an Alabama Limited Liability Company,
and three individuals, Sarju Patel, Dipan Patel, and Anand Patel (“S. Patel”, “D.
Patel”, and “A. Patel”). For the reasons set forth below, I will grant the motion
and enter default judgment against the defendants in the amount of
$299,880.29.
BACKGROUND
Ramada is a Delaware corporation with its principal place of business in

¶ 1) Defendants are citizens of
Alabama. The court’s jurisdiction is invoked under 28 U.S.C. § 1332(a).
New Jersey. (Complaint, Dkt. No. 1 (“Compl.”)

This suit arises from a franchise agreement entered into between
Ramada and Key Hotel on October 27, 2011 (“FA”, ECF no. 7-3), pursuant to
which Key Hotel would operate 90-room hotel under the Ramada name in
Brewton, Alabama for a fifteen year term.
The Franchise Agreement obligated Key Hotel to operate the hotel in
compliance with System Standards, Approved Plans, and a Punch List,

enforced by periodic quality assurance Inspections by Ramada. Section 7,
section 18.1, and Schedule C required Key Hotel to make periodic payments fr
roy&ties, service assessments, tases, interest, reservations system user fees,
and, other fees (“Recurring Fees”). Past due amounts were subject to interest at
1.5% per month. (FA § 7.3) Key Hotel had to report monthly as to gross
revenues so Recurring Fees could be calculated. It undertook to maintain
accurate financial and other records. (FA

§ 3.6)

The Franchise Agreement provided that Ramada could terminate, on
notice, for reasons including failure to pay amounts due; failure to remedy any
other default of obligations or warranties under the Agreement within 30 days
after receiving notice, or receipt of two or more notices of default within a one
year period, regardless of whether the defaults were cured. (FA § 11.2) In the
even of termination, Key Hotel agreed to pay liquidated damages, attorney’s
fees, and costs. (FA

§ 12.1, 18.2, 17.4)

D. Patel, A. Patel, and S. Patel executed a Guaranty of Key Hotel’s
obli,ations under the Franchise Agreement. (ECF no. 7-4 at 2) It, too,
contained an attorney’s fees provision.
On January 16, 2015, Ramada notified Key Hotel that it had failed a
quality assurance inspection, and that it was in breach because it owed
$13’’-,842.17 in Recurring Fees. (ECF no. 7-4 at 4) A similar notice on February
3, 2015, upped the total to $135,080.48. (ECF no. 7-4 at 16) On March 12,
2015, Ramada advised Key Hotel that the Fire Marshal had closed the facility
based on hazardous and unsanitary conditions, that it was in default, and that
failure to cure within 10 days would subject it to termination. (ECF no. 7-4 at
27) On April 9, 2015, Ramada sent notice that outstanding Recurring Fees
totaled $164,486.76. (ECF no. 7-4 at 32) By letter dated April 29, 2015,
Rarrada terminated the Franchise Agreement and demanded, inter alia,
payment of outstanding Recurring Fees, interest, and liquidated damages.
(EC no. 7-5 at 2) An itemized statement shows $199,450.99 in outstanding

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Recurring Fees, liquidated damages of $90,000, and $10,429.30 interest,’ for a
total. of $299,880.29. (ECF no. 7-5 at 25)
LEGL STANDARD AND DISCUSSION
“[Tihe entry of a default judgment is left primarily to the discretion of the
district court.” Hritz v. Worna Corp., 732 F.2d 1178, 1180 (3d Cir. 1984) (citing
Toze.r v. Charles A. Krause Milling Co., 189 F.2d 242, 244 (3d Cir. 1951)).
Bec’use the entry of a default judgment prevents the resolution of claims on
the uierits, “this court does not favor entry of defaults and default judgments.”
Unit’d States v. $55,518.05 in US. Currency, 728 F.2d 192, 194 (3d Cir. 1984).
Thu- before entering default judgment, the Court must determine whether the
“unc.riallenged facts constitute a legitimate cause of action” so that default
judg nent 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
§268, at 58—59, 63).
“[D]efendants are deemed to have admitted the factual allegations of the
Corrilaint by virtue of their default, except those factual allegations related to
the .rnount 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
rega’ding damages as true.” Id. (citing Chanel, Inc. v. Gordashevsky, 558 F.
Supi. 2d 532, 536 (D.N.J. 2008).). Moreover, if a court finds evidentiary
sup.ort to be lacking, it may order or permit a plaintiff seeking default
judgnent to provide additional evidence in support of the allegations. Doe,
20l WL 3772532, at *2.
I.

Prerequisites for Entry of Default Judgment

Before a court may enter default judgment against a defendant, the
plai:’tiff must have properly served the summons and complaint, and the
The figures for liquidated damages and interest appear to be reversed on the
statcment (ECF no. 7-5 at 25). The total is unaffected.
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defedant must have failed to file an answer or otherwise respond to the
corn ilaint 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.
198); Fed. R. Civ. p. 12(a).
Service of an individual may be made by personal service, leaving a copy
of th summons and complaint at the individual’s dwelling or usual place of
aboce with a person of suitable age and discretion, delivering a copy of the
summons and complaint with an agent for service of process, or by following
state law for serving a summons in an action brought in courts of general
jurisliction where the district court is located or where service is made. Fed. R.
Civ. 2. 4(e).
Service of 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 b: following state law for serving a summons in an action brought in courts
of gieral 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 n: ade
by 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).
2
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 nevertheless be obtained over any
defer’dant by substituted or constructive service, in accordance with N.J. Ct. R. 4:44(b)r )(C), by
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Here, the prerequisites for default judgment have been met. The
corn ‘1aint was filed on October 16, 2015. (ECF no. 1) Defendants Key Hotel, D.
Patel, and A. Patel were duly served on November 3, 2015. (ECF no. 5)
Defendant S. Patel was served on November 4, 2015. (FDCF no. 5) They had
twenty-one days to file an answer or otherwise respond to the complaint
pursuant to Fed. R. Civ. P. 12(a). No response was forthcoming. On December
15, 2016, the clerk entered default. (Docket Entry following ECF no. 6)
Acccdingly, I am satisfied that the prerequisites to filing a default judgment
are ret. See Gold Kist, 756 F.2d at 18-49.
II.

Three Factor Analysis

After the prerequisites have been satisfied, a court must evaluate the
folloving three factors: “(1) whether the party subject to default has a
men orious defense, (2) the prejudice suffered by the party seeking default, and
(3) f e 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.
a. Factor 1
My independent review of the record does not suggest that the claims
asse’ted by Ramada that any defendant has a meritorious defense. See Doe,
201C WL 3772532, at *5, Accepting the allegations in the Complaint as true,

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 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).
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Com yne I, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990), I find that
Rarr-da has successfully stated claims for relief.
The complaint (ECF no. 1) alleges the facts as set forth above, and
attaches copies of the Franchise Agreement and Guaranty. It asserts six causes
of ac:ion, which, in essence, amount to a claim for breach of contract against
Key 1otel for failing to remit payment of the Recurring Fees and other
darr iges, and for breach of the Guaranty against S. Patel, D. Patel, and A.
Pate’..
Under New Jersey law, a prima facie case for breach of contract requires
that Lhe plaintiff show: (1) a contract between the parties; (2) a breach of that
ëont:act; and (3) damages resulting from the breach. See Coyle v. Englander’s,
199 ‘U. Super. 212, 223 (App. Div. 1985); Frederico v. Home Depot, 507 F.3d
188, 203 (3d Cir. 2007). The facts alleged in the Complaint establish that those
elerrnts are satisfied here. The declaration submitted in support of Ramada’s
mot

)fl

and the exhibits annexed thereto corroborate those factual allegations.

Boti’. the Franchise Agreement and Guaranty are on their face valid and
enfo”ceable contracts. Those contracts were breached by Key Hotel’s failure to
pay ertain of the Recurring Fees and damages, and the Guarantors’ failure to
nally
t
pers pay the same. Ramada has accrued damages as a result of these
breDhes. In sum, the facts alleged by Ramada state a claim for breach of the
Frai: chise Agreement and Guaranty. No meritorious defense to these claims is
apparent from the record before me.
b. Factors 2 and 3
The second and third factors weigh in favor of default. Defendants were
prop Drly served but have failed to appear and defend themselves in any
mar ier. It is clear that Ramada has been prejudiced by this dereliction
bec use it has been “prevented from prosecuting [its] case, engaging in
disc’wery, and seeking relief in the normal fashion.” See Teamsters Pension
Fund of Philadelphia & Vicinity v. Am. Helper, Inc., 2011 WL 4729023, at *4
(D.I\ J. Oct. 5, 2011) (finding that a defendant’s failure to answer prejudices
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the

laintiff); see also Gowan u. Cont’l Airlines, Inc., 2012 WL 2838924, at *2
(D.NJ. Jul. 9, 2012) (“[Plaintiffs] will suffer prejudice if the Court does not
i

enter default judgment as Plaintiff[s] [have] no other means of seeking damages
fdr the harm caused by Defendant.”). Absent any evidence to the contrary, “the
Defeidant’s failure to answer evinces the Defendant’s culpability in [the]
defai1t.” Teamsters Pension Fund of Philadelphia & Vicinity, 2011 WL 4729023
at *4 In this case, “there is nothing before the Court to show that the
Defeidant[s’] failure to file an answer was not willfully negligent.” Id. (citing
Pmc&ntial Ins. Co. of America v. Taylor, 2009 WL 536043, at *1 (D.N.J. Feb. 27,
200 (finding that when there is no evidence that the defendant’s failure to
answer the complaint was due to something other than its own willful
neglgence, the defendant’s conduct is culpable and default judgment is
warr inted).
Overall, then, the three factors support the entry of default judgment,
and

will grant the motion for default judgment against the defendants.
III.

Remedies

Ramada seeks $199,450.99 in outstanding Recurring Fees, liquidated
darn iges of $90,000, and $10,429.30 interest, for a total of $299,880.29. (ECF
no.

—5 at 25) Ramada has submitted documentary evidence in support of its
deminds, while defendants have submitted nothing and have failed to appear
‘

or rcspond in any manner. An exparte hearing would serve little additional
purpose, so I rule based on the record before me.
I will grant Ramada’s request for the principal amount of recurring fees
due md interest on those fees. (See Fenimore Cert. ¶ 23) Ramada has
docL mented recurring fees, and interest calculated at 1 5% monthly. (Fenimore
Ex. T, ECF no. 7-5 at 15)
I will also grant Ramada’s request for liquidated damages the amount of
$90’OO.
Damages for breach of either party may be liquidated in the
agreement but only at an amount that is reasonable in the light of
the anticipated or actual loss caused by the breach and the
/

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difficulties of proof. A term fixing unreasonably large liquidated
damages is unenforceable on grounds of public policy as a penalty.
Reshtement (Second) of Contracts

§ 356(1) (1981) (quoted in Wasserman, 645

A.2d at 108.) The Court may examine the reasonableness of a liquidated
damages clause “either at the time of contract formation or at the time of the
breaDh.” lVaporanoAssocs., L.P. v. B & PBuilders, 706 A.2d 1123, 1128 (N.J.
Supr. Ct. App. Div. 1998) (quoting Wasserman’s Inc., 645 A.2d at 107).
:her
1
Whe an unambiguous liquidated damages clause is valid and enforceable
is a question of law for the court. Naporano, 706 A.2d at 1127 (citing
Wasserman’s, 645 A.2d at 110). See also Travelodge Hotels, Inc. v. Elkins Motel
Asscciates, Inc., No. CIV. 03-799 (WHW), 2005 WL 2656676, at *10 (D.N.J. Oct.
18, 2005).
Liquidated damages, provided for under the terms of the Franchise
Agreement, are meant to replace the income that Ramada would have received
if no: for the premature termination of the License Agreement. (Fenimore Aff.,
ECF no. 7-2, ¶ 26) I accept that such damages cannot be known with
precision, and must be estimated. The parties agreed to a figure of $1,000 per
guest room at the time of termination. (FA § 18.2) Ninety rooms yields a
liqui1ated damages figure of $90,000. Ramada entered into the agreement for a
fifteen year term, but was forced to terminate it after less than four years. The
figure of $90,000 does not strike me as excessive.
CONCLUSION
For the foregoing reasons, the motion is granted. A default judgment will
be entered against defendants, jointly and severally, in the amount of
$299,880.29. Post-judgment interest will accrue from this date at the
appropriate rate pursuant to 28 U.S.C. § 1961.
An appropriate order and judgment will issue.

KEVIN MCNULTY, U.S.P(J.

Date: July22, 2016

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