SUPER 8 WORLDWIDE, INC. v. ASHKA, L.L.C. et al
OPINION/ORDER granting 11 Motion for Default Judgment. A separate default judgment will be entered against defendants, jointly and severally, in the total amount of $297,235.77. Post-judgment interest will accrue from this date at the appropriate rate pursuant to 28 U.S.C. § 19. Signed by Judge Kevin McNulty on 10/6/16. (DD, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
SUPER 8 WORLDWIDE, INC.,
formerly known as SUPER 8
MOTELS, INC., a South Dakota
Civ. No. 16-204 (KM) (MAH)
OPINION & ORDER
ASHKA, L.L.C., a Wisconsin Limited
Liability Ompany; KIRAN PATEL, an
individual; and KINNARI PATEL, an
This matter comes before the Court on the unopposed motion of Plaintiff
Super 8 Worldwide, Inc. (“Super 8”) for default judgment against Defendants
Ashka, L.L.C., Kiran Patel, and Kinnari Patel. For the reasons set forth below, I
will grant the motion and enter default judgment against the defendants in the
amount of $297,235.77.
In October 2000, Super 8 entered into a Franchise Agreement with
Ashka for the operation of a 40-room lodging facility in Fort Atkinson,
Wisconsin. (“FA”, ECF no. 11-3 at 9) Section 7 and Schedule C of the Franchise
Agreement, which had a term of twenty years, obligated Ashka to make certain
periodic payments (“Recurring Fees”) of royalties, system assessments, taxes,
and other charges. Section 7.3 imposed interest at the lesser of 1.5% or the
maximum allowed by law, on past due amounts. Section 3.8 required accurate
recordkeeping and monthly reports to Super 8 of, inter alia, gross room revenue
to permit the calculation of the Recurring Fees. Section 11.2 permitted Super 8
to terminate the agreement, on notice, based on failure to pay amounts due;
failure to remedy defaults under the agreement within 30 days of receiving
notice; or receipt of two or more notices of default in a one year period, even if
cured. Section 12.1 provides that, in the event of termination, Ashka would pay
liquidated damages of $2000 per guest room. Kiran Patel and Kinnari Patel
signed a Guaranty of Ahka’s obligations under the Franchise Agreement.
(“Guaranty”, ECF no. 11-3 at 43)
By a series of five letters, Super 8 advised Ashka that it was in breach of
their agreement because it had failed to pay Recurring Fees. The last letter,
dated March 31, 2010, advised Ashka that the overdue balance was
$73,890.68. The default was not cured. By letter dated June 24, 2010, Super 8
terminated the Franchise Agreement and advised Ashka that it was liable for
outstanding Recurring Fees, as well as liquidated damages for premature
Super 8 has submitted an itemized statement calculating the
outstanding total of Recurring Fees, plus interest at the rate of 1.5% per
month, The total is $135,653.17. The liquidated damages consist of $2000
multiplied by the 40 guest rooms, for a total of $80,000. The liquidated
damages represent lost Recurring Fees as a result of the termination. The posttermination interest on the liquidated damages is calculated at $81,582.60.
Super 8 thus seeks a default judgment in the total amount of $297,235.77.
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 judgment to provide additional evidence in support of the
allegations. Doe, 2013 WL 3772532, at *2.
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).
Service may be made by personal service, leaving a copy of the summons
and complaint at the individual’s dwelling or usual place of abode 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 jurisdiction where
the district court is located or where service is made. See Fed. R. Civ. P. 4(e),
Fed. R. Civ. P. 4(h)(1), N.J. Ct. R. 4:4-4(a)(6).
If, despite diligent efforts, personal service cannot be made in accordance
with N.J. CL R. 4:4-4(a)(1), in personam jurisdiction may nevertheless be
obtained over any defendant by substituted or constructive service, in
accordance with N.J. Ct. 1?. 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
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).
Super 8 has submitted a Certification of Service, with relevant exhibi
attached. (ECF no. 1 1-2) Ashka, L.L.C. and Kinnari Patel were duly served
January 26, 2016. Despite diligent efforts, Kiran Patel could not
be located; on
April 20, 2016, Super 8 served Kiran Patel by certified and regular
Defendants had twenty-one days to file an answer or otherwise respon
to the complaint pursuant to Fed. R. Civ. P. 12(a). No response was
forthcoming. On May 11, 2016, the clerk entered default. Accordingly,
satisfied that the prerequisites to filing a default judgment are met.
Kist, 756 F.2d at 18—19.
Three Factor Analysis
After the prerequisites have been satisfied, a court must evaluate
following three factors: “(1) whether the party subject to default
meritorious defense, (2) the prejudice suffered by the party seekin
g default, and
(3) the culpability of the party subject to default.” Doug Brady, Inc. v.
Laborers Statewide Funds, 250 F.R.D. 171, 177 (D.N.J. 2008) (citing
Ins. Co. v. Sambrick, 834 F.2d 71, 74 (3d Cir. 1987)). Those factors
in light of the record of this case, weigh in favor of entry of a default
a. Factor 1
My independent review of the record does not suggest that the claims
asserted by Super 8 that any defendant has a meritorious defens
e. See Doe,
*5• Accepting the allegat
2013 WL 3772532, at
ions in the Complaint as true,
Comdyne 1, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990),
I find that Super
8 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
action, which, in essence, amount to a claim for breach of contrac
Ashka, and dependent claims of breach of the Guaranty against Kiran Patel
and Kinnari Patel.
Under New Jersey law, a prima facie case for 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); Frederico v. Home Depot, 507 F.3d
188, 203 (3d Cir. 2007). The facts alleged in the Complaint, summarized very
briefly above, establish that those elements are satisfied here. The declaration
submitted in support of Super 8’s motion and the exhibits annexed thereto
corroborate those factual allegations. Both the Franchise Agreement and
Guaranty are on their face valid and enforceable contracts. Those contracts
were breached by Ashka’s failure to pay Recurring Fees and damages, and the
the failure of the Patels as Guarantors to personally pay the same. Super 8 has
accrued damages as a result of these breaches. In sum, the facts alleged by
Super 8 state a claim for breach of the Franchise 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
properly served but have failed to appear and defend themselves in any
manner. It is clear that Super 8 has been prejudiced by this dereliction
because it has been “prevented from prosecuting [its] case, engaging in
discovery, and seeking relief in the normal fashion.” See Teamsters Pension
Fund of Philadelphia & Vicinity v. Am. Helper, Inc., 2011 WL 4729023, at *4
(D.N.J. Oct. 5, 2011) (finding that a defendant’s failure to answer prejudices
the plaintiff); see also Gowan v. Cont’l Airlines, Inc., 2012 WL 2838924, at *2
(D.N.J. Jul. 9, 2012) (“[Plaintiffs] will suffer prejudice if the Court does not
enter default judgment as Plaintiff[s] [have] no other means of seeking damages
for the harm caused by Defendant.”). Absent any evidence to the contrary, “the
Defendant’s failure to answer evinces the Defendant’s culpability in [the]
default.” Teamsters Pension Fund of Philadelphia & Vicinity, 2011 WL 4729023
at *4• In this case, “there is nothing before the Court to show that the
Defendant[s’j failure to file an answer was not willfully negligent.” Id. (citing
Prudential Ins. Co. of America v. Taylor, 2009 WL 536043, at *1 (D.N.J. Feb.
2009) (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
negligence, the defendant’s conduct is culpable and default judgment is
Overall, then, the three factors support the entry of default judgment,
and I will grant the motion for default judgment against the defendants.
Super 8 seeks outstanding Recurring Fees, liquidated damages, and
interest. Super 8 has submitted documentary evidence in support of its
demands, while defendants have submitted nothing and have failed to appear
or respond in any manner. An ex parte hearing would 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 Cert. 23) Super 8 has
documented the recurring fees, and interest calculated at 1.5% monthly,
amount of $135,653.17.
I will also grant Super 8’s request for liquidated damages the amount of
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
difficulties of proof. A term fixing unreasonably large liquidated
damages is unenforceable on grounds of public policy as a penalty.
Restatement (Second) of Contracts
356(1) (1981) (quoted in Wasserman, 645
A.2d at 108.) The Court may examine the reasonableness of a liquida
damages clause “either at the time of contract formation or at the time
breach.” JYaporano Assocs., L.P. v. B & P Builders, 706 A.2d 1123, 1128
Super. Ct. App. Div. 1998) (quoting Wasserman’s Inc., 645 A.2d at 107).
Whether an unambiguous liquidated damages clause is valid and enforc
is a question of law for the court. Naporano, 706 A.2d at 1127
Wasserman’s, 645 A.2d at 110). See also Travelodge Hotels
, Inc. v. Elkins Motel
Associates, Inc., No. CIV. 03-799 (WHW), 2005 WL 2656676,
at *10 (D.N.J. Oct.
Liquidated damages, provided for under the terms of the Fran
Agreement, are meant to replace the income that Super
8 would have received
if not for the premature termination of the License Agreement.
I accept that
such damages cannot be known with precision, and mus
t be estimated. The
parties agreed to a figure of $2,000 per guest room at the
time of termination.
(FA § 18.2) Forty rooms yields a liquidated damages figure
of $80,000. Super 8
entered into the agreement for a twenty year term, but was
forced to terminate
it after less than ten years. The figure of $80,000 does not
strike me as
excessive or disproportionate. Finally, Super 8 seeks post
on the liquidated damages in the amount of $81,
582.60. That reflects the rate
provided for in the contract.
For the foregoing reasons,
IT IS this 6th day of October, 2016
ORDERED that the motion for default judgment (ECF no.
GRANTED. A separate default judgment will be entered again
jointly and severally, in the total amount of $297,235
interest will accrue from this date at the appropriate rate
pursuant to 28
U.S.C. § 1961.
KEVIN MCNULTY, U.S.D.
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