KNIGHTS FRANCHISE SYSTEMS, INC. v. PATEL et al

Filing 21

OPINION. Signed by Judge John Michael Vazquez on 11/08/2017. (ek)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

KNIGHTS FRANCHISE SYSTEMS, INC., a
Delaware Corporation,

Plaintiff

Civil Action No. 16-1707
OPINION

v.
ASHW1NKUMAR PATEL, an individual; and
KALAVATIBEN PATEL, an individual,

Defendants.

John Michael Vazguez, U.S.D.J.
I.

INTRODUCTION
This matter comes before the Court on Plaintiff Knight’s Franchise Systems, Inc.’s (“KFS”

or “Plaintiff’) unopposed motion for default judgment against Defendants Ashwinkumar Pate!
(“A. Patel”) and Kalavatiben Patel (“K. Patel”) (collectively “Defendants”) under Federal Rule of
Civil Procedure 55(b). The Court reviewed all submissions made in support of the motion, and
considered the motion without oral argument pursuant to Federal Rule of Civil Procedure 78 and
Local Civil Rule 78.1(b). For the reasons that follow, Plaintiffs motion is GRANTED.

II.

FACTS’ AND PROCEDURAL HISTORY

On or about June 10, 1998, KFS entered into a Franchise Agreement (the “Agreement”)
with Defendants for the operation of a 55-room Knights Inn® guest lodging facility (the “facility”)
located at 6090 N. Blackstone Avenue, fresno, CA 93710. D.E. 1, Complaint (“Compi.”) at ¶ 7.
A. Patel and K. Patel agreed to operate a Knights® guest lodging facility for a fifteen-year term
and to make certain payments to KFS “for royalties, service assessments, taxes, interest,
reservation system user fees, and other fees,” which the Agreement collectively referred to as
“Recurring Fees.” Id. at

¶ 9. According to the Agreement, Defendants owed interest to KFS on

any past due amount at a rate of 1.5% per month or the maximum amount permitted by the
applicable law, whichever was less, accruing from the due date until actual payment. Id. at ¶ 10.
Defendants were required to prepare and submit monthly reports to KFS disclosing, among
other things, the amount of gross room revenue earned by Defendants at the Facility in the
preceding month for purposes of establishing the amount of royalties and other Recurring Fees.
Id. at

¶ 11. Furthermore, according to the Agreement, Defendants were required to maintain

accurate financial information, including books, records, and accounts relating to the gross room
revenue of the Facility and agreed to allow Kf S to examine, audit, and make copies of the entries
of these books. Id. atJ 12.
The Agreement provided that it could be terminated with notice to A. Patel and K. Patel
for various reasons, including A. Patel and K. Patel’s (1) failure to pay any amount due Kf S under
the Agreement, (2) failure to remedy any other default of their obligations or warranties under the
Agreement within 30 days after receipt of written notice from KFS specifying one or more defaults

‘The facts of this matter derive from the complaint as well as the affidavits and exhibits submitted
in conjunction with Plaintiffs motion for default judgment. See D.E. 20.
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and/or (3) receipt of two or more notices of default under the Agreement in any one-year period,
whether or not the defaults were cured. Id. at

¶ 13. In the event of a termination, Defendants

agreed to pay liquidated damages in accordance with the formula specified in the Agreement. Id.
at ¶14. The Agreement provided that the non-prevailing party would “pay all costs and expenses,
including reasonable attorneys’ fees, incurred by the prevailing party to enforce this Agreement or
collect amounts owed under this Agreement.” Id. at ¶ 15.
On or around September 29, 2006, afier Defendants repeatedly failed to timely meet their
financial obligations to KFS, KFS instituted litigation for outstanding Recurring Fees owed
pursuant to the Agreement. Id. at

¶ 16-17. On or around November 30, 2007, judgment was

entered against Defendants in the amount of $35,966.94. Of this amount, $29,520.00 represented
Recurring Fees. Id. at ¶ 18.
On April 24, 2009, KFS sent Defendants a letter stating they were in breach of the
Agreement and owed Kf S approximately $86,771.12 in outstanding Recurring Fees. Id. at

¶ 19.

The letter stated the Defendants had thirty days to cure this monetary default or face possible
termination of the Agreement. Id. On June 25, 2009, KFS sent a letter to Defendants advising
that Defendants were in breach of the Franchise Agreement because they owed KFS approximately
$90,734.37 in outstanding Recurring Fees. Id. at

¶ 20. The letter reiterated that Defendants had

thirty days to cure this default or the Agreement might be terminated. Id. Then, on September 15,
2009, KFS advised Defendants by letter that they were still in breach of the Agreement because
they owed KFS approximately $96,614.27 in outstanding Recurring Fees. Id. at ¶ 21. Again, the
letter stated Defendants had thirty days to cure this monetary default or the Agreement could be
terminated. Id. Finally, on April 2, 2010, KFS terminated the Franchise agreement by letter,
effective April 2, 2010. Id. at ¶ 22. KFS advised Defendants that they were required to pay KFS

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$55,000.00 as liquidated damages for premature termination and all outstanding Recurring Fees
through the date of termination. Id.
On March 29, 2016, KFS filed a five-count complaint against Defendants seeking payment
of certain Recurring Fees, liquidated damages, interest, attorneys’ fees, and costs of suit owed
pursuant to the terms of the Agreement. After diligent efforts and inquiry, KFS was unable to
locate Defendants to personally serve the summons and complaint. D.E. 20-2, Certification of
Bryan P. Couch in Support of Motion for Final Judgment by Default (hereinafter “Couch Cert.”)
at ¶ 5. On August 22, 2016, KFS served Defendants with the summons and complaint via regular
mail and certified mail, return receipt requested. Id.
otherwise respond. Id.

¶ 7.

¶ 6.

Defendants failed to answer, move, or

On October 6, 2016, default was entered against Defendants, and KFS

served a copy of the default on Defendants via letter that same day. Id. at

¶ 8-9.

On October 2$,

2016, KFS filed its first motion for default judgment. Id.
This Court denied KFS’s motion for default judgment on March 7, 2017, for failure to
effectuate service within 30 days of the issuance of the summons and complaint. D.E. 8. KFS
then filed a motion seeking permission to re-serve Defendants, D.E. 9, which the Court granted.
D.E. 12. A July 5, 2017 Order granted KFS a 30-day extension of time to re-serve Defendants
with the summons and complaint. D.E. 14. On July 17, 2017, KFS re-served Defendants with the
summons and complaint via regular mail and certified mail, return receipt requested. See Couch
Cert. at ¶15. Additionally, on July 24, 2017, Kf S submitted an affidavit of service, detailing
efforts made to personally serve Defendants. D.E. 15. KFS left copies of the summons and
complaint with a purported co-worker of both Defendants. Id. Affiant Cynthia R. Lee writes:
“We believe [Defendants] are aware of this lawsuit and through [their attorneys], agents,
employees or relatives [are] attempting to evade service in this matter.” Id.

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KFS then submitted a request for default, D.E. 16, which the Clerk entered. The Court

then directed Kf S to move for default judgment; KFS filed the instant motion on October 24,
2017. D.E. 20.
III.

LAW AND ANALYSIS
A. Standard of Review

“Once a party has defaulted, the consequence is that ‘the factual allegations of the
complaint, except those relating to the amount of damages, will be taken as true.” Teamsters
Pension fund ofPhila. & Vicinity v. Am. Helper, Inc., No.11-624, 2011 WL 4729023, at *2 (D.N.J.
Oct. 5, 2011) (quoting DIRECTV, Inc. v. Pepe, 431 F.3d 162, 165 & n.6 (3d Cir.2005)). “The

entry of a default judgment is largely a matter ofjudicial discretion, although the Third Circuit has
emphasized that such ‘discretion is not without limits, however, and [has] repeatedly state[d] [its]
preference that cases be disposed of on the merits whenever practicable.”

Chanel, Inc. v.

Gordashevsky, 558 F. $upp. 2d 532, 535 (D.N.J. 2008) (quoting Hritz v. Woma Corp., 732 F.2d
1178, 1181 (3dCir.1984)).

Prior to entering a default judgment, the court is required to: “(1) determine it has
jurisdiction both over the subject matter and parties; (2) determine whether defendants have been
properly served; (3) analyze the Complaint to determine whether it sufficiently pleads a cause of
action; and (4) determine whether the plaintiff has proved damages.” Moroccanoil, Inc. v. JMG
Freight Grp. LLC, No. 14-5608, 2015 WL 6673839, at *1 (D.N.J. Oct. 30, 2015). Additionally,
the Court must consider the following factors: “(1) prejudice to the plaintiff if default is denied,
(2) whether the defendant appears to have a litigable defense, and (3) whether defendant’s delay
is due to culpable conduct.” Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir. 2000); see

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also Nationwide Mitt. Ins. Co. v. Starlight Ballroom Dance Club, Inc., 175 F. App’x 519, 522 (3d
Cir. 2006).
B. Jurisdiction and Service
“Before entering a default judgment as to a party ‘that has not filed responsive pleadings,
the district court has an affirmative duty to look into its jurisdiction both over the subject matter
and the parties.” HICA Edttc. Loan Corp. v. Sttrikov, No. 14-1045, 2015 WL 273656, at *2
(D.N.J. Jan. 22, 2015) (quoting Ramada Worldwide, Inc. v. Benton Harbor Han Ohm, L.L. C., No.
08—3452, 2008 WL 2967067, at *9 (D.N.J. July 31, 2008)).
i. Subject Matter Jurisdiction
To establish diversity jurisdiction, pursuant to 2$ U.S.C.

§

1332(a), “the party asserting

jurisdiction must show that there is complete diversity of citizenship among the parties” as well as
an amount in controversy that exceeds the statutory threshold. Schneller ex rd Schneller v. Crozer
Chester Med. Ctr., 387 Fed. App’x 289, 292 (3d Cir. 2010).

Here, Plaintiff is a Delaware

corporation with a principal place of business in New Jersey. Compi. at

¶

1. The Complaint

indicates that A. Patel and K. Patel are citizens of California. Id. at ¶j 2-3. Damages alleged are
in excess of S75,000. Id. at

¶ 4,

32, 40, 44.

Accordingly, the Court has diversity jurisdiction

because Plaintiff and Defendants are citizens of different states and the amount in controversy
exceeds the statutory threshold.
ii. Personal Jurisdiction
“The United States Supreme Court has held that a contractual consent to personal
jurisdiction should be enforced unless it would be unreasonable or unjust to do so.” Park Inn Int’l,
L.L.C. v. Mody Enters., Inc., 105 F. Supp. 2d 370, 373 (D.N.J. 2000) (citing Burger King Corp. v.
Rudzewicz, 471 U.S. 462, 472 n.14 (1985)); see also Covle v. Mathai, No. 11—5185, 2011 WL

6

5828522, at *4 (D.N.J. Nov. 18, 2011) (“Personal jurisdiction is a right that can be waived by
agreeing in advance to submit to the jurisdiction of a given court pursuant to a contract with a
forum selection clause.”); Danka Funding, L.L.C. v. Page, Scrantom, Sprouse, Tucker & Ford,
P.c., 21 F.Supp.2d 465, 469 (D.N.J. 1998) (opining that personal jurisdiction can be established

solely through a forum selection clause in place of a due process analysis). In this instance,
Defendants consented “to the non-exclusive personal jurisdiction of and venue in
States District Court for the District of New Jersey.” Compi. at

¶

.

.

.

the United

5. The Court sees no reason

why this freely agreed-upon consent to personal jurisdiction in New Jersey should not be enforced.
Therefore, the Court has personal jurisdiction over Defendants.
iii. Sufficiency of Proof of Service

“Before the Court can enter default judgment, it must find that process was properly served
on the Defendant.” Teamsters Pension Fund of Philadelphia, 2011 WL 4729023, at *2 (citing
Gold Kist, Inc. v. Laurinbztrg Oil Co., Inc., 756 f.2d 14, 19 (3d Cir.1985)). Federal Rule of Civil

Procedure 4 governs service of a summons and complaint.
If, despite a diligent effort and inquiry, personal service cannot be made because the
Defendant cannot be located, then in personam jurisdiction may be obtained over a defendant by
“mailing a copy of the summons and complaint by registered or certified mail, return receipt
requested, and simultaneously, by ordinary mail to

.

.

.

the individual’s dwelling house or usual

place of abode.” N.J. Ct. R. R. 4:4-4(b)(C); see also Travelodge Hotels, Inc. v. CPK, Inc., No. 134796, 2014 WL 2611836 at *2 (holding that service by mail must be made by registered or certified
mail, return receipt requested, and simultaneously by ordinary mail).
Here, KF$ forwarded the summons and complaint to Recon Management Group to effect
service upon Defendants. Couch Cert. at

¶ 4.

Recon made diligent efforts and inquiry, but was

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unable to locate Defendants. Id. at

¶ 5. Then, by regular and certified mail with return receipt

requested, KFS served Defendants with the Summons and Complaint on July 17, 2017. Id. at ¶15.
As such, the Court finds both Defendants were properly served.
C. Sufficiency of Causes of Action and Damages

Plaintiff alleges causes of actions for breach of contract seeking damages for the Recurring
fees, liquidated damages, and interest.2 Compl. at

¶ 16-44. “To establish a breach of contract

claim, a plaintiff has the burden to show that the parties entered into a valid contract, that the
defendant failed to perform his obligations under the contract and that the plaintiff sustained
damages as a result.” Murphy v. Implicito, 392 N.J. Super. 245, 265 (App. Div. 2007).
Here, Plaintiff adequately pleaded the elements of breach of contract. Plaintiff pleaded (1)
the existence of a valid contract between Plaintiff and Defendants, (2) that Defendants breached
the Agreement by failing to pay Recurring fees and liquidated damages, and (3) that Plaintiff was
harmed by Defendants’ breach through nonpayment of the Recurring Fees and liquidated damages.
Plaintiff also adequately pled that it was in compliance with the Agreement.

Plaintiff has

adequately submitted proof of damages through an affidavit and exhibits demonstrating that
$145,487.36 is owed in Recurring fees and S55,000.00 in liquidated damages, plus interest.
Fenimore Affidavit at

¶ 19-26; see Moroccanoil, 2015 WL 6673839, at *2 (“Although the facts

pled in the Complaint are accepted as true for the purpose of determining liability, the plaintiff
must prove damages.”). Accordingly, Plaintiff has sufficiently alleged a cause of action for breach

The Complaint also seeks damages for “attorneys’ fees and costs of suit,” however, it does not
appear that Plaintiff seeks those amounts in its motion for default judgment. See Affidavit of
Suzanne Fenimore in Support of Motion for Final Judgment by Default (“Fenimore Affidavit
S.F.”) atj 16-24.

2

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of contract establishing Defendants’ liability and damages owed for purposes of this default
judgment motion.
D. Default Judgment

“Before imposing the extreme sanction of default judgment, district courts must make
explicit factual findings as to (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.” Teamsters Pension Fund of Phila., 2011 WL 4729023, at *4 (quoting Doug Brady,
Inc. v. N.J Bldg. Laborers Statewide funds, 250 F.R.D. 171, 177 (D.N.J. 2008)).

Here, all three factors weigh in favor of entering default judgment. First, considering that
Defendants have not responded in this matter, “Defendant[s] ha[ve] put forth no evidence or facts
containing any information that could provide the basis for a meritorious defense.” HICA Edttc.
Loan Corp., 2015 WL 273656, at *3 Additionally, there is nothing on the face of the Complaint
indicating that a meritorious defense is available. Defendants repeatedly did not timely pay the
Recurring fees, even after KFS sent them three warning letters of possible termination of the
Agreement. Second, Plaintiff has been prejudiced by Defendants’ failure to answer. Without a
default judgment, “Plaintiff has no other means of seeking damages for the harm allegedly caused
byDefendant[s].” Gowan v. Cont’lAirlines, Inc., No. 10-1858, 2012 WL2838924, at *2 (D.N.J.
July 9, 2012).

Lastly, Defendants’ failure to answer, without providing any reasonable

explanation, demonstrates their culpability in the default. See Days Inns Worldwide, Inc. v
MangitrLLC, No. 15-CV-2027, 2016 WL 845141, at *4 (D.N.J. Mar. 4,2016).
For those reasons, the Court finds that default judgment is warranted.

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E. Remedies

Plaintiff seeks a total of $275,311.44. Fenimore Affidavit at

¶ 27.

That amount consists

of $145,487.36 in Recurring Fees, including principal and prejudgment interest, and $129,824.08
in liquidated damages, including principal and prejudgment interest. Id. at

¶J

19, 24-26. The

Recurring Fees are made up of certain charges that were due pursuant to the Agreement, which
have been itemized and submitted (inclusive of interest) in support of Plaintiff’s motion. See Ex.
F to Fenimore Affidavit. Under the Agreement, liquidated damages are calculated by multiplying
the number of guest rooms in the Facility by $1,000.00. F enimore Affidavit at ¶ 24. At the time
that Defendants breached the Agreement, 55 guest rooms were in operation, totaling liquidated
damages at $55,000.00. Id. The Agreement provides that interest is 18% per year bringing the
total amount of interest owed on the liquidated damages to $74,824.08. Id. at ¶26. Defendants
have not appeared in this matter, and as a result, there is no evidence before the Court to contest
the accuracy of the damages sought by Plaintiff. Accordingly, Plaintiff is entitled to $275,311.44
in damages.
IV.

CONCLUSION

For the reasons set forth above, Plaintiff’s motion for a default judgment is granted. An
appropriate Order accompanies this opinion.

Dated: November 8, 2017

I

JohiiMichael Vazqu TSjD.J.

Interest was calculated as of the anticipated return of this motion, November 20, 2017.
Fenimore Affidavit ¶ 27.
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