RAMADA WORLDWIDE INC. v. KHAN HOTELS LLC et al

Filing 10

AMENDED OPINION. Signed by Judge Kevin McNulty on 1/17/17. (nic, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

Civ. No. 16-2477 (KM)(JBC)

RAMADA WORLDWIDE INC.,
Plaintiff,

AMENDED OPINION
V.

KHAN HOTELS LLC, RASHAD
KHAN, and IRAM KHAN
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
Khan Hotels LLC (“Khan Hotels”), Rashad Khan (“Rashad”) and Tram Khan
(“Tram”). For the reasons set forth below, I will enter default judgment against
all three defendants. Ramada is awarded $54,108.24 in liquidated damages
and interest. Post-judgment interest will accrue from this date at the
appropriate rate pursuant to 28 U.S.C.

§

1961.

BACKGROUND
Ramada is a Delaware corporation with its principal place of business in
New Jersey. (Complaint, ECF no. 1 (“Compi.”)

¶

1) Khan Hotels is a limited

liability company organized under the laws of and maintaining its principal
place of business in Colorado. (Id.

¶

2) Rashad and Tram are principals of and

the only constituent members of Khan Hotels and are citizens of New York. (Id.

¶J

3—5)
This suit arises from a franchise agreement entered into between

Ramada and Khan Hotels on December 30, 2011 (“Franchise Agreement”)
pursuant to which Khan Hotels was to operate a 69-room hotel under the

Ramada name in Colorado Springs, Colorado for a period of fifteen years.
(Compi. ¶j 10-11) Rashad signed the Franchise Agreement on behalf of Khan
Hotels. (Compi., Ex. A (Franchise Agreement) p. 26)’ On the same day, Rashad
and Iram also executed a guaranty of Khan Hotels’ obligations under the
Franchise Agreement (“Guaranty”). (Compi.

¶J

19, Guaranty) The Guaranty

committed Rashad and Tram to make any unpaid payments on behalf of Khan
Hotels in the event that Khan Hotels defaulted under the Franchise Agreement,
due immediately upon default. (Compl.

¶

20, 47) The Guaranty also committed

Rashad and Tram to pay costs, including reasonable attorney’s fees, that
Ramada might incur in enforcing the Guaranty or Franchise Agreement.
(Compl.

¶

21)

Under the terms of the Franchise Agreement, Khan Hotels was obligated
to make periodic payments to Ramada for royalties, taxes, and a variety of fees,
which are collectively defined by the Franchise Agreement as “Recurring Fees.”
(Compi.

¶

12; see Franchise Agreement

§

7, Appendix A p. 31, Schedule C) In

order to calculate the royalties owed, Khan Hotels undertook to prepare and
submit to Ramada monthly gross room revenue reports. (Compi.
Franchise Agreement

§

¶

14;

3.6) Khan Hotels was also obligated to maintain

accurate books and records and to allow Ramada to audit those documents.
(Compl.

¶

15) The Franchise Agreement also provided for “Liquidated Damages”

calculated under a specific formula, which Khan Hotels was to owe in the event
of termination of the Franchise Agreement pursuant to section 11.2. (Compl.
17; Franchise Agreement

§

¶

12.1)

Hereinafter, citations to the “Franchise Agreement” refer to the document
appended to the Complaint as Exhibit A (ECF no. 1) and also the Affidavit of Suzanne
Fenimore in Support of Motion for Final Judgment by Default (ECF no. 7-3)
(hereinafter “Fenimore Aff.”) as Exhibit A (ECF no. 7-3).
1

Citations to the “Guaranty” refer to the document appended to the Complaint
as Exhibit B (ECF no. 1) and to the Fenimore Aff. as Exhibit B (ECF no. 7-3).
Citations to the “Notice of Termination” refer to the document appended to the
Complaint as Exhibit C (ECF no. 1) and to the Fenimore Aff. as Exhibit C (ECF no. 73).
2

Section 11.2 of the Franchise Agreement provided that Ramada could
terminate the agreement, inter alia, if Khan Hotels discontinued operating the
property as a Ramada-branded hotel. (Id.

¶

16; Franchise Agreement

§

11.2)

On August 4, 2015, Khan Hotels “unilaterally terminated” the Franchise
Agreement by ceasing to operate the subject hotel as a Ramada facility. (Compi.

¶

22)2 Ramada then acknowledged Khan Hotels’ termination of the Franchise

Agreement, effective August 4, 2015, by letter dated September 4, 2015.
(Compl.

¶

23) The letter also advised Khan Hotels it was required to pay to

Ramada Liquidated Damages in the sum of $45,269.52 and outstanding
Recurring Fees and other charges under the Franchise Agreement. (Id.)
On May 3, 2016, Ramada filed its complaint in this action. The
complaint asserts causes of action sounding in breach of contract and unjust
enrichment for the defendants’ failure to remit payment on the Recurring Fees
and Liquidated Damages. Additionally, the complaint seeks an accounting from
Khan Hotels for all revenue derived at its Ramada-branded hotel from inception
through the termination of the Franchise Agreement. (Compi. Count 1)
Although served (see ECF no. 5 (Affidavit of Service)), the defendants
have not answered the complaint. On August 10, 2016, the clerk entered
default against Khan Hotels, Rashad, and Tram. (Certification of Byan P. Couch
in Support of Motion for Final Judgment by Default, dated August 30, 2016,
ECF no. 7-2 (“Couch Cert.”)

¶

8) On August 31, 2016, Ramada filed this motion

for a default judgment against Khan Hotels, Rashad, and Train. (ECF no. 7)
Ramada seeks (a) $70,969.89 in unpaid Recurring Fees and interest, and (b)
$54,108.24 for Liquidated Damages and interest, for a requested award of
$125,078.13. (Fenimore Aff. ¶j 17—26) In the alternative to Liquidated
on a motion for default judgment, “defendants 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 u. Simone, No. 12—5825, 2013 WL
3772532, at *2 (D.N.J. July 17, 2013). I therefore recite the facts Ramada alleges. I
note, however, that pursuant to the terms of the Franchise Agreement, it would have
been Ramada’s choice to terminate the Franchise Agreement when Khan Hotels
stopped using the Ramada name. No discernible provision of the contract indicates
that Khan’s action constituted automatic “unilateral termination”.
3
2

Damages, Ramada requests actual damages “in an amount to be determined at
trial, together with interest, attorney’s fees, and costs of suit.” (Compi.

¶J 36,

49).
This Court has jurisdiction over this action pursuant to 28 U.S.C.

§ 1332, as there is complete diversity of citizenship between the parties and the
amount in controversy exceeds $75,000.
LEGAL STANDARD AND DISCUSSION
“[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 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, 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. 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.
I.

Prerequisites for Entry of Default Judgment

Before a court may enter default judgment against a defendant, the
4

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 of individuals, such as Rashad and Iram, 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. Fed. R. Civ. P. 4(e).
Service of a corporate entity, such as Khan Hotels, 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 officer,
by serving a copy of the summons and complaint.
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).
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 defendant by substituted or constructive service, in
5

accordance with N.J. Ct. R. 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).
Here, the prerequisites for default judgment have been met. The
complaint was filed on May 3, 2016. (ECF no. 1) Despite diligent efforts and
inquiry, Ramada was unable to personally serve Khan Hotels, Rashad, Tram, or
any person authorized to receive service on behalf of Khan Hotels. (ECF no. 5;
Couch Cert.

¶J 4—6)

Ramada did, however, successfully serve the Summons

and Complaint on July 11, 2016 via regular and certified mail as permitted by
N.J. Ct. R. 4:4-4(b)(3). (Couch Cert.

¶

6) The defendants had twenty-one days

(until August 5, 2016) to file an answer or otherwise respond to the omplaint
pursuant to Fed. R. Civ. P. 12(a). The clerk entered default against the
defendants on August 10, 2016. (Couch Cert. 1 8; see ECF no. 6) Accordingly, I
am satisfied that the prerequisites to filing a default judgment are met. See
Gold Kist, 756 F.2d at 18—19.
II.

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.

6

a. Factor 1
The evaluation of the first factor is complicated, of course, by the
defendants’ failure to answer or to oppose this motion. My independent review
of the record, however, does not suggest that the claims asserted by Ramada
against the defendants are legally flawed or that any defendant could mount a
meritorious defense. See Doe, 2013 WL 3772532, at *5 Accepting the
allegations in the Complaint as true, Comdyrie j, Inc. v. Corbin, 908 F.2d 1142,
1149 (3d Cir. 1990), I find that Ramada has successfully stated claims for relief
as against Khan Hotels, Rashad, and Tram.
The Complaint asserts six causes of action: action for an accounting by
Khan Hotels to Ramada pursuant to the Franchise Agreement (Count 1);
breach of contract against Khan Hotels for premature termination of the
Franchise Agreement seeking liquidated or, in the alternative, actual damages
(Counts 2 and 3); breach of contract and unjust enrichment against Khan
Hotels for failing to remit payment on the Recurring Fees (Counts 4 and 5); and
breach of the Guaranty against Rashad and Tram, in their capacities as
guarantors, for failing to pay the Recurring Fees and liquidated or actual
damages for premature termination on behalf of Khan Hotels (Count 6).
(Compi.

VT

25—49)

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. Englarider’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 establish that those
elements are satisfied, at least with respect to the defendants’ failure to remit
liquidated damages. The certification and affidavit submitted in support of
Ramada’s motion and the exhibits annexed thereto corroborate Ramada’s
factual allegations on this point. Both the Franchise Agreement and Guaranty
are valid and enforceable contracts. Those contracts were breached by Khan
Hotels’ failure to pay Ramada outstanding Recurring Fees and other fees and
7

3
charges as well as liquidated damages due upon termination of the Franchise
,
4
Agreement and by Rashad’s and Iram’s failures to personally pay the same.
5
As a result, Ramada has accrued damages.
6
In sum, the facts alleged by Ramada state a claim for breach of the
Franchise Agreement against Khan Hotels and breach of the Guaranty against
Rashad and Tram. I cannot discern a meritorious defense to these claims from
the record before me.

b. Factors 2 and 3
The second and third factors weigh in favor of default. All defendants
were properly served on July 11, 2016 but have failed to appear and defend
themselves in any manner. It is clear that Ramada has been prejudiced by this
dereliction because it has been “prevented from prosecuting [its] case, engaging

(See Franchise Agreement § 7.1 (“You will pay us certain ‘Recurring Fees’ each
month of the Term. . . .“); id. § 7.3 (“Interest’ is payable when you receive our invoice
on any past due amount payable to us under this Agreement at the rate of 1.5% per
month. . . .“); id. § 13.2 (“You will pay all amounts owed to us under this Agreement
within 10 days after termination.”); Fenimore Aff. ¶J 16—17, Ex. C (notice of
termination) (stating Khan Hotels must perform certain post-termination obligation,
pay Liquidated Damages, and “any outstanding Recurring Fees and any other fees and
charges through the Termination Date”); see also Franchise Agreement § 11.2
(“[Ramada] may terminate [the Franchise Agreement]
when.. you discontinue
operating the Facility as a ‘Ramada’.
..

.

.

.

.

(See Franchise Agreement § 12.1 (“If we terminate this Agreement under Section
11.2, or you terminate this Agreement. . . . you will pay us within 30 days following
the date of termination, as Liquidated Damages, an amount equal to the sum of
accrued Royalties and RINA Services Assessment Fees during the immediately
preceding 24 full calendar months.. .
(See Guaranty (“Upon default by Franchisee and notice from you we will
immediately make each payment and perform or cause Franchisee to perform, each
unpaid or unperformed obligation of franchisee under the Agreement.”))
An unjust enrichment claim must fail where an express contract governs the
relationship between the parties on the same subject matter. See In re
Phillips/Magnavox Television Litig., No. CIV.A. 09-3072 PGS, 2010 WL 3522787, at *10
(D.N.J. Sept. 1, 2010); Moser v. Milner Hotels, Inc., 6 N.J. 278, 280 (1951)) (“It is a well
settled rule that an express contract excludes an implied one. An implied contract
cannot exist when there is an existing express contract about the identical subject.”
(internal quotation marks omitted)). Therefore, because a valid contract governs Khan
Hotels’ obligation to pay damages and fees, I will dismiss Count 4.

6

8

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. Cortt’lAirlines, 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 Ftind of Philadelphia & Vicinity, 2011 WL 4729023
at *4 In this case, “there is nothing before the Court to show that the
Defendant[s’] 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. 27,
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
warranted).
Overall, then, the three factors support the entry of default judgment
against Khan Hotels, Rashad, and Iram, and I will grant the motion for default
judgment against all three defendants.
III.

Remedies

Ramada seeks two main categories of compensation, totaling
$125,078.13. (See Fenimore Aff. ¶j 17, 24—26) Specifically, Ramada seeks (a)
$70,969.89 in unpaid Recurring Fees and interest, and (b) $54,108.24 for
Liquidated Damages and interest ($45,269.52 plus $8,383.72 in interest). (Id.)
In the alternative to Liquidated Damages, Ramada seeks actual damages “in an
amount to be determined at trial, together with interest, attorney’s fees, and
costs of suit.” (Compi.

¶J

36, 49).

Ramada has submitted documentary evidence in support of its demands,
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.
9

I will grant Ramada’s request for liquidated damages, calculated
pursuant to a provision in the Franchise Agreement. Because Ramada requests
actual damages in the alternative to liquidated damages, I will deny Ramada’s
request for actual damages. I will also deny Ramada’s request for an
accounting of profits by Khan Hotels (Count 1), as liquidated damages moot the
need to determine actual damages, and thus the need for proof of same.
Liquidated damages, provided for under the terms of the Franchise
Agreement pursuant to a specified formula, are meant to replace the income
that Ramada would have received if not for premature termination of the
License Agreement. (Fenimore Aff.

¶ 19; see also Franchise Agreement § 12.1

(“Liquidated Damages are paid in place of our claims for lost future Recurring
Fees under this Agreement”)) Section 12.1 of the Franchise Agreement obligates
Khan Hotels to pay “the sum of accrued Royalties and RINA Services
Assessment Fees during the immediately preceding 24 full calendar months (or
the number of months remaining in the unexpired Term (the “Ending Period”)
at the date of termination, whichever is less).” (Franchise Agreement,

§ 12.1,

see also id. Appendix A p. 29 (defining Liquidated Damages)) The number of
“months remaining in the unexpired Term,” by the Court’s calculation, are
roughly 134, or over eleven years. Thus, the governing collection period would
be 24 months—the lesser number. Royalties and RINA Services Assessment
Fees are calculated pursuant to formulas specified in Sections 7.1.1 and 7.1.2
of the Franchise Agreement.
7
The validity of a liquidated damages clause depends upon whether it
reasonably forecasts the harm resulting from the breach. Where the harm (as
here) is future harm, the parties may settle on a dollar amount or formula that
Section 12.1 further states: “Before the Ending Period, Liquidated Damages will
not be less than the product of $2,000 multiplied by the number of guest rooms you
are then authorized to operate under Schedule B of this Agreement, as amended.”
Khan Hotels was authorized to operate 69 rooms. (Franchise Agreement, Schedule B,
p. 34; Compi. ¶ 10). Liquidated Damages under this formula would be $138,000. I am
not convinced this amount would be reasonable under to the legal standard discussed
infra. At any rate, Ramada seeks only to collect Liquidated Damages calculated under
the 24-month formula. (Fenimore Aff. ¶ 23)
10
7

approximates the likely loss. See Wasserman’s Inc. v. Middletown, 645 A.2d
100, 106 (N.J. 1994); Monsen Engq Co. v. Tami-Githerts, Inc., 530 A.2d 313,
318 (N.J. Super. Ct. App. Div. 1987). The amount, however, must be
reasonable:
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 liquidated damages
clause “either at the time of contract formation or at the time of the breach.”
Naporano Assocs., L.P. v. B & P Builders, 706 A.2d 1123, 1128 (N.J. Super. Ct.
App. Div. 1998) (quoting Wasserman’s Inc., 645 A.2d at 107). Whether 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 Associates, Inc., No.
CIV. 03-799 (WHW), 2005 WL 2656676, at *10 (D.N.J. Oct. 18, 2005).
I consider the reasonableness of this liquidated damages provision “at
the time of the breach,” see Naporano, supra, when the agreement had over
eleven years to run. I find it reasonable that the formula Ramada uses limits
Liquidated Damages to a pre—determined collection of fees from the lesser of 24
months or the months remaining in the term of the Franchise Agreement. I am
satisfied that a maximum period of two years compensates Ramada for the lost
benefit of the bargain without awarding it a windfall by permitting it to sit back

and collect without establishing that it has attempted to mitigate damages. Cf
Sommer v. Kridel, 378 A.2d 767, 768 (N.J. 1977) (where tenant abandons
apartment, landlord cannot simply sue for the rent payable for balance of lease
term, but must make reasonable efforts to re-let the apartment).
I will therefore grant Ramada’s request for liquidated damages in the
amount of $54,108.24, which includes $45,269.52 in damages plus interest at
11

a 1.5% monthly interest rate, as specified in Section 7.3 of the Franchise
Agreement, calculated from September 30, 2015 (30 days after termination
(See Franchise Agreement

§ 12.1)) to October 3, 2016 (the return date for

Ramada’s motion for default judgment).
While it is usually a plaintiffs claim for liquidated damages that is
unreasonable, here it is Ramada’s request for Recurring Fees that gives me
pause. Ramada has documented recurring fees (and interest thereon, also
calculated at a 1.5% monthly rate) in the amount of $70,969.89. (Fenimore Aff.

¶ 17, Ex. A § 7, Ex. D, Ex. E) But the itemized statement Ramada submits to
support this amount itemizes various charges accruing from September 2014
through February 2016 (Id. Ex. D). Neither Ramada’s complaint nor supporting
papers clarify this inconsistency.
Ramada submits no explanation as to why it should receive Recurring
Fees or other charges amassed over the 17 months following termination of the
Franchise Agreement. And provisions of the Franchise Agreement are vague as
to whether the defendants are obligated to pay any post-termination fees. (See,
e.g., Franchise Agreement § 7.1 (obligating Khan Hotels to pay Recurring Fees
during the “Term” (i.e., the effective period of the Franchise Agreement) and to
pay amounts owed, including Recurring Fees);

§ 13.2 (obligating Khan Hotels

to pay all amounts owed under the Franchise Agreement within 10 days after
termination). But see

§ 5 (giving Ramada or Khan Hotels the right to terminate,
without cause, after five or ten years); § 18.1 (giving either the right to
terminate the agreement on 90 days’ notice, without cause and without penalty
of Liquidated Damages)).
Even if the provisions were clear, because the purpose of Liquidated
Damages is to compensate Ramada for lost Recurring Fees it otherwise would
have received but for premature termination (and Ramada expressly
acknowledges this (Fenimore Aff.

¶J 18—19)), I see no reason why Ramada

should recoup duplicative post-termination Recurring Fees. Permitting such
double recovery would push the Liquidated Damages perilously close to a
12

penalty, unenforceable under New Jersey law. See In re Plywood Co. of Pa., 425
F.2d 151, 155 (3d Cir. 1970) (explaining that “[o]ne way to contest a liquidated
damage clause is to contend that a clause labeled ‘liquidated damages’ is in
fact a ‘penalty’ and therefore void and unenforceable,” and determining that a
landlord’s request for liquidated damages as well as “further damages ‘in lieu of
rent’” is an “attempt at a double recovery [with] indicia of a penalty”); MetLife
Capital Fin. Corp. v. Washington Ave. Assocs. L.P., 159 N.J. 484, 493, 732 A.2d
493, 498 (1999) (“Enforceable stipulated damages clauses are referred to as
‘liquidated damages,’ while unenforceable provisions are labeled ‘penalties.”);
see also Travelodge Hotels, Inc. v. S.S.B. & Assocs., LLC, No. 14-CV-883 KM,
2015 WL 4530432, at *10 (D.N.J. July 27, 2015) (denying Lanham Act
infringement damages that would be duplicative of liquidated damages because
both would compensate franchisor for the lost benefit of its franchise
agreement, post-termination, and as measured by recurring fees).
I will therefore deny Ramada’s request for $70,969.89 in unpaid
Recurring Fees and interest, to the extent the requested amount reflects posttermination charges.
Because Ramada’s request for post-termination charges might simply be
an erroneously labeled request for outstanding pre-termination charges, I will
8
grant Ramada leave to file with this Court a supplemental application to amend
the judgment to include outstanding Recurring Fees accrued before the August
4, 2015 termination.
The total judgment awarded is, therefore, $54,108.24. Post-judgment
interest will accrue from this date at the appropriate rate pursuant to 28
U.S.C.

§ 1961.

The notice of termination Ramada sent to Khan Hotels suggests that Khan
Hotels did owe fees at the time; it requests, as of August 4, 2015, $43,749.46 in
charges and fees, including Recurring Fees, as well as $326.00 for termination of an
addendum agreement. (Fenimore Aff. Ex. C) It might be reasonable to award Ramada
these sums as well, but I decline to do so without further evidence or explanation.
13
S

CONCLUSION
For the foregoing reasons, the motion is granted as to defendants Khan
Hotels, Rashad, and Iram, and a default judgment will be entered against
defendants Khan Hotels, Rashad, and Iram, and in favor of plaintiff Ramada in
the total amount of $54,108.24, with post-judgment interest from this date at
the appropriate rate pursuant to 28 U.S.C. § 1961.
Ramada may submit, within 30 days, a supplemental certification and
supporting exhibit(s) showing outstanding amounts Ramada owed, if any, as of
August 4, 2015, and has not yet paid.
An appropriate amended order and judgment will issue.

KEVIN MCNULTY, U.S.D4-)

Date: January 17, 2016

(_J

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