DAYS INNS WORLDWIDE, INC v. T.J. LLC et al

Filing 9

OPINION. Signed by Judge John Michael Vazquez on 3/9/17. (cm )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

DAYS INNS WORLDWIDE, INC.,
Civil Action No. 16-8193
Plaintif/
OPINION
v.
T.J. LLC, PRAWN PATEL, and NAINA
PATEL,
Defendants.

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

INTRODUCTION
This matter comes before the Court on Plaintiff Days Inns Worldwide, Inc.’s (“DIW”)

unopposed motion for default judgment against Defendants T.J. LLC (“T.J.”), Pravin Patel, and
Naina Patel under Fed. R. Civ. P. 55(b)(2). D.E. 8. The Court reviewed all submissions made in
support of the motion, and considered the motion without oral argument pursuant to Fed. R. Civ.
P. 78(b) and L. Civ. R. 78.1(b). For the reasons that follow, Plaintiffs motion is GRANTED.
II.

FACTS AND PROCEDURAL HISTORY
DIW signed a Franchise Agreement (the “Agreement”) with T.J. on June 30, 2011 that

governed the operation of a 78-room Days Inn hotel in California for a fifteen-year tenm Compi.

¶J

9-10; Affidavit of Suzanne Fenimore in Support of Motion for Final Judgment by Default

(“Fenimore Aff.”) Ex. A,

¶J

1, 5. Section 5 of the Agreement allowed either party to terminate

the Agreement without paying liquidated damages on the fifth or tenth anniversary of the hotel’s
opening date, as long as all fees and charges under the terms of the Agreement were paid.

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Fenimore Aff. Ex A,

§

5. Pursuant to Sections 12.1 and 18.3, T.J. would be liable for liquidated

damages of $1,000 per room, or $78,000 in total, if it terminated the Agreement outside of the
procedures set forth in Section 5. Id.

§ 12.1, 18.3. In addition, Section 17.6.3 is a forum selection

clause, which provides that T.J. consented to personal jurisdiction and venue in a New Jersey state
or federal court. Id.

§ 17.6.3.

Pravin and Naina Patel, principals of T.J., also signed a Guaranty, which provided that
upon a default under the Agreement, the Patels would personally perform each unpaid or
unperformed obligation of T.J. Compi. ¶J 3-4; Fenimore Aff. Ex. B. In addition, the Patels agreed
to be responsible for any fees and costs that DIW incurred while enforcing its rights under the
Agreement and Guaranty. Fenimore Aff. Ex. B. Finally, the Guaranty expressly stated that the
Patels were bound by the forum selection clause in the Agreement. Id.
On or about December 30, 2015, T.J. exercised its rights to terminate the agreement
pursuant to Section 5. Compl.

¶ 22.

termination as June 30, 2016. Id.

DIW acknowledged the request and set the effective date of

¶ 23. On June 30, 2016, DIW notified T.J. of an outstanding

balance of $61,291.21 in recurring fees. Id.

¶ 24. Afler ten days, T.J. had not paid the outstanding

balance, thus violating Section 5 of the Agreement. Id.

¶ 25. Pursuant to the Agreement, T.J. was

therefore required to pay liquidated damages of $78,000. Id.
On November 3, 2016, DIW filed a complaint against Defendants for breach of contract
alleging that T.J. breached the Agreement due to its failure to remit the outstanding recurring fees
and the Patels failure to perform under the Guaranty. DIW seeks $78,000 in liquidated damages,
$7,347.77 in prejudgment interest on the liquidated damages, and $90,847.32 in recurring fees and
interest, or a total of $176,195.09. F enimore Aff.

¶J 17-18, 25-26. Defendants did not answer,

move, or otherwise respond to DIW’s complaint. As a result, the Clerk of the Court entered default

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against Defendants on December 19, 2016 for failure to plead or otherwise defendi On January
13, 2017, DIW filed this motion for default judgment. D.E. 8.
III.

LAW AND ANALYSIS
A. Standard of Review

Rule 55 allows for the entry of default against a party that fails to plead or otherwise defend
claims asserted against it. Fed. R. Civ. P. 55. “The entry of a default judgment is largely a matter
of judicial discretion, although the Third Circuit has emphasized that such ‘discretion is not
without limits,

.

.

.

and [has] repeatedly state[d] [its] preference that cases be disposed of on the

merits whenever practicable.” Chanel, Inc. v. Gordashevslcy, 55$ F. Supp. 2d 532, 535 (D.N.J.
2008) (quoting I-fritz v. Woma Corp., 732 F.2d 1178, 1181 (3d Cir.19$4)).
In entering a default judgment, a court must determine whether (1) it has personal and
subject matter jurisdiction; (2) the defendants were properly served; (3) the complaint sufficiently
pleads a cause of action; and (4) the plaintiff has proven damages. Days Inns Worldwide, Inc. v.
Jinisha Inc., No. 14-6794, 2015 WL 4508413, at *1 (D.N.J. July 24, 2015). Additionally, a court
must determine the appropriateness of default judgment by weighing (1) the prejudice suffered by
the party seeking default judgment; (2) whether the party subject to the default has a meritorious
defense; and (3) the culpability of the party subject to default. Id at *2.
B. Jurisdiction and Service

When a default judgment is sought against a party that has not filed responsive pleadings,

the court “has an affirmative duty to look into its jurisdiction both over the subject matter and the
parties.” Ramada Worldwide Inc. v. Benton Harbor Han Ohm, L.L.C., No. 05-3452, 2008 WL

‘Rule 5 5(a) directs the Clerk of the Court to enter a party’s default when that party “against whom
a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure
is shown by affidavit or otherwise.” Fed. R. Civ. P. 55(a).
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2967067, at *9 (D.N.J. July 31, 2008) (quoting Williams v. fe Say. & Loan, 802 F.2d 1200, 1203
(10th Cir. 1986)).
i. Subject lt’Iatter Jurisdiction

The Court has subject matter jurisdiction over this matter. Diversity jurisdiction exists
when “the matter in controversy exceeds the sum or value of S75,000.

.

.

and is between citizens

of different states.” 2$ U.S.C. 1332(a). DIW is a Delaware corporation with its principal place of
business in Parsippany, New Jersey, and Defendants are domiciled in California. Compi.

¶

1-4.

In addition, DIW is claiming, before interest, $78,000 in liquidated damages and $88,304.62 in
recurring fees.

P1. Compi.

¶J

37, 45. Therefore, the parties are diverse and the amount in

controversy is greater than $75,000.
ii. Personal Jurisdiction

The Court has personal jurisdiction over Defendants. Personal jurisdiction can be waived
through a contractual forum selection clause. Ramada, 2008 WL 2967067, at *10. Here, Section
17.6.3 of the Agreement and the Guaranty provide that Defendants consent to and waive their
objection “to the non-exclusive personal jurisdiction of.

.

.

the United States District Court for the

District of New Jersey for all cases and controversies under the Agreement or between [DIW] and
[Defendants].”

Fenimore Aff. Ex. A,

§ 17.6.3. Thus, Defendants consented to personal

jurisdiction in New Jersey by signing the Agreement and Guaranty.
C. Sufficiency of Plaintiffs Causes of Action

Next, the Court must determine whether the complaint states a proper cause of action. The
Court must accept all well-pleaded factual allegations in the pleadings as true, except as to

damages. Chanel, Inc., 558 F. Supp. 2d at 53 5-36.

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Count One states a valid cause of action. It requests that T.J. provide an accounting of the
revenue it derived as a result of marketing, promoting, or selling guest reservations. Cornpl.

¶J

26-29. An action requesting an accounting is sufficient where a relationship between the parties
established a legal obligation for the defendant to provide an account of its finances to plaintiff
See Boles v. Vanderbilt Shirt Co., No. 90-0862, 1990 WL 74202, at *4 (E.D. Pa. May 31, 1990).

Under Sections 3.6 and 4.8 of the Agreement, T.J. was obligated to allow DIW access to its
financial records if requested. Id. at ¶ 27; Fen. Aff Ex. A.,

§ 3.6.2, 4.8. This is a sufficient legal

obligation to conclude that Count One is adequately pled.
Counts Two, Four and Six state valid causes of action for breach of contract.2 Under New
Jersey law, to state a claim for breach of contract, a plaintiff must allege that there is (1) a valid
contract; (2) plaintiff performed under the contract; (3) defendant’s breach of the contract; and (4)
resulting damages. Lacroce v. li Fortttna Roofing, Inc., No. 14-7329, 2017 WL 431768, at *5
(D.N.J. Jan. 31, 2017). DIW’s allegations here are sufficient. In Counts Two and Four, DIW
alleges that T.J. breached the Agreement by failing to pay DIW recurring fees as of the effective
date of termination. As a result of this breach, the Agreement provides that T.J. is liable for the
recurring fees and liquidated damages. Compl.

¶J 30-37, 42-45. In Count Six, DIW alleges that

the Patels breached the Guaranty by failing to satisfy T.J.’s obligations under the Agreement. Id.

¶J 50-53. DIW also established that it performed under the Agreement.
D. Damages

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Counts Three and Five assert claims in the alternative to DIW’s breach of contract claims. See
Compl. ¶J 38-41, 46-49. Because the Court finds that DIW states a claim for breach of contract
and that Defendants are responsible for liquidated damages, it will not address these alternate
claims.
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While the factual allegations of the complaint “will be taken as true,” the amount of
damages must still be proven. Comdyne I, Inc. v. Corbin, 90$ F.2d 1142, 1149 (3d Cir. 1990).
DIW is claiming damages of an amount equal to the recurring fees plus interest and
liquidated damages. Fenirnore Aff.

¶J

18-25. Recurring fees, as described in Section 7 of the

Agreement, include a “Royalty” of 5.5% of gross room revenues, a “System Assessment fee,”
taxes, and interest. F enimore Aff Ex. A, §sS 7.1.1-7.1.2. The “System Assessment Fee” includes
advertising, marketing, training, overhead, the use of DIW’s reservation system, and its related
services and programs. Id. DIW provided an itemized list of the recurring fees that remained due
and owing as of the termination date, which totals $88,304.62. Fenimore Aff. Ex. E. Moreover,
the Agreement provides that T.J. is liable for interest, at a rate of 1.5% per month, on all past due
amounts owed to DIW. Fenimore Aff. Ex. A,

§

7.3. DIW establishes that as of January 9, 2017,

T.J. incurred $5,499.55 in interest from its failure to pay the recurring fees. Fenimore Aff. Ex. E.
As per Section 18.3 of the Agreement, the liquidated damages, before interest, was set to
$1,000 per room, or $78,000 for the 78-room hotel. Fenimore Aff

¶

17. “Whether a liquidated

damages clause is enforceable is a question of law for the court to decide.” Naporano Assocs.,
L.P. v. B & P Builders, 309 N.J Super. 166, 176 (App. Div. 1998) (quoting Wasserman’s Inc. v.
Township of Middletown, 137 N.J. 238, 238 (1994)).

When a liquidated damages clause is

negotiated by parties with comparable bargaining power, the ultimate issue is whether the amount
of liquidated damages is reasonable, either at the time of contract formation or the breach. Id. But
“[a] term fixing unreasonably large liquidated damages is unenforceable on grounds of public
policy as a penalty.” Ramada Worldwide Inc. v. K/ian Hotels LLC, No. 16-2477, 2017 WL
187384, at *6 (D.N.J. Jan. 17, 2017) (quoting Restatement (Second) of Contracts

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§ 356(1) (1981)).

DIW’s claims for liquidated damages do not require any further evidentiary proof as the
amount was contractually agreed upon. See, e.g., Sttper 8 Motels, Inc. v. B & J (Radha}, LLC, No.
05-5713, 2006 WL 3256828, at *5 (D.N.J. Nov. 9, 2006). The interest from liquidated damages,

at the stipulated interest rate of 1.5% per month through February 6, 2017, equals $7,347.77.
Fenimore Aff.

¶ 25. Moreover, there is no suggestion that the parties had unequal bargaining

power. Last, the amount of liquidated damages appears reasonable. DIW’s actual damages, which
it could recover instead of liquidated damages, would be the lost recurring fees that DTW would
have received but for the premature termination. Fenirnore Aff.

¶ 20. for comparison sake, the

outstanding amount of recurring fees here covered approximately six months of fees and is roughly
equal to the amount of liquidated damages DIW seeks. In this instance, T.J. terminated the
Agreement ten years before the contractual termination date.

Thus, DIW lost ten years of

anticipated recurring fees. However, taking into account the fact that DIW will likely be able to
mitigate its damages, the amount of liquidated damages here seems reasonable.
In sum, DIW provided sufficient proof that Defendants are liable for a total of$ 176,195.09
as a result of their breach.
E. Default Judgment Factors

Before imposing the extreme sanction of default judgment, district courts must determine
the appropriateness of default judgment by weighing (1) the prejudice suffered by the party seeking
default judgment; (2) whether the party subject to the default has a meritorious defense; and (3)
the culpability of the party subject to default. Jinisha, 2015 WL 4508413, at *2.
Here, all three factors weigh in favor of entering default judgment. DIW would not be able
to recover damages owed according to the Agreement and Guaranty, and would be unfairly
prejudiced if no default judgment is entered. Days Inns Worldwide, Inc. v. Tulsipooja Hosp., LLC,

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No. 15-5576, 2016 WL 2605989, at *3 (D.N.J. May 6, 2016); Jinisha, 2015 WL 4508413, at *2.
Next, considering that Defendants have not responded to 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 Educ. Loan Corp. v. $urikov, No. 14-1045, 2015 WL 273656, at *3 (D.N.J. Jan.
22, 2015). Lastly, Defendants’ failure to answer, without providing any reasonable explanation,
permits the court to draw an inference of culpability.

mt ‘1 Union ofPainters v. Andrews

Window

Servs. LLC, No. 15-3583, 2016 WL 3234516, at *3 (D.N.J. June 7, 2016). As a result, the Court
finds that default judgment is warranted.
IV.

CONCLUSION
for the reasons set forth above, Plaintiffs motion for default judgment (D.E. 8) is

GRANTED. Accordingly, the Court will enter judgment against Defendants in the amount of
S176,195.09. An appropriate order accompanies this opinion.
Dated:

March 9, 2017

John Michael Vazquez,

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