Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Baymont rests easy after default judgment against former franchisee, (Jun 9, 2016)

By Michael Menzhuber, J.D., LL.M.

Baymont Franchising Systems, Inc.’s uncontested motion for a default judgment to recover recurring fees, liquidated damages, the balance owing on a note, and interest on all monies owed was granted by the federal district court in Newark, New Jersey. After reviewing BFS’ submissions, the court entered judgment for the total amount requested (Baymont Franchise Systems, Inc. v. Karam, Inc., June 7, 2016, Walls, W.).

By amendment to a prior franchise agreement, Baymont Franchising Systems, Inc. (BFS), Amerihost Franchise Systems’ successor in interest, and Karam, Inc. agreed to convert an Amerihost guest lodging facility into a Baymont guest lodging facility. Karam’s obligations under the franchise agreement were guaranteed by Sewa Singh Bhinder.

The franchise agreement provided, among other things, that: (1) Karam was obligated to pay certain periodic recurring fees to BFS; (2) BFS could terminate the franchise agreement if Karan discontinued operating the facility as a Baymont guest lodging facility; (3) pursuant to a satellite addendum, in the event of a termination, Karan would pay Satellite Addendum liquidated damages of $2,500; and (4) the non-prevailing party would pay all costs and expenses incurred by the prevailing party to enforce the franchise agreement or collect amounts owed.

Karam and Bhinder co-signed a Conversion Assistance Program Incentive Promissory Note, in the amount of $90,000 and payable in sixty equal monthly installments. The note also provided for the payment of interest fees and attorney fees if Karam and Bhinder defaulted on the note.

Karam later ceased operating the facility as a Baymont guest lodging facility. BFS sent Karam a letter acknowledging the termination of the franchise agreement and requesting payment of all outstanding recurring fees, the Satellite Addendum liquidated damages, and the balance owed on the note. BFS subsequently filed a breach of contract action against Karam and Bhinder (collectively, "defendants"). The defendants failed to plead or otherwise defend the case and a default was entered against them. BFS then filed a motion for default judgment seeking: (1) unpaid recurring fees plus interest; (2) Satellite Addendum liquidated damages plus interest; and (3) the unpaid balance on the note plus interest.

After the court noted that BFS’s complaint was based on a breach of contract, it determined that the elements of the claim were met because: (1) the parties entered into a franchise agreement (with Satellite Addendum), a guarantee for the operation of the Baymont guest lodging facility, and a note; (2) the defendants breached those contracts by ceasing to operate the facility as a Baymont guest lodging facility; (3) damages resulted because BFS performed services without being compensated; and (4) BFS performed its contractual obligations under the agreement.

The court then determined that a default judgment was appropriate because: (1) BFS would suffer prejudice if a default judgment was denied because it had already waited over four years for payment of monies owed; (2) the defendants did not present any facts or arguments to suggest that they had a litigable defense for their breach of contract; and (3) although it was not clear that their failure to litigate was the result of willful or bad faith conduct, they failed to retain counsel since the filing of the complaint.

The court granted all the monies requested by BFS, including attorneys’ fees and costs, after finding that the requests accurately represented the amounts owed to BFS by the defendants.

The case is No. 15-8490-WHW-CLW.

Attorneys: Justin Michael Vogel (LeClairRyan) for Baymont Franchise Systems, Inc. f/k/a Amerihost Franchise Systems, Inc.

Companies: Baymont Franchise Systems, Inc. f/k/a Amerihost Franchise Systems, Inc.; Karam, Inc.

Cases: FranchisingDistribution NewJerseyNews