Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.J.: Court grants summary judgment for Ramada after breach of franchise agreement, (Dec 2, 2024)

By Patricia K. Ruiz, J.D.

The court was unconvinced by the franchisee’s argument that Ramada had breached the franchise agreement first.

The U.S. District Court for the District of New Jersey granted a motion for summary judgment by Ramada Worldwide Inc. in a lawsuit seeking liquidated damages and unpaid fees after an alleged breach of a franchise agreement. The court found the franchisee failed to demonstrate that a genuine issue of material fact existed as to the alleged breach. The court requested additional records from Ramada for the purpose of calculating the amounts due (Ramada Worldwide Inc. v. Highend Hotel Group Of America, LLC, No. 2:20-cv-14020-JXN-JRA (D.N.J. Nov. 26, 2024)).

Franchise agreement. Ramada provides customers access to a “guest lodging facility” franchise network. The franchise system is comprised of federally registered trade names, service marks, logos, and derivations thereof (“Ramada® marks”), as well as the distinctive Ramada® System. Ramada neither owns nor operates any hotels.

Highend Hotel Group of America LLC, a Wyoming company, entered into a franchise agreement whereby it would operate a 200-room Ramada® guest lodging facility. Under the agreement, Highend was obligated to operate the facility for a period of 15 years and make certain payments to Ramada for royalties, system assessments, taxes, interest, and other fees (“recurring fees”), as well as interest on fees or debts that were past due. The franchise agreement provided Ramada with the opportunity to terminate the agreement before the end of the term in two circumstances: (1) if Highend discontinued operating the facility as a Ramada hotel; and/or (2) if Highend lost possession or right to possess the facility. In the event the franchise agreement was terminated under one of these circumstances, the franchise agreement provided that Highend would pay Ramada liquidated damages and that Highend would reimburse Ramada for any outstanding recurring fees and associated costs. Two members of Highend signed a guaranty making them liable in the event of a default for money Highend owed to Ramada.

Default. In March 2020, Ramada acknowledged in a letter that Highend defaulted on the Franchise Agreement by ceasing to operate the facility as a Ramada hotel. It informed Highend that, due to the default, it was terminating their agreement early. The letter further notified Highend of its responsibility for liquidated damages and all outstanding recurring fees and costs, pursuant to the terms of the franchise agreement. Highend made no payments for liquidated damages or for outstanding recurring fees.

Ramada filed a six-count complaint against Highend seeking to recover $909,810.20 for the outstanding recurring fees, liquidated damages, interest, attorney’s fees, and costs. Ramada moved for summary judgment as to recovery of liquidated damages, recovery of recurring fees, and breach of the guaranty agreement.

Summary judgment. Ramada argued it is entitled to summary judgment as to the liquidated damages and recurring fee claims because Highend unilaterally terminated the franchise agreement and failed to pay the recurring fees and liquidated damages required by the franchise agreement. The court found Ramada established that no genuine issues of material fact existed as to the breach of franchise agreement claim, having established that (1) the parties entered into a valid contract; (2) Ramada performed its contractual obligations; (3) Highend did not perform its obligations; and (4) Highend’s breach caused Ramada to incur damages. While the court recognized that whether conduct constitutes a breach of contract and whether the breach is material are ordinarily jury questions, Highend failed to set forth sufficient facts to demonstrate that a genuine issue of material fact exists that would preclude granting summary judgement. Thus, the court granted summary judgment as to liquidated damages and recurring fees. The court also found no genuine issue of material fact as to breach of the guaranty agreement and granted summary judgment as to Ramada’s claim.

Remedies for breach. As to Ramada’s motion for summary judgment on the issues of recurring fees, liquidated damages, attorney fees and costs, and interest, the court found the record unclear about which amounts invoiced constitute recurring fees and requested that Ramada submit supplemental documentation. As to liquidated damages, the court found $400,000 in liquidated damages reasonably forecasts the harm Ramada would suffer as a result of a breach of the franchise agreement and is not disproportionate to the loss Ramada would suffer as a result of early termination. The court also agreed that the prejudgment interest rate of 1.5 percent applies to the liquidated damages sum. Finally, the court requested that Ramada submit documentation to support its claimed attorney fees and costs.

The Case is No. 2:20-cv-14020-JXN-JRA.

Judge: Neals, J.

Attorneys: William C. Gattoni, Jr. (Connell Foley LLP) for Ramada Worldwide Inc. Peter G. Aziz (Aziz & Associates, LLC) for Highend Hotel Group of America, LLC.

Companies: Ramada Worldwide Inc.; Highend Hotel Group of America, LLC

Cases: FranchisingDistribution PuertoRicoNews