Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.J.: Days Inn franchisee loses hotel, must pay franchisor $150K, (Jul 30, 2014)

By Greg Hammond, J.D.

Days Inns Worldwide, Inc. was awarded more than $150,000 after the federal district court in Newark granted the franchisor’s unopposed motion for default judgment. Days Inn sought damages after a franchisee lost possession of its hotel, effectuating the termination of the parties’ franchise agreement (Days Inns Worldwide, Inc. v. Savita Hospitality Group, Inc., July 28, 2014, McNulty, K.).

Background. Savita Hospitality Group, Inc. entered into a 15-year franchise agreement with Days Inn, for a 42-room Days Inn hotel in Idaho. After the agreement was terminated, due to Savita losing possession of the hotel to a third party, Days Inn filed suit, seeking over $265,000 in liquidated damages, in addition to unpaid recurring fees, attorney fees, and costs. The franchisor moved for default judgment, which went unopposed by Savita and its owners.

Default. In evaluating whether default judgment was appropriate, the federal district court considered three factors: (1) whether Savita had a meritorious defense; (2) the prejudice suffered by Days Inn; and (3) the culpability of Savita. The court concluded that all three factors weighed in favor of default judgment, as there was no suggestion of a meritorious defense or that Days Inn’s claims were legally flawed; Days Inn stated a legally sufficient claim for breach of contract; and there was no evidence that Days Inn did not perform its own obligations under the franchise agreement. Consequently, the court granted default judgment.

Remedies. In addition to default judgment, Days Inn requested liquidated damages ($126,600), unpaid recurring fees ($135,858), and attorneys’ fees and costs ($5,594). However, the court reduced the liquidated damages and recurring fee amounts, finding that: (1) liquidated damages accrued on the date Days Inn terminated the franchise agreement, not the date the hotel was lost; and (2) Days Inn was entitled to unpaid recurring fees up until the date of the breach, not beyond. Consequently, the court awarded $153,815 in monetary damages.

The case number is 13-2863 (KM)(MCA).

Attorneys: Kelly Ann Krug (LeClair Ryan) for Days Inns Worldwide, Inc.

Companies: Days Inns Worldwide, Inc.; Savita Hospitality Group, Inc.

Cases: FranchisingDistribution NewJerseyNews