Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Jackson Hewitt recovers unpaid fees from terminated franchisee, (Apr 29, 2016)

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

The federal district court in Newark, New Jersey entered a default judgment in favor of Jackson Hewitt Inc. in its breach of contract action against a former franchisee for failure to pay money owed. The court also granted Jackson Hewitt’s request for attorneys’ fees and costs after determining that they were reasonable (Jackson Hewitt Inc. v. DM Professional Services, Inc., April 28, 2016, Arleo, M.).

DM Professional Services, Inc. entered into four identical franchise agreements and four promissory notes for the operation of Jackson Hewitt tax businesses. DM later defaulted on one agreement by failing to prepare a sufficient number of tax returns. The franchise was terminated after DM did not petition Jackson Hewitt to excuse its non-performance. DM subsequently defaulted on its three remaining franchises, but submitted a business improvement plan to excuse its non-performance. Jackson Hewitt rejected the plan as being inadequate and terminated the franchises.

The franchise agreements detailed DM’s obligations in the event of termination, including payment of all amounts due and owing, including notes. After DM failed to pay, Jackson Hewitt filed suit to recover all amounts due. The guarantor of DM’s obligations under the franchise agreements was unable to retain counsel and acknowledged that this might result in a judgment against DM. Jackson Hewitt subsequently filed a motion for a default judgment.

As an initial matter, the district court determined that it had jurisdiction to enter a default judgment and that DM was properly served. It then found that all the elements of a breach of contract claim were satisfied because (1) the parties had a contractual relationship based on the franchise agreements and promissory notes; (2) DM breached the contract when it failed to meet performance criteria and remit required payments; and (3) Jackson Hewitt suffered resulting monetary damages.

The court then held that a default judgment was appropriate because, based on the facts and in the absence of any responsive pleadings, DM did not have a meritorious defense; Jackson Hewitt would suffer prejudice, if a default judgment was not entered, as it would have no other means of obtaining relief; and DM had acted culpably.

Jackson Hewitt was awarded monetary damages in the amount of $230,523 ($169,379.08 in unpaid fees and $61,143.89 in prejudgment interest). The court also awarded attorney fees of $46,850 and costs of $1,823, as provided by the franchise agreements.

The case is No. 14-1431.

Attorneys: James Simon Coons (Ansa Assuncao, LLP) for Jackson Hewitt Inc.

Companies: Jackson Hewitt Inc.; DM Professional Services, Inc.

Cases: FranchisingDistribution NewJerseyNews