Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Motel franchisor granted final judgment, damages by default, (Jul 14, 2015)

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

A motel franchisor was granted final judgment and damages against a terminated franchisee by a default entered by the federal district court in Newark, New Jersey (Howard Johnson International, Inc. v. SV Hotels, LLC, July 10, 2015, Arleo, M.).

Background. Howard Johnson International, Inc. (HJI) entered into a franchise agreement with SV Hotels (SVH), that was personally guaranteed by Bhagyesh P. Vora, Viral P. Vora, Druhmit Shah, and Karan Shah, which permitted SVH to operate a Howard Johnson facility. After SVH later breached the agreement and failed to cure, HJI terminated the agreement and filed a complaint seeking monetary damages. The defendants did not respond and a default was entered against them. HJI then filed a motion for final judgment by default to which the defendants did not respond.

Default Judgment. The court noted that, before entering a default judgment, it must: (1) determine that it has jurisdiction both over the subject matter and the parties; (2) determine whether the defendants have been properly served; (3) analyze the complaint to determine whether it sufficiently pleads a cause of action; and (4) determine whether the plaintiff has proved damages. The court determined that: (1) it had subject matter jurisdiction because the amount in controversy exceeded $75,000 and the defendants were domiciled in Virginia while HJI was a Delaware corporation with it principal place of business in New Jersey; and (2) it had personal jurisdiction, because the defendants gave their consent to jurisdiction in the agreement and guaranty. It also determined that the defendants had been properly served and that HJI had pleaded a breach of contract claim because it alleged the existence of a contractual relationship and that the defendants breached their agreement by failing to remit the required payments.

The court also noted that, prior to granting a default judgment, it must make explicit factual findings as to: (1) whether the party subject to the default has a meritorious defense; (2) the prejudice suffered by the party seeking the default; and (3) the culpability of the party subject to the default. The court concluded that, in the absence of any responsive pleading by the defendants and the facts alleged in the complaint, the defendants did not have a meritorious defense. It also found that HJI would suffer prejudice, absent the entry of a default judgment, because it would have no other means of obtaining relief. Finally, it found that defendants acted culpably as they had been served with the complaint, were not infants or otherwise incompetent, and were not presently engaged in military service.

The court granted HJI monetary damages—which included “recurring fees.” “liquidated damages.” and “attorneys’ fees and costs”—because HJI provided sufficient proof of these damages.

The case is No. 14-01201.

Attorneys: Patrick Eugene During (LeClair Ryan LLP) for Howard Johnson International, Inc.

Companies: Howard Johnson International, Inc.; SV Hotels, LLC

Cases: FranchisingDistribution NewJerseyNews