Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Ramada granted default judgment against former franchisee, owner, (Jan 22, 2016)

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

Ramada Worldwide Inc. was granted a default judgment against a former franchisee and its owner, including an award of unpaid fees and liquidated damages due under their franchise agreement, by the federal district court in Newark, New Jersey (Ramada Worldwide Inc. v. ATN Inn & Suites, LLC, January 21, 2016, McNulty, K.).

Ramada and ATN Inn & Suites, LLC entered into a franchise agreement for the operation of a Ramada hotel. Pursuant to the agreement, ATN was required to pay various recurring fees. ATN’s obligations under the franchise agreement were guaranteed by Mahfuzur Rahman, the sole owner of ATN.

ATN ceased to operate the hotel as a Ramada-branded property, triggering a default and termination of the franchise agreement. Following the termination of the agreement, Ramada entered into a second franchise agreement with ATN for the same hotel. When ATN failed to complete certain construction obligations under this second franchise agreement, that franchise agreement was also terminated.

Ramada filed several causes of action, which alleged breach of contract by ATN, for failing to pay recurring fees and liquidated damages, and a breach of guaranty by Rahman. Although served, neither ATN nor Rahman answered the complaint. After a default was entered against the defendants, Ramada filed a motion for a default judgment in which it sought unpaid recurring fees and interest, and liquidated damages and interest.

Service. As a prerequisite to entering the default judgment, the court considered whether the plaintiff properly served the summons and complaint and the defendants failed to respond to the complaint within the time required. The court determined that: (1) Ramada’s service of the summons and complaint by regular and certified mail was proper because, despite diligent efforts and inquiry, it was unable to personally serve them; and (2) the defendants did not respond within the 21 days provided by Federal Rule of Civil Procedure 12(a).

Three-factor analysis. The court noted a three-factor analysis for determining whether to grant a default judgment: (1) the presence of 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 determined that Ramada’s complaint stated a prima facie case for breach of contract because it alleged that the franchise agreement and guaranty were valid and enforceable contracts; those contracts were breached by the defendants’ failure to pay certain recurring fees and liquidated damages; and Ramada accrued damages as a result of the these breaches.

The court also determined that the second and third factors were satisfied because Ramada had been prejudiced by the defendants’ failure to appear and defend themselves and, absent any evidence to the contrary, the defendants’ failure to answer evinced their culpability.

Remedies. The court granted Ramada’s request for unpaid recurring fees because it submitted documentary evidence in support of its demands and the defendants submitted nothing and failed to appear. The court also granted Ramada’s request for liquidated damages because, since Ramada’s unsuccessful attempt to revive the franchise relationship with ATN, no Ramada-branded hotel had operated out of that hotel facility site.

The case is No. 15-3993 (KM) (MAH).

Attorneys: Justin Michael Vogel (LeClairRyan) for Ramada Worldwide Inc.

Companies: Ramada Worldwide Inc.; ATN Inn & Suites, LLC

Cases: FranchisingDistribution NewJerseyNews