Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Super 8 sleeps easier after receiving default judgment award, (Oct 29, 2015)

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

Super 8 Worldwide, Inc. (SWI) was entitled to a default judgment for fees and costs against the guarantor of a franchisee’s financial obligations, according to the federal district court in Newark, New Jersey. After reviewing SWI’s submissions, the court entered judgment against the guarantor for the amounts requested by SWI (Super 8 Worldwide, Inc. v. JJC Corporation, October 26, 2015, Walls, W.).

Background. JJC Corporation (JJC) entered into a franchise agreement with SWI to operate a Super 8 guest lodging facility. Under the terms of the agreement, JJC was required to make certain periodic payments to SWI which included payments for royalties, system assessment fees, taxes, interest, reservation system user fees, and other fees (collectively, “recurring fees”). The agreement also provided that: (1) SWI could terminate the agreement upon failure to pay any monies due; and (2) upon termination, JJC would pay SWI liquidated damages and all costs and expenses, including reasonable attorney fees, incurred in collecting amounts owed under the agreement. Rajendra Patel, a principle of JJC, provided SWI with a guaranty of JJC’s obligations under the agreement.

JJC eventually defaulted under the agreement by failing to pay the recurring fees that were due. SWI terminated the agreement and advised JJC that it was required to pay liquidated damages for premature termination and all outstanding recurring fees through the date of termination.

SWI filed a complaint against JJC and Patel seeking all liquidated or actual damages and recurring fees due under the agreement, interest, attorneys’ fees, and costs of the suit. SWI later withdrew its complaint against JJC after the two parties reached a settlement. The summons and complaint were served on Patel but he did not answer or otherwise respond to it. SWI then moved for a default judgment against Patel.

Default judgment. The court noted SWI’s complaint was based on a breach of contract. It determined that the elements of such a claim were met because: (1) JJC and Patel entered into an agreement and guaranty with SWI to operate a guest lodging facility; (2) JJC and Patel breached that agreement by failing to meet their financial obligations; (3) damages resulted because SWI performed services without being compensated; and (4) SWI performed its contractual obligations under the agreement.

The court then noted three factors to be considered when evaluating a motion for default judgment: (1) whether there is prejudice to the plaintiff if the default judgment is denied; (2) whether the defendant appears to have a litigable defense; and (3) whether the defendant’s delay is due to culpable conduct. Chamberlain v. Giampapa, 210 F.3d 154 (2000). The court determined that, under these factors, a default judgment was appropriate because: (1) SWI had already waited over three years to be paid and it would suffer prejudice if a default judgment was not granted; (2) Patel did not present any facts or arguments to suggest that he had litigable defense; and (3) Patel failed to retain counsel in the nearly twenty-month period since the filing of the complaint.

Damages. After reviewing SWI’s submissions, the court determined that the amounts it requested accurately represented the amounts that Patel owed under the agreement.

The case is No. 14-00961 (WHW)(CLW).

Attorneys: Patrick Eugene During (LeClairRyan LLP) for Super 8 Worldwide, Inc.

Companies: Super 8 Worldwide, Inc.; JJC Corp.

Cases: FranchisingDistribution NorthCarolinaNews