Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Travelodge awarded default judgment of monetary, injunctive relief against former franchisee, (Jul 29, 2015)

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

Travelodge Hotels, Inc. (THI) was awarded a default judgment against a former franchisee and its sole constituent member, including a permanent injunction against further trademark infringement, outstanding fees and interest, liquidated damages, and attorneys’ fees and costs. However, the federal district court in Newark, New Jersey declined to award compensatory damages for Lanham Act violations, since they would be duplicative (Travelodge Hotels, Inc. v. S.S.B. and Associates, LLC, July 27, 2015, McNulty, K.).

Background. THI entered into a licensing agreement that permitted S.S.B. and Associates, LLC (SSB), a Tennessee-based company, to operate a Travelodge guest lodging facility. The licensing agreement: (1) required SSB to make period payments to THI; (2) listed the circumstances under which THI could terminate the agreement; (3) provided for SSB’s payment obligations to THI if the agreement would be terminated; and (4) in the event of a legal dispute, required the non-prevailing party to pay all costs and expenses, including attorneys’ fees.

The parties also entered into an addendum to the licensing agreement that governed the use of satellite-based Internet services at the facility and provided for the payment of liquidated damages if either that addendum or the licensing agreement were terminated. Choonilal Daya, SSB’s sole constituent member, executed a personal guarantee of the licensing agreement.

After repeated failures by SSB to make certain payments required under the agreement, THI informed SSB, by letter that it was terminating the agreement. The letter also stated the amount due under the agreement and it demanded SSB to “deidentify” the facility as a Travelodge. However, SSB continued to operate the facility as a Travelodge.

THI filed an action for declaratory judgment and permanent injunction. Specifically, THI sought damages from SSB and Daya, in his capacity as guarantor, for: (1) recurring fees and interest; (2) liquidated damages; (3) attorneys’ fees and costs; and (4) damages under the Lanham Act for the unauthorized use of THI marks after the termination of the licensing agreement. THI also sought to permanently enjoin SSB from operating the facility under the Travelodge name.

Default Judgment. The prerequisites to a default judgment were met because: (1) despite diligent efforts and inquiry, THI was unable to personally serve SSB, Daya, or any person authorized to receive service on behalf of SSB; (2) THI successfully served the summons and complaint via certified and regular mail; (3) SSB did not respond to the complaint within 21 days; and (4) the default was entered 31 days after the service of the summons and complaint.

The court noted that THI’s eight overlapping causes of actions could be reduced to breach of contract claims and Lanham Act claims. It determined that THI’s alleged facts in its complaint established a prima facie case, under New Jersey law, for breach of the licensing agreement against SSB and breach of the guarantee against Daya.

Regarding the Lanham Act claims, the court determined that THI stated a valid claim under both Section 32, which prohibits the use in commerce of a registered mark in a manner that is “likely to cause confusion, or to cause mistake, or deceive,” and Section 43(a), which applies to unregistered marks. There was no question that SSB continued to operate of the facility after the expiration of the licensing agreement under the Travelodge name and that using Travelodge marks was likely to confuse or deceive consumers. Based on the record, the court was unable to discern meritorious defenses to those claims.

The second and third factors weighed in favor of default, according to the court. THI was prejudiced by SSB’s failure to appear in court and defend itself because this prevented THI from prosecuting its case, engaging in discovery, and seeking relief in a normal fashion. Further, SSB’s failure to answer the complaint was willful negligence and was sufficient to prove its culpability in the default.

Remedies. The court granted THI’s request for an amount owed as recurring fees and interest. It also granted THI’s request for liquidated damages and interest; as well as attorney fees and costs. However, the court declined to award compensatory damages under the Lanham Act because they would be duplicative of the liquidated damages awarded to THI.

Injunctive Relief. Finally, THI was granted injunctive relief because: (1) SSB’s absence of a meritorious defense created a likelihood that THI would succeed on the merits; (2) SSB’s trademark infringement amounted to irreparable injury; (3) granting the injunction would not result in a greater harm to SSB since it would leave SSB in the same position as it found itself after THI terminated the agreement; and (4) it was in the public interest to enjoin SSB from deceiving or misleading consumers into believing that their facility meets the THI standards.

The case is No. 14-cv-883 (KM).

Attorneys: Patrick Eugene During (LeClair Ryan LLP) for Travelodge Hotels, Inc.

Companies: Travelodge Hotels, Inc.; S.B. and Associates, LLC

Cases: FranchisingDistribution NewJerseyNews