Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Hotel operator allegedly failed to comply with franchise system standards, (Feb 12, 2016)

By Linda O’Brien, J.D., LL.M.

A franchisee of a Howard Johnson® lodging facility breached the license agreement by its failure to comply with the franchise system standards, failure to satisfy its financial obligations, and failure to comply with the franchise insurance requirements, according to a complaint filed in the federal district court in Newark, New Jersey (Howard Johnson v. SaiSat, LLC, February 11, 2016).

The complaint states that, in September 2007, Howard Johnson International (HJI) entered into a license agreement with SaiSat, LLC for the operation of a Howard Johnson® guest lodging facility in El Centro, California. Under the agreement, SaiSat was obligated to operate the facility for a 15-year term. SaiSat was also required to renovate the facility in order to bring it into compliance with franchise system standards. SaiSat agreed to make certain periodic payments as well as disclose gross revenue earned from the facility. In connection with the license agreement, Sunil Patel and Vivek Pravin provided a guaranty of SaiSat’s obligations under the agreement.

In March 2009, HJI conducted a quality assurance inspection of the facility and advised SaiSat that the facility failed the inspection. In August 2009, HJI conducted a re-inspection and the facility again received a failing score. HJI notified SaiSat that it was in default of the license agreement due to its failure to cure and therefore the agreement was subject to termination, the complaint alleges.

According to the complaint, in October 2009, March 2010, and August 2010, HJI conducted re-inspections of the facility and advised SaiSat that the facility had received a failing score. Additionally, in April 2010, HJI notified SaiSat that it owed over $30,000 in outstanding recurring fees and had 30 days to cure this monetary default. HJI also notified SaiSat in July 2010 that it failed to provide proof of the minimum insurance coverage required under the license agreement.

The complaint also alleges that HJI terminated the license agreement in December 2010 for SaiSat’s failure to cure the system standard, monetary, and insurance defaults and advised SaiSat that it was required to pay liquidated damages for the premature termination of the agreement. To date, SaiSat has failed to satisfy its financial obligations under the license agreement.

The plaintiff asserts claims for breach of the license agreement. The action seeks an award of liquidated and actual damages and recurring fees, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 2:16-cv-00748.

Attorneys: Bryan P. Couch (LeClairRyan) for Howard Johnson International, Inc.

Companies: Howard Johnson International, Inc.; SaiSat, LLC

News: FranchisingDistribution NewJerseyNews