The opinion of the court was delivered by: WILLIAM WALLS, District Judge
Plaintiff Travelodge Hotels, Inc. ("Plaintiff" or "THI") moves
for summary judgment on the First, Third, Fifth, and Seventh
Counts of its First Amended Verified Complaint (the "Complaint")
and seeks dismissal of Defendants Elkins Motel Associates, Inc.
("EMA") and Roger Fussell's ("Fussell") (together, the
"Defendants") Counterclaims. Plaintiff states that if it is
granted summary judgment on these claims, it will dismiss Counts
Two, Four, and Six of the Complaint. The motion is decided
without oral argument pursuant to Fed.R.Civ.P. 78. The motion
FACTS AND PROCEDURAL BACKGROUND
The following facts are undisputed unless otherwise noted: THI
is one of the largest guest lodging facility franchise systems in
the United States, comprised of various federally-registered trade names, service marks, logos and derivations thereof (the
"Travelodge marks"). THI does not own or operate any hotels: it
licenses its trademarks to franchisees who own and operate the
hotels under the Travelodge name. THI has the exclusive right to
sublicense the Travelodge marks and its distinctive franchise
system, and has invested a substantial effort over a long period
of time to develop consumer recognition of the Travelodge marks.
Defendant EMA is a West Virginia corporation with its principal
place of business at the guest lodging facility in Elkins, West
Virginia. Defendant Fussell is the sole shareholder of EMA.
Fussell built the lodging facility, and has operated it since
1983 both as an independent facility and as a franchisee.
On or about October 13, 2000, THI entered into a License
Agreement (the "License Agreement") with EMA for the operation of
a 63-room lodging facility located in Elkins, West Virginia.
Pursuant to section 5 of the License Agreement, EMA was obligated
to operate a Travelodge guest lodging facility for a 15-year
term, during which time EMA would be permitted to use the
Travelodge marks. Under section 7 and schedule C of the License
Agreement and section 2 of the Addendum to the License Agreement,
EMA was required to make certain periodic payments to THI for
royalties, service assessments, taxes, interest, reservation
system user fees, annual conference fees and other fees
(collectively, the "recurring fees"). Section 7.3 of the License
Agreement states that interest would accrue at the rate of 1.5%
per month on all payments that became past due. Section 11.2
permits THI to terminate the License Agreement with notice to EMA
for various reasons, including EMA's 1) failure to pay any amount
owed to Plaintiff under the license agreement; 2) failure to
remedy any other default of its obligations or warranties under the agreement within 30 days of receipt of
written notice from Plaintiff; or 3) receipt of two or more
notices of default in any one year period, regardless of whether
the defaults were cured. Section 12.1 states that in the event
THI terminates the License Agreement pursuant to section 11.2,
EMA would pay liquidated damages to THI in accordance with a
specified formula. Section 7 of the Addendum specifically set
liquidated damages at $1,000.00, multiplied by the number of
guest rooms at the facility, 63, for a total of $63,000.00.
Section 13 provides that if the License Agreement is terminated,
EMA must immediately cease using the Travelodge marks and
reimburse THI for any costs associated with removal of THI's
signage. With regard to legal matters, section 17.4 directs that
"[t]he non-prevailing party will pay all costs and expenses,
including reasonable attorneys' fees, incurred by the prevailing
party to enforce this Agreement or collect amounts owed under
this Agreement." (Cox Aff. at Ex. A).
THI and Fussell also signed a Guaranty Agreement (the
"Guaranty") effective as of the date of the License Agreement.
According to the terms of the Guaranty, Fussell agreed that upon
default of the License Agreement, he would "immediately make each
payment and perform or cause Licensee to perform, each unpaid or
unperformed obligation of licensee under the Agreement." (Cox
Aff. at Ex. C). Under the Guaranty, Fussell also agreed to pay
the costs, including reasonable attorneys' fees, incurred by THI
in enforcing its rights or remedies under the Guaranty or the
On August 20, 2001, Fussell signed a letter agreement with THI
(initially dated June 1, 2001) whereby THI agreed to credit EMA
$7,000.00 to off-set the costs of setting up or installing the
property management system. The letter states that in
consideration of the credit, EMA, "on behalf of itself, its partners, officers, employees, directors,
shareholders and Guarantors, and the successors and assigns of
all of them, hereby releases and holds harmless [THI], its
officers, employees, agents, directors, shareholders, and the
successors and assigns of all of them from any and all claims and
causes of action whatsoever arising prior to and through the date
of this letter relating to the offer, sale, negotiation, default,
termination and reinstatement of the [THI] License Agreement for
the Unit."*fn1 (Cox Aff. at Ex. D).
Sometime in 2001, EMA stopped paying its recurring fees.
(Fussell Dep. at 165:16-23). In a letter dated June 13, 2002, THI
advised EMA that it had failed to file monthly reports for the
Elkins facility, was in default of its financial obligations due
to its failure to pay the recurring fees, and had ten days within
which to cure the defaults. The letter added that if the defaults
were not cured, then the License Agreement would be subject to
termination. Thereafter, in another letter dated August 20, 2002,
THI gave EMA notice that it was still in default of its financial
obligations as it had not paid the recurring fees. THI advised
EMA that if it failed to cure its defaults by November 20, 2002,
it would terminate the License Agreement.
In a November 22, 2002 letter, THI terminated the License
Agreement and demanded EMA 1) discontinue the use of the
Travelodge marks and any other indicia of operation as one of
THI's facilities, 2) remove all items bearing the Travelodge
marks, 3) change all signs and any listings in directories and
similar guides that identified the hotel as a Travelodge, 4) pay
THI $63,000.00 as liquidated damages for early termination of the
agreement, 5) de-identify the hotel as a Travelodge within 14 days from the receipt of the letter,
and 6) pay all outstanding recurring fees through the date of
In letters of December 3, 2003 and February 19, 2004, THI
repeated EMA's post-termination obligations, including the
requirement that EMA de-identify the facility as a Travelodge.
However, EMA continued to use the Travelodge marks after the
License Agreement was terminated.*fn2 THI claims that it was
granted access to EMA's premises on March 8, 2004, to remove the
Travelodge signs. EMA claims that it hired a sign removal
company, Floyd, to remove the sign.
THI's complaint asserts seven counts against the Defendants.
The First Count seeks a permanent injunction and damages for
trademark infringement under the Lanham Act. The Second Count
seeks an accounting of all the revenue generated by the facility
as a result of operating the hotel with the Plaintiff's marks.
The Third Count is a claim for liquidated damages pursuant to the
License Agreement and Addendum. The Fourth Count is an
alternative claim for actual damages resulting from early
termination of the License Agreement, should the Court find the
liquidated damages clause unenforceable. The Fifth Count seeks
recurring fees owed by Defendants to Plaintiff plus prejudgment
interest. The Sixth Count is an alternative claim for unjust
enrichment. The Seventh Count is a claim against Fussell under
the Guaranty. Plaintiff also seeks attorneys' fees and costs of
suit in accordance with the Lanham Act, the License Agreement and the Guaranty. Defendants have asserted
counterclaims against Plaintiff for breach of contract and
failure to mitigate damages.
Summary judgment is appropriate where the moving party
establishes that "there is no genuine issue as to any material
fact and that [it] is entitled to a judgment as a matter of law."
Fed.R.Civ.P. 56(c). A factual dispute between the parties will
not defeat a motion for summary judgment unless it is both
genuine and material. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247-48, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). A
factual dispute is genuine if a reasonable jury could return a
verdict for the non-movant and it is material if, under the
substantive law, it would affect the outcome of the suit. See
id. at 248. The moving party must show that if the evidentiary
material of record were reduced to admissible evidence in court,
it would be insufficient to permit the non-moving party to carry
its burden of proof. See Celotex v. Catrett, 477 U.S. 317,
318, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).
Once the moving party has carried its burden under Rule 56,
"its opponent must do more than simply show that there is some
metaphysical doubt as to the material facts in question."
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). To survive a
motion for summary judgment, a nonmovant must present more than a
mere scintilla of evidence in his favor. Woloszyn v. County of
Lawrence, 396 F.3d 314, 319 (3d Cir. 2005). The opposing party
must set forth specific facts showing a genuine issue for trial
and may not rest upon the mere allegations or denials of its
pleadings. Shields v. Zuccarini, 254 F.3d 476, 481 (3d Cir.
2001). At the summary judgment stage the Court's function is not
to weigh the evidence and determine the truth of the matter, but
rather to determine whether there is a genuine issue for trial.
See Anderson, 477 U.S. at 249. In doing so, the court must
construe the facts and inferences in the light most favorable to
the non-moving party. Curley v. Klem, 298 F.3d 271, 277 (3d
I. Liability on Counts Three, Five and Seven
Plaintiff claims that Defendants are liable under the License
Agreement and Guaranty for outstanding recurring fees and
liquidated damages. Plaintiff further says that there is no
dispute that Defendants stopped paying recurring fees, and that
the License Agreement and Guaranty are unambiguous with regard to
Defendants obligation to pay such fees.
First, this Court must consider whether the terms of the
contract were clear and unambiguous. When the "terms of a
contract are clear and unambiguous there is no room for
interpretation or construction and the courts must enforce those
terms as written." City of Orange Tp. v. Empire Mortg. Services,
Inc., 341 N.J. Super. 216, 224, 775 A.2d 174, 179 (App.Div.
2001) (citing Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43,
161 A.2d 717, 720 (1960); Levison v. Weintraub,
215 N.J. Super. 273, 276, 521 A.2d 909 (App.Div. 1987), certif. denied,
107 N.J. 650, 527 A.2d 470 (1987)). Whether a contract provision or term
is clear or ambiguous is a question of law and therefore suitable
for a decision on a motion for summary judgment. Driscoll Const.
Co., Inc. v. State, Dept. of Transportation,
371 N.J. Super. 304, 313-14, 853 A.2d 270, 276 (App.Div. 2004). A review of the
relevant provisions of the License Agreement and Guaranty leads this Court to the conclusion that the language
with respect to recurring fees and liquidated damages is not
ambiguous. This issue is not raised by the Defendants.
The second inquiry concerns whether the Defendants complied
with the terms of the License Agreement and Guaranty. Plaintiff
contends that they have not been paid recurring fees since 2001.
Their supporting evidence consists of the Defendants' answers to
Plaintiff's Initial Interrogatories and Fussell's deposition
testimony. In answer to Plaintiff's Initial Interrogatories
asking Defendants to state whether they had paid all recurring
fees, Defendants said that they "stopped paying the fees because
plaintiff breached the agreement." (Plocker Aff. at Ex. P, ¶ 15).
Fussell also admitted at his deposition that Defendants stopped
paying recurring fees to Plaintiff sometime in 2001. (Id. at
Ex. Q, 165:16-23.). While Defendants deny Plaintiff's assertion
that they had failed to pay the outstanding recurring fees and
liquidated damages, Defendants offer no evidence to contradict
this statement. See, e.g., Port Auth. of N.Y. & N.J. v.
Affiliated FM Ins., 245 F.Supp.2d 563, 572 n. 9 (D.N.J. 2001)
(". . . it is incumbent on the responding party to issue a
meaningful rejoinder to a given statement of material fact, lest
that fact be deemed undisputed"). In light of this uncontradicted
evidence and the unambiguous contract terms, all the elements
necessary to establish a breach of the License Agreement and
Guaranty by the Defendants are present.
Next, this Court must determine whether the Defendants have any
defenses to the breach. Rather than claim that they did not
breach the License Agreement and Guaranty, Defendants argue that
there are genuine issues of material fact regarding certain
actions by Plaintiff that allegedly caused Defendants to default
on their payments to Plaintiff. Specifically, Defendants argue that certain quality assurance inspectors who inspected the
lodging facility either intentionally or negligently issued
failing scores for the facility on April 13, 2001, and June 14,
2001. Defendants claim that because of these failing scores, they
defaulted and lost the following rights: 1) the ability to
terminate the License Agreement as provided in section 4.1 of the
Addendum; 2) the right to pays fees equal to only 6.5 percent of
gross room revenues for the first two years of the License
Agreement, as opposed to 8.5 percent, pursuant to section 2 of
the Addendum; 3) the right to participate in a sales and
marketing training program, pursuant to section 6 of the
Addendum; 4) the right to use the central reservation system; and
5) the right to borrow money from THI at favorable rates.
Defendants claim that Plaintiff breached the License Agreement
by "administering unfair and inconsistent quality assurance
inspections as to force Elkins into default." (Defs' Br. at 2-3).
They add that this material breach excused their performance
under the contract. See Jafari v. Wally Findlay Galleries,
741 F. Supp. 64, 68 (S.D.N.Y. 1990) ("[W]here a party materially
breaches, he has failed to substantially perform the contract,
and the other party is discharged from performing his
obligation."). New Jersey courts recognize that a material breach
by either party to a bilateral contract excuses the other party
from rendering any further performance. See Magnet Resources,
Inc., v. Summit MRI, Inc., 318 N.J. Super. 275, 286,
723 A.2d 976, 981 (App.Div. 1998), which teaches that:
Where a contract calls for a series of acts over a
long term, a material breach may arise upon a single
occurrence or consistent recurrences which tend to
defeat the purpose of the contract. In applying the
test of materiality to such contracts a court should
evaluate the ratio quantitatively which the breach
bears to the contract as a whole, and secondly the
degree of probability or improbability that such a
breach will be repeated. Id. However, Defendants do not point to any express provision
of the License Agreement that obligates Plaintiff to conduct
quality assurance inspections in a certain manner.
The acts alleged by Defendants, however, may amount to a breach
of the implied covenant of good faith and fair dealing, a
covenant read into all contracts in New Jersey. See Wade v.
Kessler Institute, 172 N.J. 327, 340, 798 A.2d 1251, 1259
(2002). Under such a covenant, "neither party shall do anything
which will have the effect of destroying or injuring the right of
the other party to receive the fruits of the contract." Id.
While Plaintiff may not have materially breached an express term
of the License Agreement, this Court must consider whether there
is evidence to conclude that the Plaintiff materially breached
the implied covenant of good faith and fair dealing.
Defendants have not presented more than a scintilla of evidence
to create a genuine issue of material fact with regard to this
defense. First, to maintain a cause of action based on the
implied covenant of good faith and fair dealing, the Defendant
must show bad faith or ill motive. Seidenberg v. Summit Bank,
348 N.J. Super. 243, 257, 791 A.2d 1068, 1076 (App.Div. 2002).
"[A]n allegation of bad faith or unfair dealing should not be
permitted to be advanced in the abstract and absent an improper
motive." Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping
Center Associates, 182 N.J. 210, 231, 864 A.2d 387, 399 (2005).
To survive a motion for summary judgment, Defendants must show
that there is a genuine issue of material fact as to whether the
Plaintiff acted with bad faith or ill motive and, if so, that
Plaintiff's breach of the implied covenant was material. The evidence Defendants offer to support their claim of a
material breach is found in Fussell's affidavit and deposition
testimony, a letter from THI granting waivers with respect to
certain inspection items, and the inspection reports from
December 20, 2000, April 13, 2001, June 14, 2001, September 26,
2001, February 1, 2002, and June 10, 2002. This evidence is
unconvincing. While Fussell believes the results of the
inspections were false, he did not accompany any of the
inspectors on the inspections at issue, he did not review the
inspection results with the inspector, and he does not know
whether anyone else from his hotel discussed the inspection
results with the inspector. (Fussell Dep. at 179:15-180:12).
Indeed, Fussell testified that the basis for his allegations is
simply that the quality assurance failures seemed "just very
coincidental." (Fussell Dep. at 186:4-10). Fussell adds that he
had "no way of knowing" whether THI intentionally assigned
failing quality assurance scores to the Facility. Id. All this
testimony amounts to are conclusory allegations. Construing this
evidence in a light most favorable to Defendants, this evidence
does not adequately support the required elements of bad faith or
materiality. The variance in the grading of the facility by
different inspectors, and the Plaintiff's failure to
retroactively apply certain waivers for points taken off by the
inspectors do not support a reasonable conclusion that the
Plaintiff purposefully arranged for Defendants to receive failing
scores so as to deprive them of the benefits of the contract.
Because there is no genuine issue of material fact regarding a
material breach by the Plaintiff that would excuse Defendants'
performance under the License Agreement, that defense must fail
as a matter of law. Moreover, the Defendants expressly waived and released any
claims based on the April and June 2001 quality assurance
inspections and THI's June 28, 2001. On August 20, 2001,
Defendants executed a letter agreement with THI (originally dated
June 1, 2001), pursuant to which Defendants expressly released
THI from "any and all claims and causes of action whatsoever
arising prior to and through the date of this letter relating to
the offer, sale, negotiation, default, termination and
reinstatement of the THI License Agreement for the
[Facility]."*fn3 (Cox Aff. at ¶ 28; Fussell Aff. at Ex. N).
"In New Jersey, an exculpatory release will be enforced if 1) it
does not adversely affect the public interest; 2) the exculpated
party is not under a legal duty to perform; 3) it does not
involve a public utility or common carrier; or 4) the contract
does not grow out of unequal bargaining power or is otherwise
unconscionable. Gershon v. Regency Diving Ctr., Inc.,
368 N.J. Super. 237, 248, 845 A.2d 720, 727 (App.Div. 2003) (citations
omitted). Of the Gershon factors for evaluating exculpatory
release clauses, only the fourth factor is applicable: whether
the contract grows out of unequal bargaining power or is
otherwise unconscionable. Defendants have not presented any
evidence to suggest that they were at a disadvantage when
bargaining with the Plaintiff, or to show why the Letter
Agreement is otherwise unconscionable.
Plaintiff adds that even if it did breach the License
Agreement, its breach would not bar its claim against the
Defendants for breach of the agreement. Plaintiff relies on
McDonald's Corp. v. Robert A. Makin, Inc., 653 F. Supp. 401
(W.D.N.Y. 1986) for support. The McDonald's plaintiff had entered into an agreement with the
defendants to franchise a restaurant. The franchise agreement
obligated the defendants to make monthly payments to the
plaintiff and provided the plaintiff with the right to terminate
the license if the Defendants defaulted in their payments. The
plaintiff alleged that the defendants stopped making monthly
payments pursuant to the franchise agreement and that the
defendants owed the plaintiff $40,129.48. The plaintiff asserted
claims against the defendants for breach of contract and sought
to recover amounts due under the franchise agreement. The
defendants admitted that they had not made the payments, but
alleged that they were not due because of various breaches of the
agreement by the plaintiff. Specifically, the defendants alleged
that the plaintiff had violated antitrust laws, discriminated
amongst franchisees, breached a contractual duty not to deprive
the defendants of the benefits of the franchise agreement, and
interfered with the defendants' pre-contractual relations. The
defendants made these allegations as part of their affirmative
defenses and counterclaims against the plaintiff, and added at
oral argument that these actions caused their inability to