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Super 8 Motels, Inc. v. Sai Krupa Victoria

September 29, 2006

SUPER 8 MOTELS, INC., PLAINTIFF,
v.
SAI KRUPA VICTORIA, INC., SHILA A. PATEL, MANHAR Z. PATEL, AND MITA S. NAROTHIAN, DEFENDANTS.



The opinion of the court was delivered by: Lifland, District Judge

OPINION

This matter comes before the Court upon the unopposed motion of Plaintiff Super 8 Motels, Inc. ("SMI" or "Plaintiff") for a preliminary injunction against Defendants Sai Krupa Victoria, Inc. ("Sai Krupa"), Shila A. Patel, Manhar Z. Patel, and Mita S. Narothian (collectively, "Defendants"). For the reasons set forth below, the Court will grant Plaintiff's motion for a preliminary injunction against Defendants.

BACKGROUND

SMI is a South Dakota corporation with its principal place of business in Parsippany, New Jersey. (Complaint ("Compl.") ¶ 1.) Through its franchise system, SMI markets, promotes, and provides services to its guest lodging franchisees throughout the United States. (Compl. ¶ 16.) In order to identify the origin of their guest lodging services, SMI allows its franchisees to utilize its trademarks and to promote the Super 8 brand name. (Id.) On April 5, 2006, SMI filed an eight-count complaint against Defendants, alleging violations of sections 32, 43(a), and 43(c) of the Lanham Act, 15 U.S.C. §§ 1114(1)(a), 1125(a), 1125(c); infringement of SMI's "marks";*fn1 breach of the Franchise Agreement; termination of the Franchise Agreement triggering liquidated damages or actual damages; breach of the Guaranty; and demanding enforcement of certain contractual terms which survive the termination of the Franchise Agreement.

According to the Complaint, on March 30, 2001, SMI entered into a twenty-year Franchise Agreement ("Agreement") with Sai Krupa for the operation of a 54-room guest lodging facility ("Facility") in Victoria, Texas. (Compl. ¶ 20; Ex. A.) Shila A. Patel, Manhar Z. Patel, and Mita S. Narothian executed a Guaranty, effective the date of the Agreement, which detailed their obligations to make payments and perform the obligations of Sai Krupa upon Sai Krupa's default in performance of the Agreement. (Compl. ¶¶ 34-35; Ex. B.) Under the Agreement, Sai Krupa was required to make renovations to the Facility in order to bring it into compliance with standards, as defined in the Agreement, and to operate the Facility in compliance with "System Standards" and certain quality assurance requirements. (Compl. ¶¶ 22-23; Ex. A.) The Agreement granted SMI the right to conduct unlimited quality assurance inspections of the Facility so that SMI could determine whether the Facility was in compliance with those standards and quality assurance requirements. (Compl. ¶ 24; Ex. A.) Sai Krupa also had certain financial obligations under the Agreement, including periodic payments to SMI for royalties, service assessments, taxes, interest, reservation system user fees, annual conference fees, and other fees. (Compl. ¶ 25; Ex. A.)

Under section 11.2 of the Agreement, SMI could terminate the Agreement, with notice to Sai Krupa, for various reasons including failure to pay any amounts due under the Agreement, failure to cure any default within 30 days of notice from SMI, or receipt of two or more default notices within one year, regardless of any cure by Sai Krupa. (Compl. ¶ 29.) In the event of termination, Sai Krupa agreed that it would pay liquidated damages, cease using all of SMI's marks, and allow SMI to enter the Facility for the purpose of painting over or removing any interior or exterior signs bearing SMI's marks. (Compl. ¶¶ 30-32.)

On October 8, 2003, March 29, 2004, and July 8, 2004, SMI conducted quality assurance inspections of the Facility, and on each of those dates determined that Sai Krupa had failed to meet its quality assurance obligations under the Agreement. (Compl. ¶¶ 38, 40-41; Exs. C, E, F.) On each occasion, SMI notified Sai Krupa that it had failed the inspection and gave Sai Krupa an opportunity to cure the failure. (Id.) After the inspection of October 8, 2003, SMI warned Sai Krupa that if the Facility did not receive a passing score on its next quality assurance inspection, SMI would issue a notice of default to Sai Krupa. (Compl. ¶ 38.) On March 24, 2004, SMI sent Sai Krupa a letter claiming that Sai Krupa was in breach of the Agreement for failure to pay certain fees. (Compl. ¶ 39; Ex. D.) In the letter of March 24, 2004, and after the inspections of March 29, 2004 and July 8, 2004, SMI informed Sai Krupa that if Sai Krupa did not cure its defaults, SMI could terminate the Agreement. (Compl. ¶¶ 39-41.) On January 25, 2005, SMI conducted another inspection of the Facility and assigned Sai Krupa a failing score. (Compl. ¶ 42.)

On April 28, 2005, SMI terminated the Agreement between SMI and Sai Krupa. (Compl. ¶ 43.) The termination notice was addressed to Mr. Arvind Patel with copies to Mita S. Narothian, Manhar Z. Patel, and Shila A. Patel, and explained that SMI had chosen to terminate the agreement due to Sai Krupa's failure to meet its financial obligations and satisfy the required quality assurance standards. (Compl. Ex. G.) The termination notice included a demand that Sai Krupa comply with its post-termination obligations as defined in the Agreement. (Id.) These post-termination obligations included the removal of "all signage bearing any Marks" and a requirement that Sai Krupa "not identify the Facility with a confusingly similar mark or name." (Compl. Ex. A.)

On August 4, 2005, Plaintiff's attorney wrote Sai Krupa regarding the alleged use of SMI's marks by Sai Krupa despite its termination as a Super 8 System Facility. (Compl. ¶ 48; Ex. H.) This letter warned Sai Krupa that its continued use of the marks constituted willful trademark infringement, unfair competition, and dilution, and also breached Sai Krupa's contractual obligations under the Agreement. (Compl. Ex. H.) On October 27, 2005 and November 15, 2005, SMI sent additional letters to Sai Krupa threatening legal action if Sai Krupa did not discontinue its use of the Super 8 marks. (Compl. ¶ 48; Exs. I, J.) On November 11, 2005, SMI informed Sai Krupa that a contractor would remove the exterior signs bearing SMI's marks on November 18, 2005. (Compl. ¶ 49; Ex. K.) According to SMI, Sai Krupa refused to allow this contractor to remove the signs. (Compl. ¶ 49.)

Plaintiff alleges that Sai Krupa has continued to use SMI's marks in conjunction with the Facility. (Affidavit of Kathy Cox ("Cox Aff.") ¶ 3.) In particular, SMI claims that inspections conducted on April 5, 2006 and June 29, 2006 revealed that the Facility retains the Super 8 marks on external signs, and that individuals answering the phone at the Facility continue to refer to the Facility as "Super 8." (Plaintiff's Motion for Preliminary Injunction ("Prelim.") Exs. B, C.)

Plaintiff further alleges in its brief supporting its motion for a preliminary injunction that public confusion has already occurred as a result of Defendants' infringement of Plaintiff's marks. Plaintiff specifically claims to have received a complaint from a dissatisfied customer who stayed at the Sai Krupa Facility on June 10, 2006. (Cox Aff. ¶ 4.) This customer reported that her room was dirty, with "2 inches of dirt all along the baseboard," the security lock was broken, and that "[t]he water could not be adjusted to lukewarm, only hot or cold." (Prelim. Ex. C.) In addition, the customer stated that she had "stayed in several Super 8's [sic] and they have been nice, clean, and comfortable, but she was very disappointed with this [hotel]." (Id.)

Defendants have not responded to Plaintiff's motion for a preliminary injunction. In their Answer, Defendants admit that SMI owns certain trademarks related to Super 8 Motels, that SMI owns a guest lodging franchising system, and that SMI identifies its franchisees through its marks and brand name. (Answer ("Ans.") ¶¶ 13-14, 16.) Defendants also admit that they entered into the Agreement and Guaranty with SMI for the operation of the Facility. (Ans. ¶¶ 20, 34-35.) Furthermore, Defendants admit that SMI conducted quality assurance inspections of the Facility on October 8, 2003, March 29, 2004, July 8, 2004, and January 25, 2005, and that SMI assigned failing scores to each of these inspections.*fn2 (Ans. ¶¶ 38, 40-42.) Defendants further admit that SMI terminated Sai Krupa's franchise on April 28, 2005, although Defendants claim that Plaintiff lacked a good faith basis for doing so. (Ans. ¶ 43.) Finally, Defendants admit that they have continued using SMI's marks in conjunction with the Sai Krupa Facility despite receiving letters from Plaintiff demanding that Sai Krupa discontinue use of the marks. (Ans. ¶¶ 46, 48-49.)

JURISDICTION

This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §§ 1131, 1132, and 1338, 15 U.S.C. § 1121, and, with respect to certain claims, 28 U.S.C. § 1367. (Compl. ¶ 7; Ans. ¶ 7.) The amount in controversy exceeds $75,000. (Compl. ¶ 6; Ans. ¶ 6.) This Court has personal jurisdiction over Sai Krupa Victoria by virtue of section 17.6.3 of the Agreement. (Compl. ¶ 8; Ex. A.) This Court has personal jurisdiction over Shila A. Patel, Manhar Z. Patel, and Mita S. Narothian by virtue of the terms of ...


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