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Super 8 Motels, Inc. v. Amba LLC

October 23, 2006

SUPER 8 MOTELS, INC., A SOUTH DAKOTA CORPORATION, PLAINTIFF,
v.
AMBA LLC, A SOUTH CAROLINA COMPANY, LALBHAI N. PATEL, AN INDIVIDUAL; PRAFUL B. VEER, AN INDIVIDUAL; AND JIGAR B. PATEL, AN INDIVIDUAL, DEFENDANTS.



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

OPINION

Plaintiff Super 8 Motels, Inc. ("SMI" or "Plaintiff") moves for final judgment by default, pursuant to Federal Rule of Civil Procedure ("Rule") 55(b)(2), against Amba LLC ("Amba"), Lalbhai N. Patel ("L. Patel"), Praful B. Veer ("Veer"), and Jigar B. Patel ("J. Patel") (collectively, "Defendants") for breach of a franchise licensing agreement ("Franchise Agreement") and for violations of the Lanham Act. For the reasons stated herein, SMI's motion will be granted in whole as to liability, and in part as to damages.

I. Background

SMI, a South Dakota corporation with its principal place of business in Parsippany, New Jersey, is a franchisor of guest lodging facilities. (Compl. ¶¶ 1, 11.) Amba is a limited liability company existing under the laws of South Carolina. (Id. ¶ 2.) L. Patel is a citizen of North Carolina; Veer is a citizen of South Carolina; J. Patel is a citizen of Georgia. (Id. ¶¶ 3-5.) Subject matter jurisdiction over this action is based on diversity of citizenship, pursuant to 28 U.S.C. § 1332. The Court has personal jurisdiction over all Defendants pursuant to the Franchise Agreement, wherein they consented to the "non-exclusive personal jurisdiction of and venue in . . . the United States District Court for the District of New Jersey." (Id. ¶¶ 8-9, Ex. A, § 17.4, Ex. B.)

On May 21, 1998, SMI entered into the Franchise Agreement with Amba for the operation of a 74-room guest lodging facility located at 27 S. Pleasantburg Dr., Greenville, South Carolina, site no. 11328 (the "Facility"). (Id. ¶ 20.) Amba was obligated to operate the Facility as a Super 8 guest lodging facility for twenty years, during which time Amba was permitted to use the Super 8 marks*fn1 in association with its operation of the Facility as part of SMI's franchise system. (Id. ¶ 21.) According to the Franchise Agreement, Amba agreed that the Facility would comply with SMI's "System Standards," and would achieve and maintain certain scores on periodic quality assurance inspections conducted by SMI. (Id. ¶¶ 22-24, Ex. A. § 3.) Furthermore, Amba agreed to make certain periodic payments to SMI for royalties, taxes, interest, reservation system user fees, and other fees (collectively, "recurring fees"), and to accurately report to SMI its monthly gross revenue for the purpose of determining the amount of recurring fees due to SMI. (Id. ¶¶ 25-27, Ex. A §§ 7 and 3.9.) Failure to "pay [SMI] when a payment is due, [or failure to] perform any . . . other obligations when [the Franchise] Agreement and the System Standards Manual require" constitutes a "default" under the Franchise Agreement. (Id., Ex. A. § 11.1.)

Under section 11.2 of the Franchise Agreement, SMI had the right to terminate the license if, inter alia, Amba (a) failed to pay any amount due to SMI under the Franchise Agreement, (b) failed to remedy any other defaults of its obligations under the Franchise Agreement within 30 days of receiving written notice from SMI of such defaults, or (c) received two or more notices of default in a one-year period, regardless of whether Amba cured such defaults. (Id. ¶ 28, Ex. A.) Termination of the Franchise Agreement under section 11.2 obligated Amba to pay liquidated damages to SMI. (Id. ¶ 29, Ex. A §§ 12.1 and 18.3.) The individually named Defendants provided SMI with a Guaranty of Amba's obligations under the Franchise Agreement, whereby they agreed to "immediately make each payment and perform or cause Franchisee to perform, each unpaid or underperformed obligation of Franchisee under the [Franchise] Agreement" upon a default by Amba. (Id. ¶¶ 33-34., Ex. B.)

In a letter dated April 2, 2001, SMI notified Amba that it was in default under the Franchise Agreement for failing to pay SMI $20,365.43 in recurring fees, and that it had 10 days to cure this default. (Id. ¶ 36, Ex. C.) Amba failed to respond or cure the alleged default.

In a letter dated December 17, 2001, SMI notified Amba that it now owed $20,474.65 in past-due recurring fees, that it failed to submit monthly revenue reporting forms for July 2001 through November 2001, and that it had 10 days to cure these defaults. (Id. ¶ 37, Ex. D.) Again, Amba failed to respond or cure.

In a letter dated March 12, 2002, SMI notified Amba that it was in continuing default for past-due recurring fees, now totaling $23,356.70, that it failed to file monthly franchise reports for December 2001 through February 2002, and that it had 10 days to cure these defaults. (Id. ¶ 37, Ex. E.) Amba again failed to respond or cure.

On November 22, 2002, SMI performed a quality assurance inspection of the Facility. (Id. ¶ 40.) In a letter dated December 11, 2002, SMI informed Amba that the Facility failed the inspection, and that it would face default if it did not pass its next inspection. (Id. ¶ 40, Ex. G.)

In a letter dated January 17, 2003, SMI notified Amba that it was still in continuing default under the Franchise Agreement for both its failure to pay SMI past-due recurring fees now totaling $27,781.70, and for failing to pass the November 22, 2002 inspection. The letter further informed Amba that the Franchise Agreement would be terminated on April 1, 2003 unless it cured both defaults by that date. (Id. ¶ 41, Ex. H.)

On March 21, 2003, SMI conducted another quality insurance inspection of the Facility, and determined that it was, again, not in compliance with SMI's quality standards. (Id. ¶ 42.) In a letter dated April 2, 2003, SMI notified Amba that SMI terminated the Franchise Agreement, effective April 1, 2003, due to Amba's failure to meet its financial obligations and for Amba's failure to meet SMI's required quality standards. (Id. ¶ 43, Ex. I.) The letter further informed Amba that all items at the Facility displaying the Super 8 marks must be removed within 14 days. (Id.) The letter also demanded immediate payment of past-due recurring fees, now totaling $32,517.06, and liquidated damages of $74,000.00. (Id.)

Defendants continued to use the Super 8 marks to rent rooms to the public through at least early 2004. (Id. ¶¶ 46-48.) During a May 4, 2004 inspection, SMI discovered that the Facility removed Super 8 marks from its exterior signage, but continued to use Super 8 marks on "secondary items," such as ice buckets and bars of soap. (Cox Aff. ¶ 33, Ex. A.)

Plaintiff filed this action on May 31, 2005. In count one, SMI alleges that Defendants violated sections 32 and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114(1)(a)*fn2 and 1125(a),*fn3 and requests compensatory damages, treble damages, attorneys' fees, prejudgment interest, and costs. Count two requests disgorgement of profits and restitution. Count three claims Defendants owe SMI $74,000.00 in liquidated damages under the Franchise Agreement. In the alternative, SMI seeks actual damages resulting from the termination of the Franchise Agreement in count four. Count five seeks $33,124.21 Plaintiffs claim Defendants owe in past-due recurring fees. In count six, Plaintiff seeks an unspecified amount of recurring fees "that should be paid to compensate SMI for the period during which Amba misused the Super 8 Marks and was thereby unjustly enriched." (Compl. ¶ 78.) Finally, count seven seeks to recoup all of the above monies from the individual Defendants as Amba's Guarantors under the Franchise Agreement.

The record indicates that Amba and Veer were properly served with process on July 24, 2005; L. Patel was served on July 13, 2005, and J. Patel was served on July 17, 2005. Defendants failed to answer or otherwise plead with respect to the Complaint as required by Rule 12(a). On August 29, 2005, SMI petitioned the Clerk of the Court for an entry of default against Defendants pursuant to Rule 55(a). On August 30, 2005, the Clerk of the Court entered Default against Defendants for failure to appear. On October 21, 2005, Plaintiff submitted ...


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