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Ramada Worldwide, Inc. v. Jay-Dharma

October 23, 2006


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



Plaintiff Ramada Worldwide, Inc. ("Ramada" or "Plaintiff") moves for final judgment by default, pursuant to Federal Rule of Civil Procedure ("Rule") 55(b)(2), against Jay-Dharma, LLC ("Jay-Dharma" or "Defendant") for breach of a franchise licensing agreement ("License Agreement"), and violations of the Lanham Act. For the reasons stated herein, Ramada's motion will be granted in whole as to liability, and in part as to damages.

I. Background

Ramada, a Delaware corporation with its principal place of business in Parsippany, New Jersey, is a franchisor of guest lodging facilities. (Compl. ¶¶ 1, 11.) Jay-Dharma is a limited liability corporation existing under the laws of Alabama. (Id. ¶ 2.) Ramesh V. Patel ("R. Patel") is a citizen of Alabama; Veena Patel ("V. Patel") is a citizen of Alabama; Dharmesh Patel ("D. Patel") is a citizen Virginia. (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 the Defendants pursuant to the License Agreement, wherein they consented to the "personal jurisdiction of and venue in . . . the United States District Court for the District of New Jersey." (Id. ¶¶ 8-9; Ex. of Kathy Cox in Supp. of Plaintiff's Motion for Def. J. ("Cox Aff."), Ex. A, § 17.4.)

On January 13, 2000, Ramada entered into the License Agreement with JayDharma, R. Patel, V. Patel, and D. Patel, for the operation of a 98-room guest lodging facility located in Anniston, Alabama, Site No. 2419 (the "Facility"). (Compl. ¶ 20; Cox Aff., Ex. A.) Jay-Dharma was obligated to operate the Facility as a Ramada guest lodging facility for 15 years, during which time Jay-Dharma was permitted to use the Ramada Marks*fn1 in association with its operation of the Facility as part of Ramada's franchise system. (Compl. ¶ 21, Ex. A § 5; Cox. Aff. ¶ 9.) According to the License Agreement, Jay-Dharma was required to operate the Facility in compliance with Ramada's "System Standards," including Ramada's quality assurance requirements. (Compl. ¶¶ 22-23, Ex. A § 3.4.) Furthermore, Jay-Dharma was required to make certain periodic payments to Ramada for royalties, marketing assessments, taxes, interest, reservation system assessments and other fees (collectively, "recurring fees"). (Id. ¶ 24, Ex. A § 7.) Failure to "pay [Ramada] when a payment is due, [or failure to] perform any . . . other obligations when [the License] Agreement and the System Standards Manual require" constitutes a "default" under the License Agreement. (Id., Ex. A. § 11.1.)

Under section 11.2, Ramada had the right to terminate the license if, inter alia, Jay-Dharma (a) failed to pay any amount due to Ramada under the License Agreement within 10 days after receiving Ramada's written payment demand, (b) failed to remedy any other defaults of its obligations under the License Agreement within 30 days of receiving written notice from Ramada of such defaults, or (c) received two or more notices of default in a one-year period, regardless of whether Jay-Dharma cured such defaults. (Id. ¶ 25; Cox. Aff., Ex. A.) Termination of the License Agreement under section 11.2 obligated Jay-Dharma to pay liquidated damages to Ramada. (Compl. ¶ 26; Cox. Aff., Ex. A § 12.1.) R. Patel, V. Patel, and D. Patel provided Ramada with a Guaranty of Jay-Dharma's obligations under the License Agreement, whereby they agreed to "immediately make each payment and perform or cause Licensee to perform, each unpaid or underperformed obligation of Licensee under the [License] Agreement" upon a default by JayDharma. (Id. ¶¶ 28-29, Ex. B.)

On March 13, 2002, Ramada conducted a quality assurance inspection of the Facility. (Compl. ¶ 31.) In a letter dated March 14, 2002, Ramada notified Jay-Dharma that the Facility failed the inspection, and that if the Facility did not pass re-inspection, Jay-Dharma would be in default under the License Agreement. (Id. ¶ 31, Ex. C.) Jay-Dharma failed to respond or cure the alleged default.

On October 1, 2002, Ramada conducted another quality insurance inspection, and determined that the Facility, again, was not in compliance with Ramada's quality standards. (Id. ¶ 32, Ex. D.) In a letter dated December 27, 2002, Ramada notified Jay-Dharma that it failed the October 1, 2002 inspection, that it was now in default under the License Agreement, and that if it did not pass re-inspection, the License Agreement would be terminated. (Id.)

On April 9, 2003, Ramada conducted a third quality insurance inspection of the Facility, and for a third time the Facility failed to meet Ramada's quality standards. (Id. ¶ 33, Ex. E.) In a letter dated April 18, 2003, Ramada notified Jay- Dharma that it failed the April 9, 2003 inspection, that it was in continuing default under the License Agreement, and that Ramada intended to terminate the License Agreement effective August 1, 2003, unless the Facility received a passing score on a July 17, 2003 quality assurance re-inspection. (Id.)

In a letter dated August 1, 2003, Ramada notified Jay-Dharma that it terminated the License Agreement, effective August 1, 2003, for failing to cure its default under the License Agreement. (Id. ¶ 34, Ex. F.) The letter further informed Jay-Dharma that it must, within 14 days, remove all items from the Facility that display or refer to the Ramada marks. (Id.) The letter also demanded immediate payment of $6,349.45 in recurring fees due as of July 29, 2003, recurring fees incurred through the date Jay-Dharma completed removing all Ramada marks from the Facility, and liquidated damages of $196,000.00 as specified in the License Agreement. (Id.)

Ramada discovered during inspections of the Facility on December 18, 2003, February 12, 2004, and June 30, 2004, that Jay-Dharma was continuing to use Ramada marks to rent rooms to the public. (Id. ¶¶ 38-39, Ex. G.) After a November 3, 2004 inspection, Ramada was satisfied that the Facility was in compliance with its obligation under the License Agreement to cease using Ramada marks to rent rooms to the public. (Cox Aff. ¶ 33, Ex. A.)

Plaintiff filed this action on June 30, 2005 against Jay-Dharma, R. Patel, V. Patel, and D. Patel. In count one, Ramada 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 for Defendants' unauthorized use of Ramada marks. Count three claims Defendants owe Ramada $196,000.00 in liquidated damages under the License Agreement. In the alternative, Ramada seeks actual damages resulting from the premature termination of the License Agreement in count four. Count five requests $10,951.25 that 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 [Ramada] for the period during which JayDharma misused the Ramada Marks and was thereby unjustly enriched." (Compl. ¶ 73.) Finally, count seven seeks to recoup all of the above monies from the individual Defendants as Jay-Dharma's Guarantors under the License Agreement.

The record indicates that Jay-Dharma, R. Patel, and V. Patel were properly served with process on July 14, 2005; D. Patel was served on July 18, 2005. On August 28, 2005, the parties requested and received a consent order extending Defendants' time to answer the Complaint to August 31, 2005. Defendants, however, failed to answer or otherwise plead with respect to the Complaint as required by Rule 12(a). On December 7, 2005, the individually named Defendants filed a "Suggestion of Bankruptcy Filing" with the Court demonstrating that R. Patel and V. Patel filed for Chapter 7 bankruptcy with the Bankruptcy Court for the Western District of Texas, and that D. Patel filed for Chapter 7 bankruptcy with the Bankruptcy Court for the Eastern District of Virginia.

On December 28, 2005, Ramada petitioned the Clerk of the Court for an entry of default against Jay-Dharma (but not the individually named Defendants) pursuant to Rule 55(a). On December 30, 2005, the Clerk of the Court entered Default against Jay-Dharma for failure to appear. On February 17, 2006, Plaintiff submitted the instant motion, seeking default judgment ...

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