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Super 8 Motels, Inc. v. B and J

November 8, 2006

SUPER 8 MOTELS, INC., A SOUTH DAKOTA CORPORATION, PLAINTIFF,
v.
B AND J (RADHA), LLC, SURESH DAYAL, AND INDIVIDUAL; BHANU DAYAL, 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 B and J (Radha), LLC ("B&J"), Suresh Dayal ("S. Dayal"), and Bhanu Dayal ("B. Dayal"), (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.) B&J is a limited liability company existing under the laws of Alabama. (Id. ¶ 2.) S. Dayal and B. Dayal are citizens of Alabama. (Id. ¶¶ 3-4.) 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 August 30, 2000, SMI entered into the Franchise Agreement with B&J for the operation of a 142-room guest lodging facility located at 1813 Crestwood Boulevard, Birmingham, Alabama, site no. 10044 (the "Facility"). (Id. ¶ 20.) B&J was obligated to operate the Facility as a Super 8 guest lodging facility for twenty years, during which time B&J 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, B&J 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, B&J 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, B&J (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 B&J cured such defaults. (Id. ¶ 28, Ex. A.) Termination of the Franchise Agreement under section 11.2 obligated B&J to pay liquidated damages to SMI. (Id. ¶ 29, Ex. A §§ 12.1.) The individually named Defendants provided SMI with a Guaranty of B&J'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 B&J. (Id. ¶¶ 33-34., Ex. B.)

In a letter dated August 9, 2001, SMI informed B&J that the Facility failed a July 31, 2001 quality assurance inspection, and advised B&J that it was in default under the Franchise Agreement. (Id. ¶ 37, Ex. C.) The letter further informed B&J that the default could be cured by submitting a written plan to SMI on how it would improve the Facility to bring it into compliance with SMI standards, but that if B&J failed to submit a plan, or if that plan was not approved by SMI, then the Franchise Agreement might be subject to termination. (Id.)

In a letter dated October 23, 2001, SMI informed B&J that it failed a second quality assurance inspection, conducted on October 16, 2001, that B&J was in continuing default, and that the Franchise Agreement was subject to immediate termination. (Id. ¶ 38, Ex. D.)

In a letter dated November 15, 2001, SMI informed B&J that it had until November 30, 2001 to submit an acceptable improvement plan to SMI to address the Facility's quality assurance deficiencies, and that B&J's failure to do so might cause the Franchise Agreement to be terminated. (Id. ¶ 39, Ex. E.) B&J failed to submit an acceptable improvement plan by November 30, 2001. (Id. ¶ 40.)

In a letter dated July 22, 2002, SMI informed B&J that it failed another quality assurance inspection, conducted on June 24, 2002, that it was in continuing default, and that the Franchise Agreement was subject to immediate termination. (Id. ¶ 41, Ex. F.)

In a letter dated November 19, 2002, SMI informed B&J that it failed another quality assurance inspection, conducted on August 27, 2002. (Id. ¶ 42, Ex. G.) By letter dated January 17, 2003, SMI again notified B&J that it was in default under the Franchise Agreement and that it had until March 17, 2003 to cure, or else the Franchise Agreement would be terminated on April 1, 2003. (Id. ¶ 43, Ex. H.)

In a letter dated April 29, 2003, SMI notified B&J that SMI terminated the Franchise Agreement, effective April 29, 2003, due to B&J's failure to meet SMI's required quality standards. (Id. ¶ 44, Ex. I.) The letter further informed B&J 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, and liquidated damages of $284,000.00. (Id.)

Defendants continued to use the Super 8 marks to rent rooms to the public through at least June 1, 2005. (Id. ¶¶ 47-48, 51.) In letters dated June 3, 2004, August 18, 2004, September 8, 2004, and March 15, 2005, SMI again requested that B&J remove all Super 8 marks from the Facility. (Id. ¶ 49, Ex. J, K.) SMI conducted a post-termination inspection demonstrating that B&J was still infringing its trademarks as of June 1, 2005. (Workman Aff. ¶ 36, Ex. A.)

Plaintiff filed this action on December 7, 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 Count two requests disgorgement of profits and restitution. Count three claims Defendants breached the Franchise Agreement and demands $2,330.45 in damages for expenses incurred in hiring an independent contractor to remove Super 8 marks from the Facility. Count four seeks $284,000.00 in liquidated damages under the Franchise Agreement. In the alternative, SMI seeks actual damages resulting from the termination of the Franchise Agreement in count five. Finally, count six seeks to recoup all of the above monies from the individual Defendants as B&J's Guarantors under the Franchise Agreement.

The record indicates that B&J, S. Dayal and B. Dayal were properly served with process on March 16, 2006. (Affidavit of Lisa M. Ackerly, Esq. in Supp't of Mot. for Default J. ("Ackerly Aff.") ΒΆΒΆ 4-6, Exs. A, B, and C.) Defendants failed to answer or otherwise plead with respect to the Complaint as required by Rule 12(a). On April 14, 2006, SMI petitioned the Clerk of the Court for an entry of default against Defendants pursuant to Rule 55(a). On April 21, 2006, the Clerk of the Court entered Default against Defendants for failure to appear. On August 18, 2006, Plaintiff ...


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