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Wingate Inns International, Inc v. P.G.S.

January 26, 2011

WINGATE INNS INTERNATIONAL, INC., PLAINTIFF,
v.
P.G.S., LLC; AND ANTONINO PECORA, DEFENDANTS.



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

NOT FOR PUBLICATION

OPINION

Wingate Inns International, Inc. ("Wingate") moves for default judgment against defendants P.G.S., LLC and Antonino Pecora ("Defendants"). Defendants move to have the default that has been entered against them vacated. Pursuant to Rule 78 of the Federal Rules of Civil Procedure, the motions are decided without oral argument. Wingate‟s motion for default judgment is denied and defendant‟s motion to vacate is granted.

FACTUAL AND PROCEDURAL BACKGROUND

Wingate is a hotel company and has the exclusive right to sublicense the use of its trademarks and service marks ("Wingate Marks"). (Ver. Compl. ¶¶ 9-10.) Wingate and P.G.S., LLC ("PGS") entered into a franchise agreement, dated December 24, 2003, that allowed PGS to operate Wingate lodging facility. (Ver. Compl. ¶ 17; Ex. A to Ver. Compl.) The franchise agreement was to last ten years. (Ver. Compl. ¶ 18.) Under the terms of the agreement, PGS was allowed to use the Wingate Marks to promote Wingate‟s brand name and was to make periodic payments to Wingate for royalties, service assessments, taxes, interest, reservation system user fees, annual conference fees, and other fees (collectively, the "recurring fees"). (Id. at ¶ 19.) PGS also leased signs for the exterior of their franchise from CIT Group. Defendant Pecora gave Wingate a guaranty of PGS‟ obligations under this agreement, (Ver. Compl. ¶¶ 28-29; Ex. B to Ver. Compl.), and promised that he would "immediately make each payment and perform or cause to be performed each obligation under the agreement." (Ex. A to Ver. Compl.) The defendants also made a note in favor of Wingate in the amount of $250,000. (Id. ¶ 31.)

On April 21, 2009, PGS advised Wingate by letter that it was terminating the franchise agreement effective June 1, 2009. After this date, PGS pledged to no longer operate its facility as a Wingate lodging facility. (Ver. Compl. ¶ 36; Ex. E to Ver. Compl.) Wingate wrote to defendants and acknowledged their request to terminate the lease and explained the debts owed to Wingate under the terms of the franchise agreement after termination. (Ver. Compl. ¶ 37; Ex. F to Ver. Compl.)

Wingate paid the remaining balance under the lease of $43,424.28 to CIT Group and invoiced PGS for this amount in September 2009. (July 22, 2010 Suzanne Fenimore Aff. ¶ 27.) Wingate claims to be owed agreed upon liquidated damages for breach of contract, all outstanding recurring fees, the balance of the note and the amount Wingate paid to CIT Group. (Id. at ¶ 23.)

Wingate alleges that despite PGS‟ termination of the agreement and its requests that PGS cease use of the Wingate Marks, PGS has "used the Wingate Marks without authorization to rent rooms by, among other things, failure to remove Wingate Marks from guest room doors, telephone plates, telephone dialing instructions, ice buckets and trays, and plaques throughout the facility." (Ver. Compl. ¶ 42.)

On December 8, 2009, Wingate filed a complaint against the defendants alleging that the defendants had not fulfilled their duties and obligations under the franchise agreement. PGS and Pecora were served with process on January 17, 2010. Although defendants requested an extension of time within which to answer through Wingate‟s counsel, and discussed a potential settlement, (July 12, 2010, Paul R. Marino Aff. ¶¶ 4-5), they have not answered the complaint or filed opposition to Wingate‟s motion.

Wingate requested entry of default against defendants, which the Clerk of Court entered. Wingate then moved for the entry of a default judgment in the amount of $786,158.51. This amount is comprised of (1) $222,940.21 for recurring fees under the agreement, (2) $43,424.81 for defendant‟s unjust enrichment pursuant to the CIT Group payment, (3) $300,421.52 for liquidated damages, (4) $210,940.13 for the amount outstanding on the note, and (5) $8,441.84 for attorneys‟ fees and costs.*fn1 Before this motion was decided, the defendants brought a motion requesting that the default be vacated. Pecora contends that Wingate represented to him that a settlement would be reached and that as long as settlement negotiations were ongoing, no further legal action was required on his part. (November 18, 2010, Antonino Pecora Aff. ¶¶ 27-28),

STANDARD OF REVIEW

Federal Rule of Civil Procedure 55 governs the entry of default and default judgment. The power to grant default judgment "has generally been considered an "inherent power,‟ governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases." Hritz v. Woma Corp., 732 F.2d 1178, 1181 (3d Cir. 1984) (citations omitted). Because a default judgment prevents a plaintiff‟s claims from being decided on the merits, "this court does not favor entry of defaults or default judgments." United States v. $55,518.05 in U.S. Currency 728 F.2d 192, 194 (3d Cir. 1984). Accordingly, the Third Circuit has clarified that, while "the entry of a default judgment is left primarily to the discretion of the district court," this "discretion is not without limits," and cases should be "disposed of on the merits whenever practicable." Hritz, at 1181 (citations omitted); see also $55,518.05 in U.S. Currency, 728 F.2d at 194-95.

Rule 55(c) allows a district court to set aside an entry of default "for good cause." Fed. R. Civ. P. 55(c). A district courts is required to "consider the following factors in exercising its discretion in granting or denying a motion to set aside a default under Rule 55(c) or a default judgment under Rule 60(b)(1): (1) whether the plaintiff will be prejudiced; (2) whether the defendant has a meritorious defense; (3) whether the default was the result of the defendant‟s culpable conduct." Budget Blinds, Inc. v. White, 536 F.3d 244, 255 (3d Cir. 2008) (citing $55,518.05 in U.S. Currency, 728 F.2d at 195). These are the same three factors the Third Circuit considers in determining whether a default judgment should be granted. Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir. 2000). Any doubts in this inquiry are "to be resolved in favor of the party moving to set aside the ...


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