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Days Inns Worldwide, Inc., A Delaware Corporation v. 5 Star

March 29, 2011

DAYS INNS WORLDWIDE, INC., A DELAWARE CORPORATION, PLAINTIFF,
v.
5 STAR, INC., AN IDAHO CORPORATION, JASWINDER LAL, AN INDIVIDUAL, GURDEEP KAUR, AN INDIVIDUAL, AND JOHN BANGA, AN INDIVIDUAL,
DEFENDANTS.



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

NOT FOR PUBLICATION

OPINION and ORDER

Days Inns Worldwide, Inc. ("Days Inns") moves for default judgment against defendant 5 Star, Inc. ("5 Star") only. Pursuant to Rule 78 of the Federal Rules of Civil Procedure, the motion is decided without oral argument. Because 5 Star has violated a court order and has failed to appear, Days Inns‟ motion for default judgment is granted.

FACTUAL AND PROCEDURAL BACKGROUND

Days Inns, a hotel company, has the exclusive right to sublicense the use of its trademarks and service marks ("Days Inns Marks"). (Ver. Compl. ¶¶ 11-12.)Days Inns and 5 Star entered into a license agreement dated July 11, 2003, which allowed 5 Star to operate a Days Inns lodging facility. (Ver. Compl. ¶ 20; Ex. A to Ver. Compl.)The license agreement was to last 15 years. (Ver. Compl. ¶ 21.)Under the terms of the agreement, 5 Star was to make periodic payments to Days Inns for royalties, service assessments, taxes, interest, reservation system user fees, annual conference fees, and other fees (collectively, the "recurring fees"). According to the terms of the license agreement, 5 Star was also required to prepare and submit monthly revenue reports and maintain accurate financial information. (Ver. Compl. ¶¶ 23-24; Ex. A to Ver. Compl.) Defendants Jaswidner Lal, Gurdeep Kaur and John Banga gave Days Inns a guaranty of 5 Star‟s obligations under this agreement, (Ver. Compl. ¶¶ 34-35; Ex. C to Ver. Compl.), and promised that they would "immediately make each payment and perform or cause to be performed each obligation required of Licensee under the agreement." (Ex. C to Ver. Compl.) An addendum for satellite connectivity services was also executed between the parties on July 11, 2003. (Ver. Compl. ¶ 32; Ex. B to Ver. Compl.)

The license agreement allowed Days Inns to terminate the agreement if 5 Star failed to pay amounts owed under the license agreement or failed to remedy "any other default of its obligations or warranties under the License Agreement within 30 days after receipt of written notice from DIW specifying one or more defaults under the License Agreement." (Ver. Compl. ¶ 25; Ex. A to Ver. Compl.) 5 Star agreed to pay liquidated damages in the amount of $61,000 in the event of a termination of the license agreement and $1,000 in liquidated damages in the event that the addendum to the license agreement was terminated. (Ver. Compl. ¶¶ 26-27.) After a termination of the agreement, 5 Star would be prohibited from using the Days Inns Marks.

Under the terms of the license agreement any past due amounts were subject to interest and the non-prevailing party would "pay all costs and expenses, including reasonable attorneys‟ fees, incurred by the prevailing party to enforce this Agreement or collect amounts under this Agreement." (Ver. Compl. ¶¶ 30-31.)

On November 19, 2007, Days Inns advised 5 Star by letter that: (1) it was in breach of the license agreement for failing to pay the recurring fees, (2) according to the license agreement, it had 30 days to cure this monetary default, and (3) if the default was not cured, the license agreement was subject to termination. (Ver. Compl. ¶ 37; Ex. D to Ver. Compl.) Days Inns again wrote to 5 Star on February 11, 2008, claiming that $79,387.77 in recurring fees was due under the license agreement and reminding 5 Star of Days Inns‟ ability to terminate the license agreement if the past due monies were not paid. (Ver. Compl. ¶ 38; Ex. E to Ver. Compl.) After the requested fees were not paid, Days Inns terminated the license agreement by letter on March 24, 2008 and advised 5 Star that:

(a) [5 Star] was to immediately discontinue the use of all trade names, service marks, signs, and other forms of advertising, and other indicia of operation as a Days Inns Facility, and to discontinue the use of other materials on the premises effectively to distinguish the same from its former appearance as a Days Inns System facility, (b) all items bearing the Days Marks had to be removed, (c) all signs and any listings in directories and similar guides in which the Facility was identified as a Days Inn had to be changed, (d) it was required to pay DIW as liquidated damages for premature termination the sum of $62,000 as required under the License Agreement and Addendum, (e) it had to de-identify the Facility within 14 days from the receipt of the notice, and (f) demand was made for all outstanding Recurring Fees through the date of termination. (Ver. Compl. ¶ 39.)

Days Inns alleges that despite the termination of the license agreement and its requests that 5 Star deflag the facility, 5 Star has continued to use the Days Inns Marks (Ver. Compl. ¶ 43.)

On March 6, 2009, Days Inns filed a complaint against the defendants alleging a violation of the Lanham Act and breach of contract, and requested restitution, disgorgement of profits for misuse of the Days Inns Marks, liquidated damages, or actual damages if the liquidated damages provision was found unenforceable and a declaratory judgment concerning its rights to deflag the property. 5 Star was served with process on March 26, 2009. (ECF No. 7.) The McDaniel Law Firm filed an answer on behalf of 5 Star on August 24, 2009, but withdrew as counsel for 5 Star in August 2010. The Magistrate Judge informed 5 Star that it had thirty days to retain new counsel. If counsel was not obtained she would request that default be entered against it. (ECF No. 28.) Since then, 5 Star has neither appeared through counsel, nor requested an extension of time to obtain new counsel. Days Inns requested entry of default against 5 Star on October 25, 2010, which the Clerk of Court entered.

Days Inns then moved for the entry of a default judgment in the amount of $767,965.44. This amount is comprised of (1) $123,580.82 for recurring fees owed under the agreement, (2) $92,012.48 for liquidated damages, (3) $526,520.94 for damages under the Lanham Act, and (4) $25,851.20 for attorneys fees. Although served, 5 Star has not filed any opposition to this motion.

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 ...


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