Baymont Franchise Systems, Inc. v. Bernstein Co., LLC
| Decision Date | 13 July 2021 |
| Docket Number | Civil Action 18-620-JMV-AME |
| Parties | BAYMONT FRANCHISE SYSTEMS, INC., Plaintiff v. THE BERNSTEIN COMPANY, LLC and DAVID B. BERNSTEIN, Defendants |
| Court | U.S. District Court — District of New Jersey |
NOT FOR PUBLICATION
This matter comes before the Court on the motion by Defendants David B. Bernstein (“Bernstein”) and The Bernstein Company (“TBC”) (collectively “Defendants”) for leave to file a Fifth Amended Answer, Counterclaim and Third Party Complaint pursuant to Federal Rule of Civil Procedure 15(a)(2). [D.E. 83] Plaintiff Baymont Franchise Systems, Inc. (“BFS”) and prospective Third Party Defendant Wyndham Hotel Group, LLC (“WHG”) oppose the motion. For the reasons that follow, the motion is denied.[1]
This breach of contract action arises out of franchisee TBC's alleged violation of a hotel franchise agreement, resulting in the premature termination of the franchise by franchisor BFS. BFS owns the rights to the “Baymont System” for providing guest lodging services, i.e., a hotel franchise. It contracts with franchisees giving them the right to operate hotels bearing the Baymont name and to participate in the Baymont franchise system in exchange for various payments.
On or about September 29, 2014, BFS and TBC entered into an agreement under which TBC would operate a 60-room hotel in Rome, Georgia, for a 20-year term, running from the opening date (the “Franchise Agreement”).[2] On the same date, Bernstein, TBC's principal, executed a Guaranty, in which Bernstein agreed, among other things, that he was personally responsible for fulfilling TBC's obligations under the Franchise Agreement in the event of default. At the time the Franchise Agreement and Guaranty were executed, TBC was still operating its hotel as a different franchise pursuant to a contract with another franchisor. The TBC hotel ultimately opened as a Baymont facility pursuant to the Franchise Agreement on or about April 14, 2016, doing business under the name Baymont Inn & Suites of East Rome.
The Franchise Agreement required TBC, among other things, to pay BFS various fees throughout the contractual term, including payments for royalties, marketing, reservation system access, and others. It also required TBC to submit monthly reports to BFS disclosing gross room revenue, for the purpose of calculating royalties and other recurring fees due. TBC would, in exchange, benefit from using the Baymont mark and from various support services provided by BFS, including training programs, marketing activities, and a reservation system operated and maintained by BFS.
The Franchise Agreement also gave BFS certain rights and remedies in the event of TBC did not pay fees owed, failed to perform its obligations, or otherwise breached the Franchise Agreement, any of which would be considered a default. It provided that, upon notice to TBC of default, BFS would extend a period to cure the default, after which BFS could exercise its right to terminate the Franchise Agreement. BFS also had the unilateral right of termination under the Franchise Agreement, on notice to TBC, should TBC discontinue operating the hotel as a Baymont facility and/or lose possession or the right to possession of the subject facility. The Franchise Agreement further provided that, in the event of termination due to TBC's actions, TBC would be required to pay liquidated damages, calculated according to the formula provided therein.
According to the Complaint, on or about July 5, 2017, TBC sold its Baymont facility to a third party without BFS's consent. BFS deemed this action to trigger the Franchise Agreement's termination provision and advised TBC, by letter of August 4, 2017, that the sale caused the “automatic termination of the Franchise Agreement.” (Complaint, Ex. C.) The August 4, 2017 letter further informed TBC it was required to comply with its post-termination obligations, including payment of liquidated damages and all outstanding fees. BFS provided documentation of the amounts owed and demanded payment within ten days.
BFS filed this lawsuit on January 1, 2018, to recover liquidated damages, or alternatively actual damages, and outstanding fees pursuant to the Franchise Agreement and the Guaranty. Bernstein entered an appearance pro se and also attempted to proceed on behalf of TBC, as the company's principal.[3] Bernstein thereafter moved to dismiss the Complaint. By Order of April 1, 2019, the Court denied his motion and instructed him to answer. On April 29, 2019, Bernstein filed an Answer and Counterclaim, in which he alleged BFS had also breached its contractual obligations by failing to provide an adequate reservation system and other franchisee support, overcharging recurring fees, and permitting another Baymont franchise to open in Rome, Georgia. Bernstein thereafter sought to amend the Answer and Counterclaim various times, as detailed more fully in the Opinion and Order of June 17, 2020 (the “June 2020 Order”). (See D.E. 56.) The June 2020 Order granted Defendants leave to file a Fourth Amended Answer, Affirmative Defenses, Counterclaim and Third Party Complaint (the “Fourth Amended Counterclaim”) but warned that Bernstein's repetitive failure to cure deficiencies may warrant denial of any future motion for leave to further amend. After the Fourth Amended Counterclaim was filed, BFS and WHG promptly moved to dismiss.
At or around that time, Bernstein and TBC retained counsel to represent them in this action. Through their attorney, Defendants responded to the motion to dismiss the Fourth Amended Counterclaim by withdrawing the pleading and instead asking the Court to grant leave to file a further amended answer. In light of this filing and of Defendants' failure to comply with the District's Local Civil Rules governing motion practice, the Honorable John M. Vazquez entered an order on February 22, 2021, striking the Fourth Amended Counterclaim without prejudice and providing Defendants an opportunity to file a motion for leave to amend in compliance with Local Civil Rule 15.1. (See D.E. 81.)
On March 24, 2021, Defendants filed this motion for leave to file a Fifth Amended Answer, Counterclaim and Third Party Complaint pursuant to the Court's February 22, 2021 Order.
The motion presently before the Court seeks leave to file a pleading asserting five counterclaims against BFS: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) violation of the federal franchise rule; (4) violation of the New Jersey Franchise Practices Act, N.J.S.A. 56:10-1, et seq.; and (5) violation of the New Jersey Consumer Fraud Act, N.J.S.A 56:8-1, et seq. (Hereinafter, the Court will refer to the proposed pleading simply as the “Counterclaim” insofar as it concerns claims asserted against BFS.) The proposed pleading also includes a Third Party Complaint against WHG asserting the same five claims. The claims, which will be discussed in more detail below, generally arise out of the following alleged misconduct by BFS and/or WHG: failure to honor assurances made concerning the Franchise Agreement; failure to provide franchisor support services, including adequate reservation system access and functionality; and retaliatory interference with reservations to the Baymont facility operated by TBC.
BFS and WHG argue primarily that leave to amend should be denied as futile. They also oppose the motion on the basis that the proposed amendment would unduly delay this litigation, cause them prejudice, and constitute a repetitive and improper attempt to cure deficiencies in claims previously rejected by the Court.
Federal Rule of Civil Procedure 15(a)(2) provides “[t]he court should freely give leave [to amend a pleading] when justice so requires.” Fed.R.Civ.P. 15(a)(2). However, it is well-established that leave to amend may be denied for various equitable reasons such as “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and/or] futility of amendment . . ..” Foman v. Davis, 371 U.S. 178, 182 (1962). The decision to grant or deny leave to amend rests within the discretion of the court. Id.
In considering the equitable reasons for denying a motion for leave to amend under Rule 15, the Court must be guided by the Third Circuit's consistent recognition “that prejudice to the non-moving party is the ‘touchstone for the denial of an amendment.'” Arthur v Maersk, Inc., 434 F.3d 196, 204 (3d Cir. 2006) (quoting Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d Cir. 1993)). Undue delay, as a basis for denying a motion for leave to amend, focuses on whether the party seeking leave has inexplicably failed to take advantage of previous opportunities to amend, resulting in unfair burdens to the court and the opposing party. Id. While undue delay concerns the moving party's reasons for not amending earlier in the action, undue prejudice focuses on the potential effect of the proposed amendment on the opposing party. Adams v. Gould Inc., 739 F.2d 858, 868 (3d Cir. 1984). The Third Circuit has held that an amendment may be unduly prejudicial if it “would result in additional discovery, cost, and preparation to defend against new facts or new theories.” Cureton v. Nat'l Collegiate Athletic Ass'n, 252 F.3d 267, 273 (3d Cir. 2001). Futility, in the context of assessing the merits of a motion for leave to amend under Rule 15, “means that the complaint, as amended, would fail to state a claim upon which relief could be granted.” In re Burlington Coat...
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