Century 21 Real Estate LLC v. Bercosa Corp.

• Decision Date: 18 September 2009
• Docket Number: No. 08-CV-3175 (JG)(JO).,08-CV-3175 (JG)(JO).
• Parties: CENTURY 21 REAL ESTATE LLC, Plaintiff, v. BERCOSA CORP. and Pedro Bernard, Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 274

666 F.Supp.2d 274

CENTURY 21 REAL ESTATE LLC, Plaintiff, v. BERCOSA CORP. and Pedro Bernard, Defendants.

No. 08-CV-3175 (JG)(JO).

United States District Court, E.D. New York.

September 18, 2009.

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Matthew Joseph Koster, Ronald A. Giller, Gordon & Rees, LLP, New York, NY, for Plaintiff.

ORDER

JOHN GLEESON, District Judge.

On October 31, 2008, the Clerk of the Court entered default as to defendants Bercosa Corp. and Pedro Bernard and I referred the motion for a default judgment to Judge James Orenstein for a Report and Recommendation ("R & R") on the question of appropriate relief. On November 18, 2008, plaintiff Century 21 Real Estate LLC ("Century 21") filed a motion for entry of default judgment including both permanent and injunctive relief and monetary damages against Bercosa and Bernard. On August 25, 2009, Judge Orenstein filed his R & R as to the plaintiff's motion.

Both because the defendants have failed to object to the R & R and because I agree with Judge Orenstein's thorough, careful and well-reasoned analysis, I adopt the recommendations in the R & R. Accordingly, the Clerk of the Court is hereby directed to enter judgment as follows: default judgment in favor of plaintiff Century 21 and award Century 21 a total of $319,832.32 jointly and severally against defendants Bercosa and Bernard, consisting of $309,585.32 for the defendants' contract claims (including $58,781.24 in outstanding contractual payments, $9,894.57 in contractual interest on such payments, and $240,909.51 in liquidated damages), $5,000.00 in statutory damages under the Lanham Act, $4,582.00 in attorneys' fees, and $665.00 in other costs. Further, the judgment shall include injunctive relief ordering the defendants to cooperate in an audit of defendant Bercosa's books and records, and both defendants are also permanently enjoined from using the Century 21 Marks to market or promote their real estate brokerage services and from otherwise holding themselves out as a Century 21 franchise.

So Ordered.

REPORT AND RECOMMENDATION

JAMES ORENSTEIN, United States Magistrate Judge.

In a Complaint filed on August 5, 2008, plaintiff Century 21 Real Estate LLC ("Century 21") accused defendants Bercosa Corp. ("Bercosa") and its owner Pedro Bernard ("Bernard") of breaching a contract and of making unauthorized use of Century 21's trademarks in violation of the Lanham Act, 15 U.S.C. § 1051 et seq. Docket Entry ("DE") 1 ("Complaint"). The defendants have never responded to the Complaint. On October 30, 2008, at Century 21's request, DE 4, the Clerk noted the defendants' default. Century 21 now seeks a default judgment, DE 6 ("Motion"), and the Honorable John Gleeson, United States District Judge, has referred the matter to me for a report and recommendation. I now make my report and, for the reasons set forth below, respectfully recommend that the court award Century 21 a total of $319,832.32, consisting of $309,585.32 on its contract claims (including $58,781.24 in outstanding contractual payments, $9,894.57 in contractual interest on such payments, and $240,909.51 in liquidated damages), $5,000.00 in statutory damages under the Lanham Act, $4,582.00 in attorneys' fees, and $665.00 in other costs. I further recommend that the court order the defendants to cooperate in an audit of Bercosa's books and records, and that it permanently enjoin both defendants from using the Century 21 Marks to market or promote their real estate brokerage services and from otherwise holding themselves out as a Century 21 franchise.

I. Background

The following factual recitation is drawn from the Complaint's uncontested allegations. Century 21 operates a franchise system that offers real estate brokerage services throughout the country. It provides promotion, resources, and other types of support to its franchisees, and permits them to use its trademarks, service marks, and logos (collectively, the "Century 21 Marks") in order to clearly identify the origin of their services. Complaint ¶¶ 7-16; see also Motion Ex. 3 (Declaration of Jacqueline Bertet, Century 21's Senior Director of Financial Services) ("Bertet Dec.") ¶¶ 4-13. The Century 21 Marks are registered with the United States Patent and Trademark Office and Century 21 retains the exclusive right to use and license them. Complaint ¶¶ 8-9; see also Bertet Dec. ¶¶ 5-6. Century 21 has expended substantial time, effort, and money developing goodwill in its marks and endeavoring to cause consumers to associate them exclusively with Century 21 services. Complaint ¶¶ 10-16; see also Bertet Dec. ¶¶ 7-13.

On November 1, 2005, Century 21 executed two separate franchise agreements with Bercosa, pursuant to which Bercosa agreed to operate two Century 21 franchises in New York—one in Brooklyn and one in Queens—for a period of ten years beginning January 2, 2006. Complaint ¶¶ 17-20 & Exs. 2, 3 (franchise agreements) ("Agreement") ¶¶ 1.7, 2.4.¹ The agreements required Bercosa to make certain monthly payments to Century 21 (including "royalty fees" and contributions to Century 21's National Advertizing Fund), and to keep records and reports of its transactions. Agreement ¶¶ 7, 8, 13. Century 21 retained the right to terminate the agreements if Bercosa failed to satisfy any of its contractual obligations. Id. ¶ 16. In the event that Century 21 exercised that right, Bercosa would be required to stop using the Century 21 Marks and to discontinue all advertising as a Century 21 franchise. Id. ¶ 16.4. It would also be obligated to permit Century 21 to perform an audit of the business. Complaint ¶ 43; Agreement ¶¶ 13.2, 16.9. In connection with the franchise agreements, Bernard executed a personal guarantee of Bercosa's obligations under the agreements. See Motion Ex. 1-C (Guarantee of Payment and Performance) ("Personal Guarantee").

When Century 21 audited Bercosa's records in early 2007, it discovered that Bercosa had failed to report certain transactions and to pay certain fees. Bertet Dec. ¶¶ 17, 34-37; see also Complaint ¶¶ 77, 83. On September 4, 2007, Century 21 wrote to Bernard notifying him that Bercosa had materially breached the franchise agreements and announcing its intention to terminate both agreements if the breach was not cured by October 10, 2007. Complaint ¶ 35 & Ex. 5 (letters dated Sept. 4, 2007). Bercosa failed to cure its breach. Complaint ¶ 36; Bertet Dec. ¶ 26. On October 29, 2007, Century 21 send Bernard notice that it was terminating the agreements effective October 30, 2007. Complaint ¶ 37 & Ex. 6 (letters dated Oct. 29, 2007). The letters also demanded that the defendants immediately stop using the Century 21 Marks. Bertet Dec. ¶ 27; Complaint Ex. 6. The defendants nevertheless continued to use the Century 21 Marks. Complaint ¶¶ 40-41; Bertet Dec. ¶ 30. In February and April of 2008, Century 21 had its attorneys send the defendants further letters demanding that they immediately stop using the Century 21 Marks and pay all outstanding fees and warning of the possibility that Century 21 would take action to enforce its rights, including its rights under the Personal Guarantee. Complaint ¶¶ 41 & Ex. 7 (letters dated February 25, 2008 and April 29, 2008). The defendants neither responded nor complied with Century 21's demands. Complaint ¶¶ 41-43. The defendants continued to use the Century 21 Marks through the date that Century 21 initiated this lawsuit. Bertet Dec. ¶ 30.

Century 21 asserts claims under both state and federal law. Specifically, it asserts claims under the Lanham Act based on the defendants' continued use of the Century 21 Marks after the franchise's termination. See Complaint ¶¶ 44 53, 54-58, 59-66 (Lanham Act claims); 15 U.S.C. § 1114 (Lanham Act Section 32(a), prohibiting trademark infringement); id. § 1125(a) (Lanham Act Section 43(a), prohibiting false designation of origin); id. § 1125(c) (Lanham Act Section 43(c) prohibiting trademark dilution). It also asserts several state law contract claims based on the defendants' failure to satisfy various obligations under the franchise agreements. Complaint ¶¶ 67-73, 74-79, 80-85, 86-89, 90-93, 94-97.

In its request for relief, Century 21 seeks a total monetary award of $480,727.96. Specifically, Century 21 asks for $100,000 in statutory damages under the Lanham Act, as well as $372,530.60 in damages on the contract claims—consisting of $68,162.34 in fees owed under the terms of the franchise agreements, $11,529.82 in interest, and $292,838.44 in liquidated damages. Century 21 also seeks $8,197.36 in attorneys' fees and costs, an injunction prohibiting the defendants from using the. Century 21 Marks, and an audit of Bercosa's books and records. Bertet Dec. ¶ 59; DE 6 Ex. 1 (memorandum of law) ("Memo.") at 17.

II. Discussion

A. Liability

When a defendant defaults, the court must accept as true all well-pleaded allegations in the complaint, except those pertaining to the amount of damages. Fed.R.Civ.P. 8(b)(6); see Finkel v. Whiffen Electric Co., 577 F.3d 79, 83 n. 6 (2009) (citing Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir.1992)). The fact that a complaint stands unanswered does not, however, suffice to establish liability on its claims: a default does not establish conclusory allegations, nor does it excuse any defects in the plaintiff's pleading. With respect to liability, a defendant's default does no more than concede the complaint's factual allegations; it remains the plaintiff's burden to establish that those uncontroverted allegations, without more, establish the defendant's liability on each asserted cause of action. See, e.g., id. at 84-85; DIRECTV, Inc. v. Neznak, 371 F.Supp.2d 130, 132-33 (D.Conn.2005) (denying default judgment on several claims based only on conclusory allegations which lacked a sufficient factual basis for a finding of liability); see also Trans World Airlines, Inc. v....