Microtel Inns & Suites Franchising, Inc. v. Anira Hotels, Inc.

• Decision Date: 31 January 2017
• Docket Number: 1:15-cv-01863-WSD
• Parties: MICROTEL INNS AND SUITES FRANCHISING, INC., Plaintiff, v. ANIRA HOTELS, INC., NAYANKUMARI PATEL, and CHUNILAL PATEL, Defendants.
• Court: U.S. District Court — Northern District of Georgia

MICROTEL INNS AND SUITES FRANCHISING, INC., Plaintiff, v. ANIRA HOTELS, INC., NAYANKUMARI PATEL, and CHUNILAL PATEL, Defendants.

1:15-cv-01863-WSD

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

January 31, 2017

OPINION AND ORDER

This matter is before the Court on Plaintiff Microtel Inns and Suites Franchising, Inc.'s ("MISF") Motion for Entry of Default Judgment as to Defendants Anira Hotels, Inc., Nayankumari Patel, and Chunilal Patel (collectively, "Defendants") [13].

I. BACKGROUND

A. Facts

MISF is a Georgia corporation with its principal place of business in Parsippany, New Jersey. (Compl. [1] ¶ 1). Defendant Anira Hotels, Inc. ("Anira") is a Florida corporation with its principal place of business in Jacksonville, Florida. (Id. ¶ 2). Individual Defendants Nayankumari Patel and Chunilal Patel are the principals of Anira and are citizens of Florida. (Id. ¶¶ 3-4).

On January 6, 2006, Anira entered into a license agreement (the "License Agreement") with MISF to operate a 97-room Microtel® guest lodging facility located at 4940 Mustang Road, Jacksonville, Florida 32216 (the "Hotel") for twenty years. (Id. ¶¶ 9-10). Under the terms of the License Agreement, Anira agreed to make monthly payments to MISF for "royalties, marketing/reservation contribution, taxes, interest, reservation system user fees, and other fees" (collectively, "Recurring Fees"). (Id. ¶ 11). Anira also agreed to an interest penalty equal to "the lesser rate of one and one-half percent (1.5%) per month or the maximum rate permitted by law" for late payments of Recurring Fees. (Id. ¶ 12). The License Agreement allowed MISF to terminate the agreement with notice to Anira "if Anira failed to pay MISF any fees or other amounts due under the License Agreement." (Id. ¶ 15). In the event of a termination, the License Agreement permitted MISF to demand liquidated damages in an amount equal to $3000 for each guest room Anira operated at the Hotel. (Id. ¶ 16; License Agreement [1.1], [1.2] ¶ 10E).

To help Anira defray the cost of converting the Hotel to a Microtel® guest lodging facility, the License Agreement provided a $100,000 financial incentivefrom MISF to Anira. (Id. ¶ 17). On each anniversary of the Hotel's opening date, one-tenth (1/10th) of the original principal amount of the financial incentive would be forgiven without payment, but, in the event of a termination, Anira agreed to repay the outstanding balance of the financial incentive. (Id. ¶¶ 17-18).

Contemporaneously to to the execution of the License Agreement, N. and C. Patel executed a joint and several guaranty of Anira's obligations under the agreement. (Id. ¶ 20; Guaranty [1.3]).

Beginning February 7, 2012, MISF sent a series of letters advising Anira that it was in breach of the License Agreement for failing to meet its financial obligations under the License Agreement. ([1] ¶¶ 23-28; February 7, 2012, Letter [1.4]; March 22, 2012, Letter [1.5]; July 10, 2012, Letter [1.6]; August 20, 2012, Letter [1.7]; November 20, 2012, Letter [1.8]). MISF warned Anira that if the default was not cured, the License Agreement might be subject to termination. (Id.). On December 31, 2012, MISF terminated the License Agreement. ([1] ¶ 29; December 31, 2012, Letter [1.9]).

B. Procedural History

On May 22, 2015, MISF filed this action for breach of contract. (Id.). On June 6, 2015, MISF served the Complaint on Anira and C. Patel. ([5], [6]). OnMarch 13, 2016, MISF served the Complaint on N. Patel.¹ ([11]). Defendants failed to respond, and no counsel appeared on their behalf.

On April 26, 2016, MISF filed its Motion for Clerk's Entry of Default Against Defendants [12] based on Defendants' failure to respond to the Complaint. On April 27, 2016, the Clerk entered default against Defendants.

On July 29, 2016, MISF moved for default judgment. ([13]). MISF is seeking to recover outstanding Recurring Fees, liquidated damages, remaining principal balance of the financial incentive, prejudgment interest, and postjudgment interest. (Id.).

II. DISCUSSION

A. Legal Standard

Rule 55(b) of the Federal Rules of Civil Procedure provides that default judgment may be entered against defaulting defendants as follows:

(1) By the Clerk. If the plaintiff's claim is for a sum certain or a sum that can be made certain by computation, the clerk—on the plaintiff's request, with an affidavit showing the amount due—must enter judgment for that amount and costs against a defendant who has been defaulted for not appearing and who is neither a minor nor an incompetent person.

(2) By the Court. In all other cases, the party must apply to the court for a default judgment. . . . If the party against whom a default judgment is sought has appeared personally or by a representative, that party or its representative must be served with written notice of the application at least 7 days before the hearing. The court may conduct hearings or make referrals . . . when, to enter or effectuate judgment, it needs to:

(A) conduct an accounting;

(B) determine the amount of damages;

(C) establish the truth of any allegation by evidence; or

(D) investigate any other matter.

Fed. R. Civ. P. 55(b).

"[T]here is a strong policy of determining cases on their merits . . . . [Courts] therefore view defaults with disfavor." In re Worldwide Web Sys., Inc., 328 F.3d 1291, 1295 (11th Cir. 2003). "The entry of a default judgment is committed to the discretion of the district court." Hamm v. DeKalb Cnty., 774 F.2d 1567, 1576 (11th Cir. 1985), cert. denied, 475 U.S. 1096 (1986) (citing 10A Charles Alan Wright, et al., Federal Practice & Procedure § 2685 (1983)).

When considering a motion for default judgment, a court must investigate the legal sufficiency of the allegations and ensure that the complaint states a plausible claim for relief. Cotton v. Mass. Mut. Life Ins. Co., 402 F.3d 1267, 1278 (11th Cir. 2005); Bruce v. Wal-Mart Stores, Inc., 699 F. Supp. 905, 906 (N.D. Ga. 1988). If "the plaintiff has alleged sufficient facts to state a plausible claim for relief," a motion for default judgment is warranted. Surtain v. Hamlin TerraceFound., 789 F.3d 1239, 1246 (11th Cir. 2015). "Conceptually, then, a motion for default judgment is like a reverse motion to dismiss for failure to state a claim." Id. at 1245. "[W]hile a defaulted defendant is deemed to 'admit[] the plaintiff's well-pleaded allegations of fact,' he 'is not held to admit facts that are not well-pleaded or to admit conclusions of law.'" Cotton, 402 F.3d at 1278 (quoting Nishimatsu Constr. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)).

B. Breach of Contract

To assert breach of contract under Georgia law,² a plaintiff must show (1) a valid contract, (2) material breach of its terms, and (3) damages arising from thatbreach. See Budget Rent-A-Car of Atlanta, Inc. v. Webb, 469 S.E.2d 712, 713 (Ga. Ct. App. 1996); see also Bates v. JPMorgan Chase Bank, NA, 768 F.3d 1126, 1130 (11th Cir. 2014). Here, the Clerk has entered default against Defendants. The legal effect of Defendants' default is that they have now admitted the facts recited in the Complaint. Having carefully reviewed the Complaint and its allegations of facts, the Court concludes that MISF has sufficiently alleged all of the required elements needed to prove a breach of the License Agreement.

C. Damages

MISF seeks to recover the following damages: (1) unpaid Recurring Fees, inclusive of interest; (2) liquidated damages; (3) remaining principal balance of the financial incentive; (4) prejudgment interest, and (5) postjudgment interest. ([13.1] at 10).

The Court may grant default judgment and award damages without a hearing if "the amount claimed is a liquidated sum or one capable of mathematical calculation." Adolph Coors Co. v. Movement Against Racism and the Klan, 777 F.2d 1538, 1543 (11th Cir. 1985); United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir.1979). "While a party in default admits the well-pleaded allegations of the complaint against it, a plaintiff cannot satisfy the certainty amount by simply requesting a specific amount. He must also establish that theamount is reasonable under the circumstances." Elektra Entm't Grp., Inc. v. Jensen, No. 1:07-CV-0054-JOF, 2007 WL 2376301, at *2 (N.D. Ga. 2007) (internal quotation omitted); see also Adolph Coors, 777 F.2d at 1544 ("Damages may be awarded only if the record adequately reflects the basis for award."). The Court is obligated to assure (i) there is a proper basis for the damage award it enters, and (ii) that damages are not awarded solely as the result of an unrepresented defendant's failure to respond. Anheuser Busch, Inc. v. Philpot, 317 F.3d 1264, 1265 (11th Cir. 2003).

1. Recurring Fees

MISF seeks reimbursement for outstanding Recurring Fees under Paragraphs 3A(11), 3D, 14B, and 14C of the License Agreement. ([13.1] at 2; Aff. Suzanne Fenimore [13.2] ¶ 5 ("Fenimore Aff.")). MISF also seeks interest on its award of Recurring Fees. ([13.1] at 8). In a diversity case, courts follow the state law governing the award of prejudgment interest. SEB S.A. v. Sunbeam Corp., 476 F.3d 1317, 1320 (11th Cir. 2007) (citing Royster Co. v. Union Carbide Corp., 737 F.2d 941, 948 (11th Cir. 1984)). Georgia law permits the recovery of prejudgment interest "[i]n all cases where an amount ascertained would be the damages at the time of the breach, [and the damages] may be increased by the addition of legal interest from that time until the recovery." O.C.G.A. § 13-6-13.The Court concludes that recovery of interest is proper, and MISF may recover Recurring Fees inclusive of interest.

MISF further asserts, and the Court agrees, that an interest rate of 1.5% per month is proper for calculating interest on Recurring Fees. ([13.1] at 8-9). Under Paragraph 3D(6) of the License Agreement, a simple interest is applied on past-due Recurring Fees at a rate equal to "the lesser rate of one and one-half percent (1.5%) per month or the maximum rate permitted by...