Regal Nails, Salon & Spa, LLC v. Nguyen

Docket NumberCivil Action 7:22-CV-00112-REW-EBA
Decision Date03 August 2023
PartiesREGAL NAILS, SALON & SPA, LLC, PLAINTIFF, v. HEN NGUYEN, DEFENDANT.
CourtU.S. District Court — Eastern District of Kentucky

REPORT & RECOMMENDATION

EDWARD B-ATKINS UNITED STATES MAGISTRATE JUDGE

Plaintiff Regal Nails, Salon & Spa, LLC (Regal Nails) filed their Complaint on November 30, 2022. [R. 1]. As detailed in their Memorandum in Support of Default Judgment [R. 10-1], Regal Nails alleges that Defendant Nguyen entered into a Franchise Agreement with them to operate a Regal Nails franchise (“Salon”) in Paintsville, Kentucky and thereafter committed multiple breaches of this agreement. [Id. at pg. 1]. As a result, Regal Nails has asserted multiple breaches of contract claims against Nguyen and has requested a declaratory judgment that (1) Defendant committed multiple non-curable defaults under the Franchise Agreement; (2) the Franchise Agreement was properly terminated; (3) Regal may exercise its right under the Franchise Agreement to retake possession of the Salon; (4) any personalty remaining in the Salon is abandoned and may be disposed of by Regal as it sees fit.” [R. 1 at pg. 5].

Since the Complaint was filed and up to the date of the filing of this Report & Recommendation, Nguyen has failed to respond or otherwise appear in this action. As a result, on December 28, 2022, Regal Nails moved for an entry of default against Nguyen. [R. 8]. In this motion, it was indicated that Nguyen had been served on December 6, 2022, thus making his Answer due by December 27, 2022. [R. 8-1 at pg. 3; see also FED. R. CIV. P. 12(a)]. The entry of default was entered by the Clerk on December 29, 2022. [R 9]. On January 12, 2023, Regal Nails moved for default judgment [R. 10] and the matter was thereafter referred to the undersigned by order of Judge Wier [R. 11]. On June 30 2023, the undersigned directed Regal Nails to supplement its motion for default judgment with additional information regarding certain damages that have been asserted in this case. [R. 12]. Regal Nails filed its supplement on July 7 2023. [R. 13]. However, due to an inadvertent omission on Regal Nails' part, certain exhibits were omitted from this supplement. Thereafter, the undersigned directed Plaintiff to file the exhibits referenced in its supplemental brief. [R. 14]. The exhibits were thereafter filed on July 12, 2023. [R. 15]. Having received the exhibits, the matter is now fully briefed and ripe for review.

ANALYSIS
A.

Pursuant to FED. R. CIV. P. 55(b), the moving party may request the clerk to enter a default judgment if the damages are for a sum certain; otherwise “the party must apply to the court for a default judgment.” FED. R. CIV. P. 55(b)(2) gives the Court the option to conduct a hearing to investigate certain issues that may arise when a motion for default judgment is made, such as the computation of damages, but such a hearing is not mandatory. (“The court may conduct hearings or make referrals...”) (emphasis added). “An evidentiary hearing is not required if the Court can determine the amount of damages by computation from the record before it.” Truex v. Drivers Direct, LLC, 583 F.Supp.3d 1033, 1035 (N.D. Ohio 2022) (citing HICA Educ. Loan Corp. v. Jones, No. 4:12 CV 962, 2012 WL 3579690, at *1 (N.D. Ohio Aug. 16, 2012)). However, “the moving party must present some evidence to support of his claim, whether an affidavit or other documentary evidence.” Id. (citing Jones, 2012 WL 3579690, at *1). Finally, when the defendant has failed to file an answer, the undersigned must “take the allegations of the petition as true.” Nw. Yeast Co. v. Broutin, 133 F.2d 628, 630 (6th Cir. 1943).

As explained in Regal Nails' memorandum in support of their motion for default judgment, this case was filed with the Court based on diversity jurisdiction. [R. 10-1 at pg. 2]. The Complaint alleges Regal Nails is a citizen of Nevada and Louisiana and that Nguyen is a Kentucky citizen. [R. 1 at pg. 1]. Further, as seen by the evidence presented in support of this motion and the allegations in the Complaint, the amount in controversy in this case exceeds $75,000. [See id. at pgs. 2-4]. Finally, venue is proper because Nguyen is domiciled in the Eastern District of Kentucky. [Id. at pgs. 1-2; see also 28 U.S.C. § 1391(b)(1)]. Therefore, the undersigned recommends a finding that the Court has jurisdiction to issue a default judgment in this case. In addition, Nguyen was personally served with the Complaint on December 6, 2022 [R. 8-1 at pg. 3] and Nguyen has since failed to file an Answer or otherwise appear in this case. Thus, the undersigned also recommends a finding that a default judgment is appropriate in this case. In addition, the undersigned recommends that, given the allegations in the Complaint and the evidence Regal Nails has presented, an evidentiary hearing is not needed, and a default judgment may be rendered based on the record alone.

B Damages

Regal Nails has asserted that they are owed a total of $84,249.23 from Nguyen. [See R. 10-5]. The breakdown of this figure is as follows: (1) $51,499.73 in franchise fees, [R 10-1 at pg. 4]; (2) $1,100.00 in fines [Id.]; (3) $25,000.00 for a “white box” fee, [Id.]; (4) $6,624.50 in attorney's fees and costs, [Id.]; and (5) $25.00 for indemnification of costs relating to the operation of the Salon. [Id. at pg. 5]. Regal Nails has also requested that the undersigned award them post-judgment interest pursuant to 28 U.S.C. § 1961. [Id.].

Regal Nails has submitted the operative Franchise Agreement [R. 10-3] and the affidavit of David M. Anderson, general counsel for Regal Nails [R. 10-4], to establish that Nguyen still owes Regal Nails $327.44 “for the renewal of the franchise and security deposit update in 2018, Monthly Franchise Fees for November 2022 of $3,396.20, and $398 in remaining insurance premium installments.” [R. 10-3 at pg. 3]. Further, a $50 charge is owed due to the monthly franchise fee for November of 2022 being declined due to insufficient funds and late fees related to the aforementioned charges that total $3,400.00 [Id.]. Finally, pursuant to the terms of the Franchise Agreement, Regal Nails is entitled to recover “payment of all monthly franchise fees and monthly utility charges for the remainder of the term of the Franchise Agreement discounted to present value.” [Id. at pgs. 3-4 (citing R. 10-3 at pg. 51)]. These late charges, when discounted to present value, result in $43,928.09. [Id. at pg. 5].

The terms of the Franchise Agreement [R. 10-3], Mr. Anderson's affidavit, [R. 10-4 at pgs. 1-2], and the Customer Open Balance that has been submitted with the affidavit [Id. at pg. 3] indicate that these calculations are correct. Further, Regal Nails' supplemental brief [R. 13] and exhibits [R. 15] have since clarified that [t]he balance of $398 reflected on the Customer Open Balance sheet and on Invoice 69649 remains due and owing to Regal.” [R. 13 at pgs. 1-2]. Based on the exhibits and affidavits provided by Regal Nails, the undersigned recommends that Plaintiff be awarded the full $51,499.73 for these franchise fees.

Regal Nails has also asserted that they are owed $1,100 in fines due to an inspection that occurred at Nguyen's salon on September 21, 2021. [R. 10-1 at pg. 4]. Pursuant to section 18 of the Franchise Agreement, Regal Nails was to [p]rovide onsite periodic quality assurance inspections and furnish you with a written copy of the quality assurance manager's report.” [R. 10-3 at pg. 24]. In addition, Regal Nails was permitted to issue warnings and fines for any deficiencies and Nguyen was to “pay the total amount of the fines within 30 days of receipt of your statement.” [Id.]. According to David Anderson's affidavit, Regal Nails did impose fines on Nguyen that have not been paid [R. 10-4 at pg. 1] and Invoice 81990 indicates that the fines did amount to $1,100.00. [Id. at pg. 4]. Based on this evidence, the undersigned recommends that Regal Nails be awarded $1,100.00 for these unpaid fines.

Regal Nails also asserts that, under the Franchise Agreement, they are entitled to $25,000.00 as part of a “white box” fee. [R. 10-1 at pg. 4]. Pursuant to section 38(A)(3), Nguyen is to leave the premises in “broom clean” condition if Regal Nails is a party tenant to the lease for the location or Nguyen was to pay Regal Nails $25,000.00 if the salon was not left in such a condition. [R. 10-3 at pg. 50]. The Franchise Agreement also dictated that Regal had “entered into a Master Lease Agreement with the Landlord for the premises indicated at the address listed in Section 50 of the Franchise Agreements” [Id. at pg. 57]. As clarified in Attachment A to the Master Lease provided by Regal Nails, the tenant, identified as Regal Nails, was to either surrender the premises in a “white box” condition at the end of the lease or pay the Landlord, Wal-Mart Stores East, LP, $25,000 [R. 15-4 at pgs. 1-2]. Finally, David Anderson's affidavit indicates that Nguyen failed to return the premises in “white box” condition. [R. 10-4 at pg. 1]. Based on these documents, the undersigned recommends that Regal Nails be awarded $25,000.00 for the “white box” fee.

Regal Nails also seeks $6,624.50 in attorney's fees and costs. [R. 10-1 at pg. 4]. Pursuant to section 43 of the Franchise Agreement, Regal is “entitled to indemnification and to recover reasonable attorney's fees, court costs and expenses from you.” [R. 10-3 at pg. 52]. Regal Nails has also provided a detailed accounting of the fees and costs associated with this action as an exhibit to Seth Church's Affidavit. [R. 10-2 at pgs. 5-6]. Based on the terms of the Franchise Agreement and accounting of the services associated with this action, the undersigned recommends that...

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