Opinion
Cause No. IP 00-1946-C H/F
July 2, 2002
ENTRY ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
This diversity case presents a contract dispute between plaintiff Villager Franchise Systems, Inc. ("VFS") and defendant Naru Thakore. On June 25, 1997, Thakore entered into a franchise agreement with VFS for a term of fifteen years. The parties agree that Thakore breached the franchise agreement. VFS then exercised its option under the agreement to terminate Thakore's franchise on December 17, 1999. VFS filed this action seeking damages for breach of the franchise agreement. VFS moved for summary judgment. For the reasons stated below, the court grants VFS's motion as to liability and some elements of damages, but denies the motion regarding VFS's largest claim for damages.
Standard for Summary Judgment
The purpose of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Summary judgment is appropriate when there are no genuine issues of material fact, so that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party must show there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A factual issue is material only if resolving the factual issue might change the suit's outcome under the governing law. A factual issue is genuine only if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party on the evidence presented. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Baucher v. Eastern Ind. Prod. Credit Ass'n, 906 F.2d 332, 334 (7th Cir. 1990).
Undisputed Material Facts
On June 25, 1997, VFS and Thakore entered into a franchise agreement for the operation of a 139-room "Villager" hotel in Indianapolis. Thakore agreed to operate the hotel for a fifteen year term ending in 2012. In return for the use of the franchise name, Thakore agreed to pay certain fees to VFS including: royalties, service assessments, taxes, interests, reservation system user fees, and other miscellaneous fees. Under Section 7.3 of the agreement, interest accrues on unpaid fees "at a rate of 1.5% per month or the maximum rate permitted by applicable law, whichever is less, accruing from the date due until the amount is paid." In Section 17.4 of the agreement, Thakore further agreed to "pay all costs and expenses, including reasonable attorney's fees, incurred by [VFS] to enforce this Agreement or collect amounts owed under this Agreement."
Thakore agreed to operate the facility in compliance with VFS's standards, including VFS's quality assurance requirements. Section 11.2 gave VFS the right to terminate the franchise agreement upon Thakore's failure to cure certain breaches of his obligations under the agreement.
Thakore admits that he breached the franchise agreement by failing to operate the facility in accordance with the quality assurance requirements and by failing to pay the fees owed to VFS in a timely manner. Thakore also does not dispute VFS's termination of his franchise. The only thing Thakore disputes is the amount of damages to which VFS is entitled.
The standard franchise agreement was amended on June 25, 1997 by the execution of an addendum. Paragraph five of the addendum provides:
Section 12 of the Franchise Agreement is amended by the deletion of all references to liquidated damages and termination penalties and the addition of the following language to the original language that appears therein:
"Notwithstanding any such Termination, and in addition to your other obligations, or in the event of Termination, or cancellation of the Franchise Agreement under any of the other provisions therein, you shall be, continue and remain liable to us for any and all damages which we have sustained or may sustain by reason of such default or defaults and the breach of the Franchise Agreement on your part until the end of the Term.
At the time of such Termination, you covenant to pay to us within 10 days after demand compensation for all damages, losses, costs and expenses (including reasonable attorney's fees) incurred by us and/or amounts which would otherwise be payable for and during the remainder of the unexpired Term of the Franchise Agreement but for such termination."
Under this addendum, VFS argues, Thakore agreed to remain liable all fees to VFS until 2012, even if the franchise was terminated and VFS provided no services at all. Thus, VFS argues that Thakore owes: (1) $10,313.84 in unpaid fees (plus interest); (2) $385,200 in fees that VFS expected to be paid over the term of the agreement; (3) and reasonable attorney fees and costs.
Discussion
There is no genuine issue of material fact on whether Thakore breached the franchise agreement. Thakore does not dispute VFS's evidence showing that the hotel was not maintained in accord with the quality assurance standards or that he failed to make timely payments of fees owed to VFS. Since Thakore does not dispute his alleged breach of the franchise agreement, VFS is entitled to summary judgment to the effect that Thakore breached the contract.
Thakore asserts in his affidavit that he gave notice on December 19, 1999 to an agent of VFS of his intent to terminate the franchise. His assertion fails to create a genuine issue of material fact. Section 18.4 provides that Thakore could "terminate the License without cause or penalty effective only on the third, fifth and tenth anniversaries of the Opening Date provided [he] give[s] at least six (6) months prior written notice of termination and [he is] not in default under this Agreement at the time notice must be given or at the effective date of termination." Thskore's affidavit does not assert that the notice provided was in writing. Furthermore, the undisputed evidence shows that Thakore was in default under the franchise agreement when the notice was given.
Thakore's liability for the amount of unpaid fees, reasonable attorney fees, and costs is also not disputed. However, the amount of damages requested for the premature termination of the franchise agreement is disputed.
The task for this court is to decide issues of Indiana law as the court believes the Supreme Court of Indiana would decide them. The general principles of Indiana law that apply here are well established. Under Indiana law, a fundamental rule of damages is that a party injured by a breach of contract is limited in his recovery to loss actually suffered. Stoneburner v. Fletcher, 408 N.E.2d 545, 550 (Ind.App. 1980). Contract damages are designed to make the injured party whole; the plaintiff is not entitled to be placed in a better position than it would have occupied if the breach had not occurred. Pierce v. Drees, 607 N.E.2d 726, 729 n. 2 (Ind.App. 1993), citing Ethyl Corp. v. Forcum-Lannom Assoc., 433 N.E.2d 1214, 1221 (Ind.App. 1982). A non-breaching party also has an obligation to mitigate damages. National Advertising Co. v. Wilson Auto Parts, Inc., 569 N.E.2d 997, 1001 (Ind.App. 1991) (noting that burden of proof is on breaching party). The duty to mitigate damages is imposed to prevent the injured party from aggravating or increasing its injuries. Nelson, 691 N.E.2d at 1271. It is a well established rule that an injured party must prove with reasonable certainty the nature and extent of its damages. Connersville Wagon Co. v. McFarlan Carriage Co., 76 N.E. 294, 297 (Ind. 1905); accord Sammons Communications of Indiana, Inc. v. Larco Cable Construction, 691 N.E.2d 496, 498 (Ind.App. 1998); Indiana Bell Tel. Co. v. O'Bryan, 408 N.E.2d 178, 183 (Ind.App. 1980). Absolute certainty is not required. Connersville Wagon Co., 76 N.E. at 297.
As a result of the premature termination of the franchise agreement, VFS claims to have lost all future fees that Thakore would have been required to pay to VFS for the operation of the Villager hotel through the year 2012. The fees are a percentage of the room revenues. According to VFS, Thakore would have paid over those years approximately $385,200 (multiplying the amount of the fees paid during the year preceding termination, $29,822, by the remaining term of the franchise agreement, twelve years and eleven months).
Thakore argues that the fees based on the room revenues are speculative. It appears that Thakore also argues that requiring him to pay damages for the premature termination for the remaining twelve years and eleven months in the franchise agreement would put VFS in a better position better than it would have been had the breach never occurred, and that VFS failed to mitigate its damages.
Under Section 2 of the franchise agreement, VFS could not own, operate, or license anyone to operate another franchise in the protected territory without Thakore's consent. Section 18.6 of the franchise agreement provides that upon termination of the franchise agreement all of Thakore's rights to the protected territory cease. Thus, under VFS's theory of damages, VFS would be in a better situation than it would have held if the breach had not occurred — VFS would have Thakore's fees through 2012 without providing any support at all to his business, and VFS would retain the right to establish a new franchise in the same area. Even if the damages sought are not speculative, VFS had a duty to mitigate its damages by trying to establish another franchise in the protected territory. Since the damages suffered by VFS as a result of the breach are disputed, summary judgment is denied on the issue of premature termination damages.
Conclusion
For the foregoing reasons, plaintiff Villager Franchise Systems' motion for summary judgment is granted in part and denied in part. Villager Franchise Systems' motion is granted to the extent that Thakore is liable for breach of the franchise agreement and Villager Franchise Systems is entitled to damages of at least $10,313.84 plus interest, as well as reasonable attorney fees and costs, in an amount to be determined at trial. Villager Franchise Systems' motion is denied on Thakore's liability for premature termination damages. The court will hold a scheduling conference on July 31, 2002, at 4:00 p.m. in Room 330, U.S. Courthouse, Indianapolis, Indiana, to schedule a trial date and to address any other needed trial preparations. Counsel shall also be prepared to address the question of settlement.