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finding that guarantor defendants had standing to assert counterclaims because principal and guarantors were joined as defendants
Summary of this case from Wingate Inns Int'l, Inc. v. Cypress Ctr. Hotels, LLCOpinion
Civ. No. 06-cv-1736 (RHK/AJB).
June 25, 2007
David S. Sager, Michael F. Cicero, Day Pitney LLP, Morristown, New Jersey, Jon S. Swierzewski, Larkin Hoffman Daly Lindgren, Ltd., Minneapolis, Minnesota, for Plaintiff.
William A. Blonigan, Columbia Heights, Minnesota, for Defendants.
MEMORANDUM OPINION AND ORDER
Introduction
This case involves the termination of a franchise agreement (the "License Agreement") between Plaintiff Travelodge Hotels, Inc. ("Travelodge") and Defendant SD Hospitality, Inc. ("SD"). Travelodge granted SD the right to operate a hotel under its brand name and SD agreed to pay certain monthly fees to Travelodge. Individual defendants Shital Patel and Dipan Patel agreed to pay Travelodge if SD defaulted on its financial obligations under the License Agreement. SD ultimately stopped making payments and Travelodge terminated the License Agreement. Travelodge filed this action seeking unpaid fees and damages resulting from the termination of the License Agreement. Defendants counterclaimed and alleged that Travelodge breached the terms of the License Agreement.
Travelodge seeks summary judgment on Counts Two, Three, Five, and Six of its Complaint and dismissal of Defendants' counterclaims. Defendants did not file an opposing brief to Travelodge's Motion. For the reasons set forth below, the Court grants Travelodge's Motion.
Travelodge indicated that it would dismiss Counts One and Four of its Complaint if the Court granted its motion for summary judgment in its entirety.
Background
I. The Parties
Travelodge is a Delaware corporation with its principal place of business in Parsippany, New Jersey. (Saltzman Aff. ¶ 3.) Travelodge operates a franchise system of hotels, which has federally-registered trade names, service marks, and logos (the "Travelodge Marks"), and the distinctive Travelodge(r) System. (Id. ¶ 5.) The Travelodge franchise system consists of hotels that are all independently owned and operated. (Id. ¶ 6.) Travelodge allows a franchisee to operate its hotels as Travelodge guest lodging facilities pursuant to a license agreement. (Id.)
SD is a Minnesota corporation with its principal place of business in Maple Grove, Minnesota. (Compl. ¶ 2.) Shital Patel and Dipan Patel are principals of SD who reside in Minnesota. (Compl. ¶¶ 3-4.)
II. Agreements Between the Parties
On February 14, 2002, Travelodge entered into the License Agreement with SD, which granted SD the right to operate a 43-room Travelodge hotel (the "Facility") in Maple Grove, Minnesota for fifteen years. (Saltzman Aff. ¶¶ 7-8.)
SD received several benefits from Travelodge under the License Agreement, including training, marketing support, and the use of a computerized reservation system established and maintained by Travelodge. (Id. Ex. A § 4.1-4.3.)
Section 7 of the License Agreement required SD to periodically pay Travelodge royalties, service assessments, taxes, interest, reservation system user fees, annual conference fees, and other fees (collectively, "Recurring Fees"). (Id. ¶ 9.) In particular, the License Agreement obligated SD to pay two Recurring Fees: (1) a 4.5% royalty on the Facility's gross room revenues; and (2) a 4% system assessment fee on the Facility's gross room revenues for advertising, marketing, training, and maintenance of the nationwide reservation system. (Saltzman Aff. Ex. A § 7.1 Schedule C.)
The Recurring Fees were capped at $500 per guest room for the first three years of the License Agreement, $550 per guest room for the fourth year, and $600 per guest room for the remainder of the License Agreement. (Id. § 18.5.) However, if SD defaulted on its obligation to pay these fees, the caps would be automatically terminated and the rates from section 7 of the License Agreement would apply. (Id. § 18.5.5.) The License Agreement required SD to pay interest on past-due payments at a rate of 1.5% per month. (Id. § 7.3.)
Travelodge could terminate the License Agreement for various reasons, including SD's failure to pay any amount due under the License Agreement. (Id. § 11.) In that eventuality, SD would remain liable to Travelodge for all damages Travelodge sustained or might sustain because of SD's breach until the end of the License Agreement. (Id. § 12; Saltzman Aff. ¶ 16.) Also, SD agreed to "pay all costs and expenses, including reasonable attorneys' fees, incurred by [Travelodge] to enforce th[e] [License] Agreement or collect amounts owed under th[e] [License] Agreement." (Saltzman Aff., Ex. A § 17.4.)
Finally, SD agreed that the License Agreement is "the entire agreement superseding all previous oral and written representations, agreements and understandings of the parties about the Facility and the License." (Id. § 17.7.3.)
Shital Patel and Dipan Patel (collectively, the "Patels") each provided Travelodge with a personal guaranty (the "Guaranty") of SD's obligations under the License Agreement. If SD defaulted on the License Agreement, the Patels agreed to "immediately make each payment and perform or cause [SD] to perform, each unpaid or unperformed obligation of [SD] under the Agreement." (Saltzman Aff. ¶ 22; Ex. B.)
The parties also executed an Integrated System Development Advance Note (the "Note"). (Saltzman Aff. Ex. C.) Pursuant to the terms of the Note, Travelodge provided SD with $16,543.55 for the purchase of a computerized property management system, which SD agreed to repay. (Id.) Travelodge agreed to release one-third of SD's obligation on the Note for each year that the Facility remained in operation. (Id.) However, upon termination of the License Agreement, the Note required SD to immediately pay the outstanding principal due under the Note, without further notice or demand. (Saltzman Aff. ¶ 24; Ex. C.)
Finally, if SD defaulted on its obligations, Travelodge would be entitled to simple interest on the Note at a rate of the lesser of eighteen percent per year (1.5% per month) or the highest rate allowed by law, and reasonable attorneys' fees and costs associated with the collection. (Saltzman Aff. ¶ 25; Ex. C.)
III. Default and Termination of License Agreement
On October 21, 2003, Travelodge informed SD by letter that it was in default of its obligations under the License Agreement for its failure to pay Recurring Fees, and that it would terminate the License Agreement if SD did not cure its default. (Saltzman Aff. ¶ 27; Ex. D.)
SD failed to cure its default and on December 31, 2003, Travelodge sent a letter to SD terminating the License Agreement. (Saltzman Aff. Ex. E.) It informed Defendants that they were required to pay Travelodge "(i) all Recurring Fees accruing through the date of termination, (ii) the principal amount due under the Note, and (iii) actual damages for premature termination pursuant to the License Agreement." (Saltzman Aff. ¶ 28; Ex. E.) Defendants failed to make any payments on these obligations. (Saltzman Aff. ¶ 29.)
Consequently, Travelodge commenced this action against Defendants. During discovery, Defendants made numerous admissions with respect to the agreements between the parties, including:
(1) SD understood that it had an obligation to submit monthly reports to Travelodge on its gross room revenues that it earned at the Facility. However, SD stopped providing Travelodge with such reports in early 2003. (Cicero Aff. Ex. B, Patel Dep. 55-56.)
(2) SD also understood that it was required to pay Travelodge monthly Recurring Fees, but it stopped paying such fees toward the end of 2002 and throughout 2003. (Cicero Aff. Ex. B, Patel Dep. 42:6-11; 44:11-13, 54-56.)
(3) SD failed to make any payments on the outstanding principal due under the Note. (Cicero Aff. Ex. B, Patel Dep. 93:18-24.)
(4) Shital Patel and Dipan Patel signed the Guaranty. (Cicero Aff. Ex. B, Patel Dep. 90:17-91:1.)
(5) Travelodge provided Defendants with the training that it was required to provide. (Cicero Aff. Ex. B, Patel Dep. 83:4-10.)
(6) Travelodge marketed and advertised the Facility in its directory of hotels and on its website. (Cicero Aff. Ex. B, Patel Dep. 85:9-15.)
Accordingly, Travelodge seeks summary judgment as to liability and damages for Counts Two, Three, Five and Six of its Complaint and dismissal of Defendants' Counterclaims.
Standard of Decision
Summary judgment is proper if, drawing all reasonable inferences in favor of the nonmoving party, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The moving party bears the burden of showing that the material facts in the case are undisputed. Celotex, 477 U.S. at 322; Mems v. City of St. Paul, Dep't of Fire Safety Servs., 224 F.3d 735, 738 (8th Cir. 2000). The Court must view the evidence, and the inferences that may be reasonably drawn from it, in the light most favorable to the nonmoving party. Graves v. Ark. Dep't of Fin. Admin., 229 F.3d 721, 723 (8th Cir. 2000); Calvit v. Minneapolis Pub. Schs., 122 F.3d 1112, 1116 (8th Cir. 1997). The nonmoving party may not rest on mere allegations or denials, but must show through the presentation of admissible evidence that specific facts exist creating a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995).
Analysis
Travelodge asserts that it is entitled to summary judgment as to liability and damages for Defendants' breach of the License Agreement, Note, and Guaranty.
Notably, Defendants failed to respond to Travelodge's Motion. Although Defendants allege in their Counterclaim that Travelodge initially breached the License Agreement, they have failed to provide the Court with any facts sufficient to raise a genuine issue for trial.
I. Travelodge is Entitled to Summary Judgment on Liability
The Court must first determine whether the terms of the License Agreement, Guaranty, and Note were clear or ambiguous. The construction of a contract's terms and whether such terms are clear or ambiguous is a question of law. Driscoll Constr. Co., Inc. v. Dep't of Transp., 853 A.2d 270, 276-77 (N.J.Super.Ct. App. Div. 2004). When the "terms of a contract are clear and unambiguous there is no room for interpretation or construction and the courts must enforce those terms as written." City of Orange Twp. v. Empire Mortg. Serv., Inc., 775 A.2d 174, 179 (N.J.Super.Ct. App. Div. 2001) (citing Kampf v. Franklin Life Ins. Co., 161 A.2d 717, 720 (N.J. 1960)).
The parties agreed that New Jersey law governs pursuant to the choice of law provision in the License Agreement, Guaranty, and Note. (Saltzman Aff. Ex. A, B, C.)
Here, there is no dispute as to Defendants' obligations under the License Agreement, Guaranty, and Note. The Court also finds that the terms of these agreements are clear and unambiguous.
Next, the Court considers whether Defendants complied with the terms of these agreements. The uncontradicted evidence demonstrates that Defendants breached the License Agreement, Guaranty, and Note. Indeed, Defendants admitted that they stopped paying Travelodge the monthly Recurring Fees toward the end of 2002 and throughout 2003. (Cicero Aff. Ex. B, Patel Dep. 42:6-11.) The record also shows that the Patels signed the Guaranty, but failed to make any payments on the amounts owed to Travelodge. (Cicero Aff. Ex. B, Patel Dep. 93:18-24; 44:11-13.) The Court finds that Travelodge has satisfied its burden of demonstrating that there is no genuine issue of material fact on its claim that Defendants breached the License Agreement, Guaranty, and Note.
The Court will also examine whether Defendants have any defenses to the breach. Defendants asserted several affirmative defenses, but have offered no evidence to support any of these defenses. Thus, Defendants have failed to create a genuine issue of material fact with regard to any of their defenses; accordingly, the Court finds that Travelodge is entitled to summary judgment as to liability on Counts Two, Three, Five and Six of its Complaint.
II. Travelodge is Entitled to Summary Judgment on Damages
Travelodge seeks the following damages: (1) unpaid Recurring Fees of $25,622.09; (2) actual damages that it would have received in Recurring Fees over the remaining 13 years of the License Agreement totaling $218,018.08; (3) $11,023.55 due on the Note; (4) prejudgment interest of $15,736.98 on past-due payments under the License Agreement; (5) prejudgment interest of $6,765.78 on the principal due on the Note; and (6) attorneys' fees and costs totaling $42,586.25. (Pl.'s Mem. at 13-19.)
A. Recurring Fees Claim (Counts 3 and 6)
Travelodge seeks payment for unpaid Recurring Fees in the amount of $25,622.09. Travelodge provided the Court with an itemized statement of its unpaid Recurring Fees. (Saltzman Aff. ¶ 30, Ex. G.)
There is no dispute that Sections 7 and 18.5 and Schedule C of the License Agreement require SD to pay monthly Recurring Fees to Travelodge. However, SD failed to adhere to this obligation. (Cicero Aff. Ex. B, Patel Dep. 42:6-11; 44:11-13.) The record shows that Travelodge performed its obligations under the License Agreement entitling it to Recurring Fees. There is also no dispute that the Patels provided Travelodge with a Guaranty of SD's obligations under the License Agreement and agreed to "immediately make each payment" and "perform each unpaid or unperformed obligation of [SD] under the Agreement" in the event SD defaulted. (Saltzman Aff. ¶ 22; Ex. B.) However, the Patels failed to comply with the terms of the Guaranty.
The Court finds that Travelodge is entitled to summary judgment as to damages on Counts Three and Six of its Complaint for Recurring Fees in the principal amount of $25,622.09. (Saltzman Aff. ¶¶ 30-37; Ex. G.)
B. Actual Damages Claim (Counts 2 and 6)
Travelodge also asserts that it is entitled to actual damages of $218,018.08. Travelodge states that its actual damages are the Recurring Fees it would have received over the remaining 13 years of the License Agreement had SD not prematurely terminated that Agreement. (Saltzman Aff. ¶ 38-48.)
Pursuant to section 12 of the License Agreement and section 5 of the Addendum, SD agreed that, in the event of a premature termination of the License Agreement, it would pay Travelodge all damages Travelodge sustained or might sustain until the end of the fifteen-year term. (Saltzman Aff. Ex. A.) However, Travelodge concedes that the actual damages it incurred are not subject to an exact calculation because it does not have the ability to determine the amount of SD's actual gross room revenues through the end of the fifteen-year term of the License Agreement. Therefore, in an effort to most accurately reflect the revenue that SD would have earned had it operated the Facility as a Travelodge hotel for the full fifteen years, Travelodge utilized the Facility's gross room revenues from 2003, the only full year for which it has figures from SD. (Saltzman Aff. ¶ 40.)
Defendants reported $230,390.00 in actual gross room revenues in 2003. (Cicero Aff. Ex. A, Response to Interrogatory No. 8.) Travelodge divided that amount by 365 days (# of days in 2003) to determine the average daily gross room revenues that SD earned at the Facility during 2003 ($631.20). (Saltzman Aff. ¶ 43.)
The termination date of the License Agreement was December 31, 2003, which is 4,795 days prior to the expiration of the fifteen-year term. Next, Travelodge applied the percentages for the royalty fee and system assessment fee as set forth in Section 7 and Schedule C of License Agreement. (Saltzman Aff. ¶ 44; Ex. A.) Thus, Travelodge asserts that it would have earned Recurring Fees of $257,261.34 during the remainder of the fifteen-year term of the License Agreement. (Saltzman Aff. ¶ 44.) Finally, Travelodge lowered its claim to $218,018.18 to account for the present day value of these funds if paid in their entirety. (Saltzman Aff. ¶ 45.)
Calculated as: 4,795 days x $631.20 x 8.5% = $257,261.34. The 8.5% consists of a royalty of 4.5% of gross room revenues (Section 7 of License Agreement) and a system assessment fee of 4% of gross room revenues (Schedule C of License Agreement).
By comparison, Travelodge could have used the rates set forth in section 18.5 as a basis to calculate damages over the term of the License Agreement. Thus, if SD paid Travelodge the minimum fees pursuant to section 18.5 of the License Agreement for the remaining thirteen years (2004-2017), without regard to actual gross room revenues earned at the Facility, SD would have been required to pay Travelodge $279,500 ($500 x 43 guest rooms x 13 years). Thus, Travelodge's calculation of its actual damages favors Defendants.
This calculation does not take into consideration that the fees set forth in section 18.5 would have increased after the third License Year (to a minimum of $550 per guest room during the fourth License Year and $600 per guest room during the fifth through fifteenth License Years). (Saltzman Aff. Ex. A.)
The Court finds that Travelodge's method for calculating damages is reasonable and consistent with the terms of the License Agreement. Accordingly, Travelodge is entitled to summary judgment as to actual damages.
C. Amount Due under the Note (Counts 5 and 6)
Travelodge provided SD with a Note in the amount of $16,543.55 for the purchase of a computerized property management system, which SD agreed to repay. (Saltzman Aff. Ex. A.) Travelodge agreed to release one-third of SD's obligation on the Note for each year that the Facility remained in operation. (Id. Ex. C.) However, upon termination of the License Agreement, the Note required that SD immediately pay the outstanding principal due under the Note, without further notice or demand. (Saltzman Aff. ¶ 24; Ex. C.)
Here, Travelodge forgave one-third of the principal amount of the Note, or $5,520. (Saltzman Aff. ¶ 50.) But, Defendants failed to make any payments on the outstanding principal due under the Note. (Cicero Aff. Ex. B, Patel Dep. 93:18-24.)
Thus, the Court finds that Travelodge is entitled to summary judgment in the amount of $11,023.55 due under the Note. (Saltzman Aff. ¶¶ 49-51.)
D. Prejudgment Interest (Counts 3, 5, and 6)
Under New Jersey law, the parties to a commercial contract may agree to include the imposition of prejudgment interest in the event of a default. Utica Mut. Ins. Co. v. DiDonato, 453 A.2d 559, 566 (N.J.Super.Ct. App. Div. 1982). "The purpose of prejudgment interest is to reimburse the claimant for the loss of the use of its investment or its funds from the time of the loss until judgment is entered." Travelodge Hotels, Inc. v. Elkins Motel Assoc., Inc., No. 03-799, 2005 WL 2656676, at *12 (D.N.J. Oct. 18, 2005) (citing In re Bankers Trust Co., 658 F.2d 103, 108 (3d Cir. 1981)).
Here, Section 7.3 of the License Agreement states that interest will accrue at the rate of 1.5% per month on all payments that became past due under the License Agreement and the Note. (Saltzman Aff. Ex. A.) Defendants failed to pay the money due to Travelodge under the License Agreement and the Note. Thus, Defendants have improperly retained the use of this money.
Travelodge argues that pursuant to the License Agreement and the Note, it is entitled to prejudgment interest at the rate of 1.5% per month (or 18% per year) on (1) the Recurring Fees in the amount of $15,736.98, and (2) the principal due under the Note in the amount of $6,765.78. (Saltzman Aff. ¶¶ 37, 51.) The Court agrees. Defendants failed to adhere to the terms of the License Agreement and Note. Accordingly, the Court finds that Travelodge is entitled to contractual prejudgment interest.
Travelodge's calculation of interest is based on the time period of December 31, 2003 (the date of termination) through May 30, 2007 (the hearing date of its Motion).
E. Attorneys' Fees and Costs
A party may recover reasonable attorneys' fees in a breach of contract action if the contract between the parties so provides.Papalexiou v. Tower West Condo., 401 A.2d 280, 287 (N.J. Ch. 1979).
Here, Section 17.4 of the License Agreement requires SD to "pay all costs and expenses, including reasonable attorneys' fees, incurred by [Travelodge] to enforce this Agreement or collect amounts owed under this Agreement." (Saltzman Aff. ¶ 17; Ex. A.) Also, the Guaranty and the Note incorporate such a provision. (Saltzman Aff. ¶ 23; Ex. B; Saltzman Aff. ¶ 25; Ex. C.)
At the conclusion of the May 30, 2007 hearing on Travelodge's Motion, the Court directed Travelodge's counsel to submit an application setting forth the amount of attorneys' fees and costs it had incurred in this case. On June 7, 2007, David S. Sager ("Sager") and Jon S. Swierzewski ("Swierzewski") submitted affidavits in support of Travelodge's application for attorneys' fees and costs.
Defendants did not submit a response opposing Plaintiff's application for attorneys' fees and costs.
Sager is an attorney with the law firm Day Pitney LLP. (Sager Aff. at 1-2.) Michael F. Cicero ("Cicero") is an attorney at Day Pitney and was responsible for various legal matters in this case, including Travelodge's motion for summary judgment. (Id. at 2.) Swierzewski is an attorney with the law firm Larkin Hoffman Daly Lindgren, Ltd. and assisted Day Pitney with the local issues in this Court and the general representation of Travelodge. (Swierzewski Aff. at 1-2.)
Effective January 1, 2007, Pitney Hardin LLP merged with Day Berry Howard LLP to form Day Pitney LLP. Prior to the merger, Pitney Hardin represented Travelodge in this case.
Sager submitted a detailed description of the time and services Day Pitney provided in this case. (Sager Aff. at 4-6.) Sager asserts that Day Pitney worked a total of 122.2 hours on this matter and billed Travelodge $29,802.73 for services rendered through May 2007. (Id. at 6.) Sager asserts that the blended hourly rate for services provided by Day Pitney equaled approximately $243. (Id.) Sager also asserts that Travelodge incurred engagement costs of $2,081.37, which included photocopying, telephone, deposition, asset search, and court costs. (Id.) Therefore, Sager asserts Travelodge incurred a total of $31,884.10 in attorneys' fees and costs. (Id. at 7.)
Swierzewski also submitted detailed information on the time and services Larkin Hoffman provided in this case. (Swierzewski Aff. at 2-4.) Swierzewski asserts that Larkin Hoffman spent a total of 37.90 hours on this case and billed Travelodge $10,072.50. (Id. at 3.) Swierzewski's billable rate is $320 to $335 per hour. (Id.) Genevieve A. Beck, Peter D. Favorite, and Sarah M. Westergren are or were attorneys with Larkin Hoffman who worked on this case under Swierzewski's supervision. (Id.) Swierzewski also asserts that Travelodge incurred engagement costs of $629.65, which included the initial filing fee, filing of the summons and compliant on Defendants, and pro hac vice filing fees. (Id. at 4.)
Swierzewski spent a total of 26 hours on this case. (Swierzewski Aff. at 3.)
These attorneys spent a total of 5.70 hours on this case with a billable hour range of $175 to $205.00. Meghan H. McCauley, law clerk, spent a total of 6.20 hours at a billable rate of $70 per hour. (Id.)
"The starting point in determining attorney fees is the lodestar, which is calculated by multiplying the number of hours reasonably expended by the reasonable hourly rates." Fish v. St. Cloud State Univ., 295 F.3d 849, 851 (8th Cir. 2002).
The Court finds that Travelodge's declaration of attorneys' fees and costs are reasonable. "The onus is on the party seeking the award [of attorneys' fees] to provide evidence of the hours worked and the rate claimed." Wheeler v. Mo. Highway Transp. Comm'n, 348 F.3d 744, 754 (8th Cir. 2003). "The district court should exclude hours that were not reasonably expended." Id. As such, the Court may consider the time spent by the attorney and the novelty and difficulty of the issues. Id.
Here, the Court finds that the total hours claimed by counsel for Travelodge were reasonably expended based on the nature of the issues presented. Next, the Court considers whether the billing rates for Travelodge's attorneys are reasonable. "When determining reasonable hourly rates, district courts may rely on their own experience and knowledge of prevailing market rates."See Hanig v. Lee, 415 F.3d 822, 825 (8th Cir. 2005) (citingWarnock v. Archer, 397 F.3d 1024, 1027 (8th Cir. 2004)). The Court finds that the attorneys' billable hour rates are reasonable based on a review of the applications submitted to the Court. Finally, the Court finds that Travelodge's claimed expenses are reasonable and warranted under the circumstances. Accordingly, Travelodge is entitled to attorneys' fees and costs totaling $42,586.25.
Day Pitney billed Travelodge $31,884.10 for attorneys' fees and costs and Larkin Hoffman billed Travelodge $10,702.15 for such costs, in total of $42,586.25.
III. Dismissal of Defendants' Counterclaims
Defendants have asserted three counterclaims in their Answer. First, Defendants allege that Travelodge initially breached the License Agreement by making false statements on its promise to provide reservations, marketing, training, and advertising support (Count I). Next, Defendants claim that Travelodge breached the implied covenant of good faith and fair dealing (Count II). Finally, Defendants allege that Travelodge breached its implied duty to cooperate and not hinder the performance of SD's contractual obligations (Count III).
Defendants appear to assert that Travelodge fraudulently induced SD to sign the License Agreement. However, Defendants merely assert facts suggesting fraudulent inducement in the "Introduction" section of their Counterclaims. Defendants do not identify fraudulent inducement as a specific claim for relief. Instead, they specifically allege that Travelodge breached the contract in Count I. Thus, the Court will treat the counterclaim as one for breach of the License Agreement.
Travelodge denies these claims and asserts that the Patels lack standing to assert claims that belong to SD.
A. Standing of Defendants Shital Patel and Dipan Patel
Travelodge argues that the Patels, as guarantors, lack standing to assert counterclaims based on SD's failure to comply with its obligations under the License Agreement because they were not parties to that agreement.
"Generally, a guarantor, when sued by the principal's creditor pursuant to a guaranty agreement, cannot rely on an independent cause of action existing in favor of the principal against the creditor as a defense or a counterclaim." Continental Group, Inc. v. Justice, 536 F. Supp. 658, 661 (D. Del. 1982) (citingRestatement of Security § 133 (1941)). However, an exception to the general rule exists when both the principal and guarantor are joined as defendants. Id. at 661.
Here, the Patels were joined as Defendants. Therefore, the Court finds that the Patels have standing to assert their counterclaims against Travelodge.
B. Breach of Contract (Count I)
Defendants allege that Travelodge breached the terms of the License Agreement by making certain promises to them before entering into the Agreement and then failing to honor those promises. Also, Defendants assert that Travelodge was obligated by its oral representations to SD. In particular, Defendants claim that Travelodge failed to provide SD with reservations, marketing, training, and advertising support. Defendants also claim that Travelodge promised to increase the hotel's revenues and ensure it remained profitable.
However, Defendants do not identify in their Counterclaim any specific provisions of the License Agreement that they claim Travelodge breached. Furthermore, section 14.3 of the License Agreement states that "[t]here are no express or implied covenants or warranties, oral or written, between [Travelodge and SD] except as expressly stated in this Agreement." (Saltzman Aff. Ex. A.) Also, Section 17.73 of the License Agreement provides that "[t]his Agreement, together with the exhibits and schedules attached, is the entire agreement superseding all previous oral or written representations, agreements and understandings of the parties about the Facility and the License." (Id.)
Section 4.2 of the License Agreement provides that Travelodge will operate and maintain a computerized reservation system. (Saltzman Aff. Ex. A). However, the License Agreement does not make any promises as to the number of reservations that SD would receive. Nonetheless, Defendants admitted that Travelodge provided reservations to the Facility. (Cicero Aff. Ex. B, Patel Dep. 38, 73.)
Defendants admitted that they have no evidence to support their allegation that Travelodge failed to provide a commercially reasonable number of reservations to the Facility. (Cicero Aff. Ex. A, Response to Interrogatory No. 20; Ex. B, Patel Dep. 120-21.)
With respect to marketing and advertising support, section 4.3.1 of the License Agreement states that Travelodge "do[es] not promise that the Facility or [SD] will benefit directly or proportionately from marketing activities." (Saltzman Aff. Ex. A.)
Also, section 3.6 of the License Agreement provides that SD "may implement, at [its] option and expense, [its] own local advertising." (Id.) Defendants admitted that Travelodge marketed and advertised the Facility in Travelodge's directory of hotels and on Travelodge's website. (Cicero Aff. Ex. B, Patel Dep. 85:9-15.)
The record shows that Defendants did not market or advertise the Facility in local newspapers, on local television, or directly with large companies in the Maple Grove market. (Cicero Aff. Ex. B, Patel Dep. 86-89.) Furthermore, Defendants never hired a marketing employee to assist them with local marketing and advertising. (Id. at 88-89.)
Sections 3.5 and 4.1 of the License Agreement state that Travelodge would offer certain training to SD and SD would attend the training related to the Facility. Indeed, Defendants admitted that Travelodge provided them with training. (Cicero Aff. Ex. B Patel Dep. 83:4-10.)
Finally, Defendants acknowledged in section 17.7.4 that "no salesperson has made any promise or provided any information to [SD] about projected sales, revenues, income, profits or expenses from the Facility except as stated in Item 19 of the UFOC or in a writing that is attached to this Agreement." (Saltzman Aff. Ex. A.)
The Court finds that Defendants failed to identify any provision of the License Agreement that Travelodge breached. Accordingly, the Court dismisses Count I of Defendants' Counterclaim.
C. Breach of Implied Covenant of Good Faith Duty to Cooperate
Defendants allege a separate claim for breach of the implied covenant of good faith and fair dealing (Count II). Defendants also claim that Travelodge breached its duty to cooperate and not hinder the performance of SD's contractual obligations (Count III). However, Defendants rely on the same general factual allegations recited in Count I.
Under New Jersey law, "every contract [has] an implied covenant that `neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" Borbely v. Nationwide Mut. Ins. Co., 547 F. Supp. 959, 973 (D.N.J. 1981) (quoting Palisades Prop., Inc. v. Brunetti, 207 A.2d 522, 531 (N.J. 1965)). But, an implied obligation of good faith and fair dealing does not alter the terms of a written agreement. Borbely, 547 F. Supp. at 973 (citation omitted).
As discussed above, there is no evidence that Travelodge breached the License Agreement or failed to provide SD with reservations, marketing, training, and advertising support. Thus, the Court finds that Counts II and III of Defendants' Counterclaim are duplicative because these claims do not assert any new substantive or factual allegations. Accordingly, the Court dismisses these "redundant" allegations. See Fed.R.Civ.P. 12(f) (district court may strike "redundant" allegations from pleadings).
Conclusion
Based on the foregoing, and all the files, records, and proceedings herein, IT IS ORDERED that Plaintiff's Motion for Summary Judgment (Doc. No. 27) is GRANTED as follows:
1. Plaintiff's Motion is GRANTED as to Counts Three and Six of its Complaint against Defendants, jointly and severally, in the amount of $41,359.07 for Recurring Fees (principal plus prejudgment interest);
2. Plaintiff's Motion is GRANTED as to the Counts Two and Six of its Complaint against Defendants, jointly and severally, in the amount of $218,018.08 for actual damages;
3. Plaintiff's Motion is GRANTED as to Counts Five and Six of its Complaint against Defendants, jointly and severally, in the amount of $17,789.33 for the Integrated System Development Advance Note (principal plus interest);
4. Plaintiff's Motion is GRANTED as to attorneys' fees and costs against Defendants, jointly and severally, in the amount of $42,586.25;
5. Defendants' Counterclaims are DISMISSED WITH PREJUDICE; and
6. By stipulation of counsel for Plaintiff, Counts One and Four of Plaintiff's Complaint are DISMISSED WITH PREJUDICE.