The Franchise Memorandum

The United States District Court for the District of New Jersey recently granted a $570,000 default judgment damage award in favor of a franchisor. Howard Johnson Int'l, Inc. v. Ebuehi, 2014 U.S. Dist. LEXIS 73560 (D.N.J. May 29, 2014). The defendants were co-owners of Viva Vista Ventures, Inc., which entered into a hotel franchise agreement with Howard Johnson. They provided a guarantee that if Viva defaulted on its obligations, they would perform. After Viva stopped operating the facility as a Howard Johnson location, the franchisor sent Viva a termination letter that triggered certain obligations, including payment of liquidated damages, past due recurring fees, and attorneys' fees.

Although the guarantors answered the complaint, they later became unresponsive and ceased to defend. The court found Howard Johnson entitled to a default judgment because the uncontested facts demonstrated that Viva and the individual guarantors failed to perform their obligations under valid contracts. Further, the court found that absent default, the franchisor would be prejudiced because it would have no other means of vindicating its claims. Howard Johnson received an award totaling $570,934.26, which included costs, attorneys' fees, damages under the franchise agreement and guarantee, and interest.