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Howard Johnson International, Inc. v. Inn Development

December 22, 2008

HOWARD JOHNSON INTERNATIONAL, INC., A DELAWARE CORPORATION, PLAINTIFF,
v.
INN DEVELOPMENT, INC., A SOUTH DAKOTA CORPORATION; ROBERT W. ORR, AN INDIVIDUAL; AND RENEE LOGAN, AN INDIVIDUAL, DEFENDANTS.



The opinion of the court was delivered by: Andrew W. Bogue Senior District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Howard Johnson International, Inc. (HJI) filed this suit seeking damages arising out of Defendants' alleged breach of contract. Docket 1. Defendant Inn Development, Inc., is currently in default. HJI has filed a motion for summary judgment against Defendants Robert Orr and Renee Logan. Docket 51. Orr and Logan, acting pro se, have filed a response to HJI's motion for summary judgment. Docket 70, 74. For the reasons stated below, HJI's motion for summary judgment is granted. As discussed in this opinion, since the Court is unable to determine the amount of damages to which HJI is entitled based on the record at this time, the Court sets the matter of damages for a hearing.

FACTUAL BACKGROUND

Following are the facts, construed in favor of the nonmoving parties, Orr and Logan.

License Agreement

On December 31, 2001, Inn Development, Inc., (Inn Development) entered into a License Agreement with HJI regarding a hotel in Norfolk, Nebraska. Plaintiff's Statement of Undisputed Material Facts (PSUMF), Docket 52, ¶ 1; License Agreement, Docket 53-2. In that contract, Inn Development agreed to operate a Howard Johnson Express Inn for fifteen years. License Agreement ¶¶ 1, 5. Inn Development agreed to renovate the facility in accordance with System Standards and Approved Plans as well as a Punch List attached to the License Agreement. Id. at ¶ 3.1; Docket 53-2, pages 33-40 (Punch List).

The License Agreement provided for quality assurance inspections, obligating Inn Development to permit HJI representatives to inspect the facility at their initiative. License Agreement, ¶¶ 3.9, 4.8. The quality assurance inspections by HJI involved a review of Inn Development's facility, and the quality assurance scores for such inspections included an evaluation of "the Facility and its operations, records, and Mark usage to test the Facility's compliance with System Standards and this Agreement." Id. at ¶ 4.8.

The License Agreement provided that Inn Development will pay HJI recurring fees every month, including a royalty based on monthly gross room revenues, a marketing contribution, a room sales charge, taxes and interest. License Agreement, ¶¶ 7.1-7.3.

Default and Termination

The License Agreement stated that the licensee, Inn Development, "will be in default" of the agreement if "(a) you do not pay us when a payment is due, (b) you do not perform any of your other obligations when this Agreement and the System Standards Manual require, or (c) if you otherwise breach this Agreement." Id. at ¶ 11.1. If such a default is not cured, HJI "may terminate this Agreement by written notice." Id. "In the case of a quality assurance default, if you have acted diligently to cure the default but cannot do so and have entered into a written improvement agreement with us within 30 days after the ailing inspection, you may cure the default within 90 days after the failing inspection. We may terminate the License if you do not perform that improvement agreement." Id. Section 11.2 of the License Agreement stated that HJI may terminate the license when it sends written notice to the licensee after the licensee has failed to cure a default. That provision also said that HJI may terminate the license if "you receive two or more notices of default from us in any one year period (whether or not you cure the defaults)." Id. at ¶ 11.2. According to the Addendum to the License Agreement, the licensee is entitled to thirty days written notice "with an opportunity to cure said default prior to termination" in the event of a breach of the License Agreement, failure to meet performance or quality standards, or failure to make payments in accordance with the License Agreement. Docket 53-3, page 1.

While the License Agreement included a Liquidated Damages provision which discussed potential damages in the event of a breach, an Addendum to the License Agreement replaced that provision, stating instead that, upon termination, licensee "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 License Agreement on your part until the end of the Term." Docket 53-3, page 1; License Agreement, ¶ 12.1 (liquidated damages provision).

Finally, the License Agreement included the following provision regarding attorneys' fees in the event of a breach: "The non-prevailing party will pay all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party to enforce this Agreement or collect amounts owed under this Agreement." License Agreement, ¶ 17.4.

Guaranty

At the time of the completion of the License Agreement, the parties also signed a Guaranty, where Robert Orr and Renee Logan personally guaranteed that Inn Development's "obligations under the Agreement . . . will be punctually paid and performed."*fn1 Docket 53-4. That document went on to state, "Upon default by Licensee and notice from you we will immediately make each payment and perform or cause Licensee to perform, each unpaid or unperformed obligation of Licensee under the Agreement." Id.

Note

Finally, the parties also executed an Integrated System Development Advance Note, presumably at the same time as the License Agreement was signed. Docket 53-5 (undated). That Note provided that maker Inn Development promised to pay HJI $16,475.58 for the purposes of opening the Nebraska facility. Id. at 1. The Note stated that one-third of the principal amount will be forgiven on each anniversary of the facility's opening date, and that the Note will be discharged once the principal is completely forgiven. Upon termination of the franchise agreement, stated the Note, "the outstanding principal balance of this Note shall be immediately due and payable." Id. If the Note is accelerated and is not paid in full with ten days after it is due, HJI will be owed interest of lesser of eighteen percent or the highest rate allowed by law. Id. Finally, the Note said that, should collection of the Note require legal action, HJI is entitled to attorney's fees and costs. Id.

Termination of the License Agreement

The parties executed these documents on December 31, 2001. On July 12, 2002, HJI conducted a quality assurance inspection of the Norfolk, Nebraska, facility. PSUMF ¶ 21. The facility received a failing score. On October 29, 2002, the facility failed another quality assurance inspection.*fn2 Id. at ¶ 22. On January 17, 2003, HJI sent Inn Development a letter stating "We write to give you formal notice of your default and termination . . . under the Agreement for the Facility." See Docket 53-6. That letter went on to provide avenues for Inn Development to cure the defaults and avoid termination, slated for April 1, 2003.*fn3 Id.

Specifically, the letter detailed Inn Development's financial default, stating that the licensee owed $30,869.04 to HJI for recurring fees and other unpaid fees and charges. HJI stated that Inn Development must pay the account balance by March 13, 2007, warning that failure to do so will result in eliminating Inn Development's access to the central reservation system. Additionally, partial payment would not cure the default. "Unless full payment is made by March 17, ...


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