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Midas International Corp. v. Poulah Investors, LLC

United States District Court, D. Maryland, Southern Division

August 29, 2016

MIDAS INTERNATIONAL CORP., Plaintiff,
v.
POULAH INVESTORS, LLC, et al., Defendants.

          MEMORANDUM OPINION

          GEORGE J. HAZEL UNITED STATES DISTRICT JUDGE

         After termination of their franchise agreement, Plaintiff Midas International Corporation ("Midas'") initiated this action against Defendants Poulah Investors, LLC ("Poulah"), Laurent Djampa, Clovis Djeutcha, Atanis Kadjemse. Apolin Pougoum. and Martin Tegangtchouang (the "Individual Defendants"), alleging trademark infringement in violation of the Lanham Act, 15 U.S.C. S 1051 el seq., common law unfair competition, and breach of contract against Poulah. and breach of guarantees against the Individual Defendants. ECF NO.1. Two motions are currently pending before the Court: Midas' Motion for Default Judgment against Poulah, ECF No. 34, and its Motion for Summary Judgment against the Individual Defendants, ECF No. 35. No hearing is necessary to resolve these Motions. See Loc. R. 105.6 (D. Md.). For the reasons that follow, both motions are granted, in part, and denied, in part.

         I. BACKGROUND

         Midas is a franchisor of automotive specialty shops that service and install exhaust systems, brake components, suspension parts, heating and cooling system parts, tires, batteries, and other motor vehicle parts, and also performs services in connection with these sales and performs general vehicle maintenance services. ECF No. 1¶10; ECF No. 35-1 at 1[1] Midas has approximately 1, 000 franchises in the United States, at least twenty-five of which are in Maryland, each doing business as "Midas." ECF No. 1¶ 11; ECF No. 35-1 at1. The relationship between Midas and each of its franchisees is governed by a franchise agreement allowing franchisees to use, for a term of years, Midas' trademarks, service marks, trade dress, and licensed methods in exchange for, among other things, monthly royalties. ECF No. 1 ¶ 12; ECF No. 35-1 at 2. Midas is the owner of numerous trademark registrations issued by the United States Patent and Trademark Office ("PTO"), the first of which was issued in 1957, on various trade names and service marks, including "MIDAS, " "MIDAS MUFFLER"" and "MIDAS MUFFLER SHOPS." ECF No. 1 ¶ 13; ECF No. 35-1 at 2, 9-26. Midas has established significant goodwill throughout the years it has operated as a franchisor with respect to the goods and services it offers. ECF No. 1¶14; ECF No. 35-1 at 3.

         On November 7, 1994, Midas entered into a franchise agreement with J&D Automotive. Inc. ("J&D"). in which Midas licensed the use of its service marks for a twenty-year term (the "Franchise Agreement" or "Agreement"). ECF No. 1 ¶ 15; ECF No. 35-1 at 3, 27-43. The Franchise Agreement allowed J&D to assign its rights thereunder to another party, subject to Midas' consent. ECF No. 35-1 at 34-35. J&D operated a Midas franchise at 8528 Piney Branch Road in Silver Spring, Maryland (the "Shop") until, on April 1, 2012, J&D assigned the Franchise Agreement to Poulah (the "Assignment"). ECF No. 1 ¶ 15-16; ECF No. 35-1 at 3; 44-48. Pursuant to the Assignment, Poulah, as well as the Individual Defendants, agreed to be bound by the Franchise Agreement.. ECF No. 1¶ 16; ECF No. 35-1 at 3, 44-18.

         Pursuant to the Franchise Agreement, . Poulah acknowledged the validity of Midas' trademarks and further acknowledged that the marks are the sole property of Midas, but that Poulah was granted the right to use the marks so long as the Franchise Agreement remained in force. ECF No. 35-1 at 28. The Franchise Agreement further provided that the Midas marks were the exclusive property of Midas and that Poulah was prohibited from using the marks during or after the term of the Agreement except in accordance with the terms of the Franchise Agreement.. Id. During the term of the Agreement, . Poulah agreed to pay Midas monthly royalties of 10 percent of the franchise's total gross revenue. Id. at 30. If such royalties were not paid when due, Poulah was obligated to pay interest at a per annum rate of three percentage points above the prime lending rate of the First National Bank of Chicago.[2] Id.

         The Franchise Agreement specified the obligations of a franchisee after termination of the Agreement. Specifically, the Agreement provided that upon its termination, Poulah was required to, among other things, promptly pay all liquidated damages owed to Midas; immediately discontinue use of any Midas trademarks or service marks; remove or destroy all signs containing any Midas marks, and destroy or surrender to Midas all stationary, letterheads, forms, promotional displays, and advertising containing Midas marks. Id. at 39. In the event of default or breach of the Franchise Agreement, Poulah "acknowledge[d] that it would be difficult to ascertain the exact amount of damages incurred by Midas ... and that.. . Midas shall be entitled to recover from (Poulah) ... as and for its liquidated damages, the sum of $100.00 for each day's continuance of such breach or default after written notification ... by Midas . . . ." Id. The Franchise Agreement further provided that, in the event Midas was required to obtain counsel or other legal expenses to enforce any obligations under the Agreement. Midas was entitled to recover attorneys' fees and costs from Poulah. Id. at 41.

         When they agreed to the Assignment of the Franchise Agreement, the Individual Defendants also executed a personal guaranty whereby they each agreed to be held jointly and severally liable for any payment that would become due to Midas from Poulah (the "Guaranty"). See ECF No. 1 ¶17; ECF No. 35-1 at 49-50. Pursuant to the Guaranty, the Individual Defendants also agreed to reimburse Midas for "all expenses, collection charges, court costs and attorney's fees incurred in endeavoring to collect or enforce any of the [listed obligations] against [Poulah] and/or [the Individual Defendants]...." ECF No. 35.1 at 49.

         When the Franchise Agreement was set to expire in November 2014, Poulah was delinquent in its financial obligations to Midas. See ECF No. 1 ¶18; ECF No. 35-1 at 5. Midas, however, offered Poulah the opportunity to either renew the Agreement if its default was cured, or to extend the term of the Agreement to give Poulah more time to review its renewal opportunity. ECF No. 1¶ 19; ECF No. 35-1 at 5. Poulah did not take advantage of either opportunity, and the Franchise Agreement terminated in accordance with its terms on November 7, 2014. ECF No. 1 ¶¶ 20-21; ECF No. 35-1 at 5-6. Poulah nevertheless continued to operate as a Midas shop. ECF No. I ~ 22; ECF No. 35-1 at 6.

         On December 17, 2014, Midas sent a letter to Poulah and the Individual Defendants notifying them of the expiration of the Franchise Agreement.. ECF No. 35-1 at 52; see also ECF No. 1¶ 23; ECF No. 35-1 at 6. As of that date, Poulah was at least $13, 587.10 delinquent on its financial obligations to Midas. ECF No. 35-1 at 5; see a/so ECF No. 1 ¶18. Midas" December 17 letter reminded Poulah and the Individual Defendants of their post-termination obligations under the Franchise Agreement, and further noted that, if Midas was required to obtain counsel to enforce the terms of the Agreement, the Individual Defendants would be jointly and severally liable for all court costs and attorneys' fees. ECF No. 35-1 at 53-54. Poulah nevertheless continued to operate as a Midas shop, and on January 14, 2015, Midas sent another letter to Poulah and the Individual Defendants demanding that they immediately cease and desist identifying as a Midas business. ECF No. 35-1 at 56-58. In the months that followed, Midas repeatedly urged Poulah and Defendant Kadjemse, who served as Poulah's manager, to cease using Midas' marks and to cease holding itself out as an authorized Midas franchisee. ECF No. 1 24; ECF No. 35-1 at 6. Poulah nevertheless continued to use Midas' trademark, including on the Shop's exterior pole sign, ECF No. 1 ¶25; ECF No. 35-1 at 6, 60, until August 9, 2015, when it went out of business without having paid the $13, 587.10 it owed to Midas. ECF No. 35-1at6.

         Midas initiated the present action on July 30, 2015. ECF NO.1. Defendants Pougoum, Tegangtchouang, Djeutcha, and Kadjemse each filed Answers to the Complaint on August 27, 2015. ECF Nos. 20, 21, 22 & 23. After the Court granted multiple motions for extension of time for Defendant Djampa to answer the Complaint, Djampa subsequently consented to the entry of a permanent injunction against him, and Midas then dismissed any claims it had against Djampa with prejudice. ECF No. 31. Additionally, the Court administratively closed this action with respect to Pougoum pursuant to 11 U.S.C. S 362(a) upon receiving notice that Pougoum had filed for bankruptcy relief. See ECF Nos. 45 & 48. Poulah failed to respond to the Complain, and default was entered against it on April 12, 2016.[3] ECF No. 54. Midas' Motion for Default Judgment against Poulah, ECF No. 34, and its Motion for Summary Judgment against the Individual Defendants, ECF No. 35, which now only seeks judgment against Tegangtchouan, Djeutcha, and Kadjemse, see ECF No. 53 at 2 n.1, are now pending before the Court. Kadjemse and Djeutcha have opposed Midas' Motion for Summary Judgment, but Tegangtchouang has not. ECF Nos. 51 & 52. Midas filed a combined reply in further support of its Motion for Summary Judgment, ECF No. 53, and, accordingly, both of its Motions are now ripe for review.

         II. MOTION FOR DEFAULT JUDGMENT AGAINST POULA

         A. Standard of Review

         "A defendant's default does not automatically entitle the plaintiff to entry of a default judgment rather, that decision is left to the discretion of the court." Choice Hotels Intern.. Inc. v. Savannah Shakti Carp., No. DKC-11-0438, 2011 WL 5I18328 at * 2 (D. Md. Oct. 25.201I) (citing Dow v. Jones, 232 F.Supp.2d 491, 494 (D. Md. 2002)). Although "[t]he Fourth Circuit has a 'strong policy' that 'cases be decided on their merits, "' id. (citing United States v. Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir.I993)), "default judgment may be appropriate when the adversary process has been halted because of an essentially unresponsive party[.]" Id. (citing S.E.C. v. Lawbaugh, 359 F.Supp.2d418, 421 (D. Md. 2005)).

         "Upon default, the well-pled allegations in a complaint as to liability are taken as true, although the allegations as to damages are not." S.E.C. v. Lawbaugh, 359 F.Supp.2d 418, 422 (D. Md. 2005). Rule 54(c) of the Federal Rules of Civil Procedure limits the type of judgment that may be entered based on a party's default: "A default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings." In entering default judgment, a court cannot, therefore, award additional damages "because the defendant could not reasonably have expected that his damages would exceed th[e] amount [plead in the complaint]." In re Gene;ys Data Techs.. Inc., 204 F.3d 124, 132 (4th Cir. 2000). Where a complaint does not specify an amount, "the court is required to make an independent determination of the sum to be awarded." Adkins v. Teseo, 180 F.Supp.2d 15, 17 (D.D.C. 2001) (citing S.E.C. v. Management Dynamics. Inc., 515 F.2d 801, 814 (2nd Cir, 1975); Au Bon Pain Corp. v. Artect, Inc., 653 F, 2d 61, 65 (2nd Cir. 1981)), While the Court may hold a hearing to prove damages, it is not required to do so; it may rely instead on "detailed affidavits or documentary evidence to determine the appropriate sum.-Adkins, 180 F.Supp.2d at 17 (citing United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir. 1979)); see also Laborers' Districl Council Pension, el al. v. E.G.S., Inc., No. WDQ-09-31742 2010 WL 1568595, at *3 (D. Md. Apr.I6, 2010) C'[O]n default judgment, the Court may only award damages without a hearing if the record supports the damages requested.'').

         B. Discussion

         In considering a motion for default judgment, the Court accepts as true the well-pleaded factual allegations in the Complaint as to liability, but nevertheless "must determine whether the well-pleaded allegations ... support the relief sought in th[e] action." Int'l Painters & Allied Trades Indus. Pension Fund v. Capital Restoration & Painting Co.,919 F.Supp.2d 680, 685 (D. Md. 2013) (citation and internal quotation marks omitted). In the Complaint, Midas alleged three claims against Poulah: breach of contract, trademark infringement in violation of the Lanham Act, and common law unfair competition. ECF No. 1 ΒΆΒΆ 28-45. In its Motion for Default Judgment, Midas indicated that ...


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