United States District Court, D. Maryland
THEODORE D. CHUANG UNITED STATES DISTRICT JUDGE
August 12, 2015, Plaintiff Choice Hotels International, Inc.
("Choice Hotels") filed an Application to Confirm
Arbitration Award against Defendants HSL Investments, Inc.
("HSL") and Chad Shanholtz. The award was based on
Defendants' alleged breach of a franchise agreement
between the parties, specifically their failure timely to
commence construction of a hotel. The arbitrator awarded
Choice Hotels $247, 765.00 in damages comprised of liquidated
damages for unbuilt rentable rooms and arbitration expenses.
Defendants did not attend or otherwise seek to participate in
the March 9, 2015 arbitration hearing and did not submit any
written materials for consideration in the arbitration
were served with the Application on August 18, 2015, but they
did not file any response or challenge to it. On September
17, 2015, Choice Hotels filed a Motion for Clerk's Entry
of Default and a Motion for Default Judgment against
Defendants. The Clerk entered the defaults against Defendants
that same day.
April 29, 2016, this Court denied Choice Hotels' Motion
for Default Judgment without prejudice because Choice Hotels
had failed adequately to establish that this Court had
jurisdiction over the action. The only jurisdictional basis
cited in Choice Hotels' Application was the Federal
Arbitration Act ("FAA"), 9 U.S.C. 99 1-16 (2012).
The Court explained that the FAA is not an independent source
of federal question jurisdiction, and that, based on the
allegations in the Application, Choice Hotels' case could
proceed only under diversity jurisdiction, 28 U.S.C. 9 1332
(2012). The Court noted that while the Application caption
provided addresses for the parties that suggested they were
diverse, Choice Hotels nowhere expressly averred that the
requirements of diversity jurisdiction were met or invoked
diversity as a basis for this Court's subject matter
jurisdiction. The Court also noted that Choice Hotels'
pleading failed to allege facts establishing that
jurisdiction was proper under the FAA, which requires that an
application for confirmation of an arbitration award be filed
in "the United States court in and for the district
within which such award was made" unless the agreement
between the parties specifies otherwise. 9 U.S.C. 9 9.
Although the Franchise Agreement states that "Judgment
on the arbitration award may be entered in any court having
jurisdiction" and that "Any arbitration would be
conducted at our headquarters office in Maryland, "
there was no record in the Application or the award itself
that the arbitration actually occurred in Maryland. Franchise
Agreement ¶ 21, Application Ex. 2, ECF No. 1-3. The
Court provided Choice Hotels 14 days to file a second Motion
for Default Judgment to cure these deficiencies.
16, 2016, Choice Hotels filed a Second Motion for Default
Judgment ("Second Motion"). In the Second Motion,
Choice Hotels asserts that it is incorporated in Delaware and
headquartered in Maryland, that HSL is incorporated and has
its principal place of business in Virginia, that Shanholtz
is a citizen of and domiciled in Virginia, and that the
amount in controversy exceeds $75, 000. Based on these
allegations, Choice Hotels asserts that the requirements of
diversity jurisdiction are satisfied. Choice Hotels also
clarifies that the arbitration took place in Maryland. In the
Second Motion, as in the Application, Choice Hotels seeks the
$247, 765.00 awarded by the arbitrator, post-judgment
interest, and the costs of this action.
Defendants were served with the Second Motion for Default
Judgment,, to date, neither has not responded to it, or to
any other filing in this case. The Second Motion is now ripe
for disposition, and the Court finds no hearing necessary.
See D. Md. Local R. 105.6. For the reasons set forth
below, the Second Motion for Default Judgment is GRANTED.
Federal Rule of Civil Procedure 55(b)(2), a default judgment
after an entry of default is left to the discretion of the
court. S.E.C. v. Lawbaugh, 359 F.Supp.2d 418, 421
(D. Md. 2005). Although the United States Court of Appeals
for the Fourth Circuit recognizes a "strong policy that
cases be decided on their merits, " United States v.
Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993), a
default judgment may be appropriate when a party is
unresponsive, Lawbaugh, 359 F.Supp.2d at 422-23
(citing Jackson v. Beech, 636 F.2d 831, 836 (D.C.
Cir. 1980)). When default judgment is sought with respect to
an application for confirmation of an arbitration award, the
plaintiff must show that it is entitled to confirmation of
the arbitration award as a matter of law. See D.H. Blair
& Co. v. Gottdiener, 462 F.3d 95, 109-10 (2d Cir.
Hotels appears to have cured the deficiencies in the First
Motion. Based on the new allegations, the parties appear to
be diverse, and the amount in controversy satisfies the
jurisdictional minimum under 28 U.S.C. ~ 1332(a). The Court
is therefore satisfied that it has subject matter
jurisdiction over this case. As for whether this case is
properly within the scope of the FAA, that statute provides,
If the parties in their agreement have agreed that a judgment
of the court shall be entered upon the award made pursuant to
the arbitration, and shall specify the court, then at any
time within one year after the award is made any party to the
arbitration may apply to the court so specified for an order
confirming the award, and thereupon the court must grant such
an order unless the award is vacated, modified, or corrected
as prescribed in sections 10 and 11 of this title. If no
court is specified in the agreement of the parties, then such
application may be made to the United States court in and for
the district within which such award was made.
9 U.S.C. § 9. Here, the parties' Franchise Agreement
contains an arbitration clause that states that "any
controversy or claim arising out of or relating to this
Agreement, or the breach of this Agreement, . . . will be
sent to final and binding arbitration, " and that
"judgment on the arbitration award may be entered in any
court having jurisdiction." Franchise Agreement ¶
21, 2d Mot. Default J. Ex. A, ECF No. 11-1. Choice Hotels
filed its application to confirm the award within one year of
the arbitrator's decision. Although the award does not
expressly indicate in which judicial district the arbitration
hearing occurred, the Franchise Agreement requires that
"[a]ny arbitration will be conducted at [Choice
Hotels'] headquarters office in Maryland, "
id., and Choice Hotels asserts that the arbitration
did, in fact, take place in Maryland, 2d Mot. Default J.
¶ 7. The Court is therefore satisfied that the
requirements of the FAA are met, such that it may review the
review of an arbitration award is "severely
circumscribed, " and, in fact, is "among the
narrowest known at law because to allow full scrutiny of such
awards would frustrate the purpose of having arbitration at
all-the quick resolution of disputes and the avoidance of the
expense and delay associated with litigation." Apex
Plumbing Supply, Inc. v. U.S. Supply Co., Inc., 142 F.3d
188, 193 (4th Cir. 1998) (footnote omitted). Thus, where
there is a valid contract between the parties providing for
arbitration, and the arbitration resolved a dispute within
the scope of the arbitration clause, federal courts may
vacate an arbitration award only upon a showing of one of the
grounds set forth in the FAA, or if the arbitrator acted in
manifest disregard of law. Id. Section 10 of the FAA
limits review to the following grounds: (1) "the award
was procured by corruption, fraud, or undue means"; (2)
"there was evident partiality or misconduct" on the
part of the arbitrators; (3) "the arbitrators were
guilty of misconduct" by which "the rights of any
party have been prejudiced"; or (4) "the
arbitrators exceeded their powers." 9U.S.C. §
10(a). A misinterpretation of a contract, or a
misinterpretation of law, does not suffice to overturn an
award. See Upshur Coals Corp. v. United Mine Workers of