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Choice Hotels International, Inc. v. Raj, Inc.

United States District Court, D. Maryland

January 24, 2017

RAJ, INC., and NUTAN BHAKTA, Defendants.


          Theodore D. Chuang United States District Judge

         On June 21, 2016, Choice Hotels International, Inc. ("Choice Hotels") filed an Application to Confirm Arbitration Award against Raj, Inc. and Nutan Bhakta (collectively, "Defendants").[1] The award was based on Defendants' alleged breach of a franchise agreement between the parties ("the Franchise Agreement"), specifically, Defendants' failure to pay various fees due under its terms. The arbitrator awarded Choice Hotels a total of $132, 198.13, comprised of fees, interest, liquidated damages, and arbitration expenses. Defendants did not present any evidence or participate in the arbitration hearing.

         Defendants were served with the Application on July 29, 2016. On September 8, 2016, Choice Hotels filed a Motion for Clerk's Entry of Default and a Motion for Judgment by Default against Defendants. The Clerk entered a default against Defendants on September 28, 2016.

         Although Defendants were served with the Motion for Judgment by Default, to date, they have not responded to it, or to any other filing in this case. The Motion is now ripe for disposition, and the Court finds that no hearing is necessary. See D. Md. Local R. 105.6. For the reasons set forth below, the Motion is GRANTED.


         In the Motion for Judgment by Default, Choice Hotels asserts that Defendants have failed to file a timely responsive pleading to its Application. Thus, Choice Hotels argues that it is entitled to default judgment against Defendants in the amount of the arbitration award and costs.

         I. Legal Standard

         Under 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. 2006).

         II. The Arbitration Award

         The Court is satisfied that it has diversity jurisdiction over this case pursuant to 28 U.S.C. § 1332. Choice Hotels is a Delaware corporation with its headquarters located in Rockville, Maryland. In the Motion for Judgment by Default, Choice Hotels asserts that Raj, Inc. is a Kansas corporation with its principal place of business in Kansas and that Bhakta is a citizen of Kansas.[2] In addition, the amount in controversy is greater than the $75, 000 jurisdictional minimum under 28 U.S.C. § 1332.

         The Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16 (2012), provides in part that:

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.

Id. § 9. Here, the 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 "[j]udgment on the arbitration award may be entered in any court having jurisdiction." Franchise Agreement ¶ 22, Appl. Ex. 2, ECF No. 1-3. Choice Hotels filed its Application to Confirm Arbitration Award within one year of the arbitrator's decision. The award was rendered in the State of Maryland. The Court is therefore satisfied that the requirements of the FAA are met, such that it may review the arbitration award.

         Judicial 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." 9 U.S.C. § 10(a). A misinterpretation of a contract, or of law, does not suffice to overturn an award. See Upshur Coals Corp. v. United Mine Workers of Am., ...

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