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Choice Hotels International, Inc. v. Aalia Hospitality Corp.

United States District Court, D. Maryland

July 3, 2019

CHOICE HOTELS INTERNATIONAL, INC. Plaintiff,
v.
AALIA HOSPITALITY CORP., et al., Defendants.

          MEMORANDUM OPINION

          DATE PAULA XINIS, UNITED STATES DISTRICT JUDGE

         Pending before the Court are Defendants AALIA Hospitality, Corp. (“AALIA”) and Taj A. Khan's Motion to Vacate the Complaint (ECF No. 13) and Plaintiff Choice Hotels International, Inc.'s (“Choice Hotels”) Motion for Clerk's Entry of Default (ECF No. 10), Motion for Default Judgment (ECF No. 11), and Application to Confirm Arbitration Award. ECF No. 1. For the following reasons, Choice Hotels' Motions for Clerk's Entry of Default and Default Judgment are DENIED as moot (ECF Nos. 10, 11), AALIA and Khan's Motion to Vacate is DENIED (ECF No. 13), and Choice Hotels' Application to Confirm Arbitration Award is GRANTED. ECF No. 1.

         I. Background

         On October 17, 2013, Choice Hotels entered into a franchise agreement with Diamond Hospitality, Corp., Kamlesh Brahmbhatt, AALIA, and Khan (collectively, “the franchisees”). Id. ¶ 6. The franchise agreement provided that the franchisees would operate a Choice Hotels-branded hotel in Suffolk, Virginia. Id. The franchise agreement also included an arbitration provision in which the parties agreed that disputes arising from the franchise agreement would be referred for binding arbitration. ECF No. 1-2 ¶ 21.

         About a year later, Choice Hotels issued a written notice of default to the franchisees for failure to respond to a pressing safety violation. ECF No. 1 ¶¶ 7-8. Choice Hotels thereafter initiated arbitration proceedings on February 17, 2018, because the franchisees failed to remedy the breach. Id. ¶ 9. As damages, Choice Hotels demanded contractual fees, interest, and liquidated damages. Id.

         Pursuant to Commercial Arbitration Rule 43, the franchisees were properly served notice of the arbitration proceedings, but none of the franchisees attended the arbitration. Commercial Arbitration R-43; ECF No. 1-3 at 1; ECF No. 1 ¶ 12. Following an evidentiary hearing, the arbitrator found the franchisees jointly and severally liable for breaching the agreement, and awarded damages for unpaid franchise fees of $29, 200.03, interest of $11, 831.40, contractual lost profit damages of $128, 667.67, arbitrator's compensation and expenses of $2, 947.41, and expenses of $7, 597.41, totaling $177, 295.51. ECF No. 1-3 at 2.

         On May 25, 2018, Choice Hotels brought this Application to Confirm Arbitration Award against the franchisees.[1] ECF No. 1. The Defendants were served on July 27, 2018. ECF No. 9. Because the Defendants failed to respond timely, Choice Hotels moved for clerk's entry of default and default judgment on February 14, 2019. ECF Nos. 10, 11. On March 4, 2019, Defendants moved to vacate the arbitration award. ECF No. 13. For the following reasons, the Court denies the default motions as moot and confirms the arbitration award.

         II. Motion for Entry of Default and Motion for Default Judgment

          Pursuant to Federal Rule of Civil Procedure 55(a), “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). Thereafter, the court may enter default judgment at the plaintiff's request and with notice to the defaulting party. Fed.R.Civ.P. 55(b)(2). Plaintiff, however, is not automatically entitled to default judgment simply because the defendant responded late or not at all. See, e.g., Choice Hotels Int'l, Inc. v. Jai Shree Navdurga, LLC, DKC 11-2893, 2012 WL 5995248, at *1 (D. Md. Nov. 29, 2012). When possible, cases should be decided on the merits. United States v. Schaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993).

         The Clerk of this Court never entered Rule 55(a) default[2] and Defendants have now responded to the Application to Confirm Arbitration Award. ECF No. 13. Because this Court sees no reason to avoid reaching the merits of the Application, the Motions for Entry of Default and Default Judgment are DENIED as moot. ECF Nos. 10, 11.

         III. Application to Confirm Arbitration Award and Motion to Vacate

          On the merits, the parties have filed dueling motions: one asking the Court to confirm the arbitration award, the other asking to vacate it. ECF Nos. 1, 13. The Federal Arbitration Act (“FAA”) provides that within one year after an arbitration award is filed, the prevailing party must apply to the Court to confirm the award. 9 U.S.C. § 9. Importantly, the Court's scope of review of an arbitrator's award is “among the narrowest known at law” and for good reason. Apex Plumbing Supply, Inc. v. U.S. Supply Co., 142 F.3d 188, 193 (4th Cir. 1998). To hold otherwise would frustrate the parties' very purpose of agreeing in advance to arbitration: “the quick resolution of disputes and the avoidance of the expense and delay associated with litigation.” Id.

         As to the Defendants' requested relief, an award may be vacated only where the movant demonstrates that “(1) the award was procured by corruption, fraud, or undue means; (2) the arbitrator engaged in misconduct or was not impartial; or (3) the arbitrator exceeded his powers.” Choice Hotels Int'l, Inc. v. Niteen Hotels (Rochester), LLC, 103 Fed.Appx. 489, 492 (4th Cir. 2004); see also 9 U.S.C. § 10(a)(1)-(4); Choice Hotels Int'l, Inc. v. SM Prop. Mgmt., LLC, 519 F.3d 200, 207 (4th Cir. 2008). Defendants maintain that vacatur of the award is warranted because they did not receive notice of the arbitration proceeding. ECF No. 13 ¶¶ 5-8. Khan, more specifically, avers that he was travelling internationally and was not present at the address that Choice Hotels sent notice of the arbitration proceedings. Id. ¶¶ 5-6. Because Plaintiff does not meet any of the grounds supporting vacatur, Defendants' argument must fail.

         Defendants agreed that they would be bound by the Commercial Arbitration Rules of the American Arbitration Association (“AAA”). ECF No. 1-2 ¶ 21. These Rules permit process to be served “by mail addressed to the party or its representative at the last known address.” Commercial Arbitration R-43; see also Choice Hotels Int'l, Inc. v. Shree Sai Props., No. GJH-15-0231, 2017 WL 1025724, at *4 (D. Md. Mar. 13, 2017) (applying the Commercial Arbitration Rules' service requirements). Additionally, the parties do not dispute that Choice Hotels effected proper service in accordance with Commercial Arbitration R-43. Choice Hotels searched for Defendants' current addresses through the Tracers public databases and the Virginia.gov business entity search and found the Defendants' latest known address was 2864 Pruden Boulevard, Suffolk, Virginia 23434 (“2864 Pruden”). ECF No. 17 ¶ 3. Choice Hotels mailed copies of the arbitration demand and a representative of the American Arbitration Association sent letters regarding the preliminary hearing to this address. ECF Nos. 17 ¶ 3, 17-1-17-3. Although Khan was travelling internationally, 2864 Pruden is the last known professional address for Khan as an individual and for Khan as the Defendants' Registered ...


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