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Choice Hotels International, Inc., A Delaware Corporation v. Kusum Vali

May 3, 2012

CHOICE HOTELS INTERNATIONAL, INC., A DELAWARE CORPORATION,, PLAINTIFF,
v.
KUSUM VALI, INC., A CALIFORNIA CORPORATION, ET AL., DEFENDANT.



The opinion of the court was delivered by: Barry Ted Moskowitz, Chief Judge United States District Court

GRANTING MOTION TO SET ASIDE ORDER CONDITIONALLY ENTRY OF DEFAULT

Defendants Kusum Vali, Inc. ("Kusum"), Sunil Patel ("S. Patel"), and Tejas Patel ("T. Patel") (collectively "Defendants") have filed a motion to set aside entry of default. For the reasons discussed below, Defendants' motion is conditionally GRANTED.

I. FACTUAL BACKGROUND

On June 10, 2011, Plaintiff Choice Hotels International, Inc. ("Plaintiff") commenced this action. Plaintiff is the owner of a number of trademarks for the mark "ECONO LODGE" for use in connection with the provision of hotel and motel services. (Compl. ¶¶ 21-30.)

On or about March 31, 2007, Plaintiff entered into a Franchise Agreement with Kusum, S. Patel, T. Patel, and Navnit Khatri ("Khatri") (collectively "Kusum Vali Defendants"), which permitted them to operate an ECONO LODGE® hotel franchise at 330 North Imperial Avenue, El Centro, CA 92243 (the "Hotel"). (Compl. ¶ 31.) The Franchise Agreement licensed the ECONO LODGE family of marks to the Kusum Vali Defendants for so long as the Franchise Agreement remained in effect. (Compl. ¶ 32.)

On or about March 11, 2010, Plaintiff issued a Notice of Termination of the Franchise Agreement to the Kusum Vali Defendants based on their failure to pay certain required fees under the terms of the Agreement. (Compl. ¶ 40.) The Notice of Termination instructed the Kusum Vali Defendants to cease use of any and all of the ECONO LODGE family of marks. (Compl. ¶¶ 41-42.) The Notice also advised the Kusum Vali Defendants that under the terms of the Agreement, they were obligated to pay Plaintiff $7,912.89 in franchise and related fees, $797.47 in travel agent commission fees, and $37,375.00 in lost profits. (Compl. ¶ 43.)

Plaintiff alleges that the Kusum Vali Defendants continued to use the ECONO LODGE family of marks in, around, and in publicity for, the Hotel. (Compl. ¶ 46.) Plaintiff asserts claims for infringement of federally registered trademark (15 U.S.C. § 1114), false designation of origin (15 U.S.C. § 1125(a), trademark infringement under California law, and violation of the California Unfair Competition Law (Cal. Bus. & Prof. Code § 17200). Plaintiff seeks injunctive relief as well as damages, including profits received by the defendants from their wrongful actions, lost profits, loss of good will, and actual damages. Plaintiff also requests treble damages and attorney's fees and costs.

On July 18, 2011, default was entered against Kusum. On July 20, 2011, default was entered against S. Patel and T. Patel. On August 12, 2011, default was entered against Khatri.

On September 19, 2011, Plaintiff filed a motion for default judgment against the Kusum Vali Defendants. On October 16, 2011, attorney Frank A. Weiser filed on behalf of Kusum , S. Patel, and T. Patel, an "Opposition to the Motion for Entry of Default Judgment." In a declaration, S. Patel explained that he did not contact Mr. Weiser until after the defaults were entered due to a miscommunication between himself and his manager at the Valley View Inn. S. Patel explained that he did not pick up his mail on a daily basis and was suffering from emotional distress due to financial difficulties. S. Patel requested that he, T. Patel, and Kusum be allowed to defend themselves in this action and file an Answer.

In an order filed on November 15, 2011, the Court instructed Defendants that if they wished to set aside the entries of default, they were required to file a noticed motion for such relief. The Court gave Defendants until December 1, 2011, to file a motion to set aside entry of default.

On December 1, 2011, Kusum, S. Patel, and T. Patel filed a motion to set aside default and for leave to file an Answer to the Complaint.

II. STANDARD

Fed. R. Civ. P. 55(c) provides that a court may set aside the entry of default "for good cause shown." Factors to be considered when deciding whether to set aside an entry of default for "good cause" include: (1) whether the defendant's "culpable conduct" led to the default; (2) whether the plaintiff would be prejudiced by a set-aside; and (3) whether the defendant can present a meritorious defense to the claim. Falk v. Allen, 739 F.2d 46, 463 (9th Cir. 1984); American Ass'n of Naturopathic Physicians v. Hayhurst, 227 F.3d 1104, 1108 (9th Cir. 2000). If any one of these factors weighs against the defendant, the district court may refuse to set aside the default. Franchise Holding II v. Huntington Rests. Group, Inc., 375 F.3d 922, 925-26 (9th Cir. 2004).

However, "judgment by default is a drastic step appropriate only in extreme circumstances; a case should, whenever possible, be decided on the merits." Falk, 739 F.2d at 463. A court's discretion is especially broad when it is entry of default that a defendant seeks to set aside, rather than default ...


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