New Horizons Franchising Group Inc v. Cooke & Moses LLC
3:14-cv-03333
D.S.C.Jun 4, 2015Background
- New Horizons Franchising Group, Inc. sued multiple defendants seeking unpaid royalties and merchandise charges under three franchise agreements (2004, 2006, 2008) and corresponding guaranty agreements signed by Betty Beach Cooke and Roy Lee Cooke.
- Roy Lee Cooke, individually and as Personal Representative of Betty Beach Cooke’s estate, failed to respond to the Complaint and was placed in default.
- Plaintiff moved for default judgment under Fed. R. Civ. P. 55(b); the Clerk entered default and the motion was unopposed.
- The franchise and guaranty agreements specify California law governs disputes.
- The court accepted Plaintiff’s well-pleaded allegations as admitted for liability, then independently calculated damages (including prejudgment interest) consistent with the contractual terms.
- Judgment awarded Plaintiff $404,272.72 in total damages against Cooke; Plaintiff may timely move for attorney’s fees and costs per the contracts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether default judgment is proper against Cooke for failure to answer | Cooke defaulted; Plaintiff entitled to judgment on admitted allegations | No response; no opposition raised | Court entered default judgment under Fed. R. Civ. P. 55(b) |
| Choice of law to determine substantive claims and damages | Contracts designate California law | No opposing choice-of-law argument (default) | Court applied California law per contract choice-of-law clauses |
| Whether guarantor liable for unpaid royalties/charges and future royalties | Guaranty makes Cooke liable for unpaid amounts and future royalties caused by franchisee breach | No defense asserted | Court held guarantor liable for specified principal balances and prejudgment interest |
| Proper measure and calculation of damages and interest | Damages calculated from invoices and contract terms; interest per contract rates | No contest to calculations (default) | Court independently determined amounts and applied contractual interest rates; total $404,272.72 awarded |
Key Cases Cited
- Erie R. Co. v. Tompkins, 304 U.S. 64 (establishes that federal courts sitting in diversity apply state substantive law)
- Burris Chemical, Inc. v. USX Corp., 10 F.3d 243 (4th Cir. 1993) (South Carolina choice-of-law follows contractual choice-of-law clauses)
- Bannister v. Shepard, 4 S.E.2d 7 (S.C. 1939) (South Carolina choice-of-law precedent)
- Livingston v. Atlantic Coast Line R.R. Co., 180 S.E. 343 (S.C. 1935) (choice-of-law authority cited for enforcing contractual choice)
- Ryan v. Homecomings Fin. Network, 253 F.3d 778 (4th Cir. 2001) (default judgment: well-pleaded allegations deemed admitted for liability)
- Credit Lyonnais Secs. (USA), Inc. v. Alcantara, 183 F.3d 151 (2d Cir. 1999) (court must independently determine damages after default)
- Grupe v. Glick, 160 P.2d 832 (Cal. 1945) (measure of damages for loss of prospective profits from breach)
- Postal Instant Press, Inc. v. Sealy, 51 Cal.2d 365 (Cal. Ct. App.) (franchisor may recover future royalties if franchisee caused breach)
- Barber v. Kimbrell's, Inc., 577 F.2d 216 (4th Cir. 1978) (standards for fee petitions in this circuit)