Choice Hotels International, Inc. v. Sonora Sun Management Ltd. Partnership

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1009
CHOICE HOTELS INTERNATIONAL, INCORPORATED, a
Delaware corporation,
Plaintiff - Appellee,
versus
SONORA SUN MANAGEMENT LIMITED PARTNERSHIP,
L.L.P., a/k/a Sonora Sun Management, L.L.P.,
an Arizona limited liability partnership;
HUMBERTO LOPEZ; GLENN TOYOSHIMO,
Defendants - Appellants.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Alexander Williams, Jr., District Judge.
(CA-04-1825-8-AW)
Argued: December 1, 2005 Decided: January 19, 2006
Before NIEMEYER, WILLIAMS, and SHEDD, Circuit Judges.
Affirmed by unpublished per curiam opinion. Judge Williams wrote
a separate concurring opinion.
ARGUED: Steven K. White, STINSON, MORRISON & HECKER, L.L.P.,
Washington, D.C., for Appellants. Kerry Shanahan McGeever, CHOICE
HOTELS INTERNATIONAL, INCORPORATED, Silver Spring, Maryland, for
Appellee. ON BRIEF: Robert L. (Bo) Eskay, Jr., STINSON, MORRISON
& HECKER, L.L.P., Washington, D.C., for Appellants.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
PER CURIAM:
The district court entered a confession of judgment in favor
of Choice Hotels International, Inc. (“Choice”) and against Sonora
Sun Management Limited Partnership, L.L.P., Humberto Lopez, and
Glenn Toyoshimo (collectively referred to as “the defendants”).
The defendants moved the district court to open, modify, or vacate
the confession of judgment. The district court denied this
motion,1 and the defendants now appeal. We affirm.
I.
In September 2003, the defendants entered into a Franchise
Agreement with Choice allowing them to operate their hotel property
in Yuma, Arizona, as a Clarion Suites, which is part of the Choice
line of hotels. In conjunction with the Franchise Agreement, the
defendants executed a Minority Developer Incentive Program
Promissory Note in exchange for Choice’s agreement to lend the
defendants $100,000 to be used by the defendants for any purpose
related to the Yuma property. The Note was to mature at the end of
ten years, but Choice agreed to forgive the entire amount of the
1
The defendants also filed a Notice Clarifying Citation to
Evidence in Oral Argument and a Motion to Amend Judgment. In both
of these filings, the defendants attempted to augment their
arguments or assert new facts. While the district court ruled
against the defendants in both instances, we have considered the
arguments and facts advanced in these documents and find that they
do not preclude our affirmance of the district court’s judgment.
3
loan if the defendants did not default during the entire ten year
term of the Note. If, however, the defendants defaulted, the Note
provided that Choice would be entitled to obtain a confession of
judgment against the defendants for the remaining balance of the
debt. The Note included as an event of default “if the CLARION
SUITES franchise agreement . . . between [Choice] and [the
defendants] is terminated or is otherwise rendered ineffective.”
J.A. 40.
Less than six months after entering into the Franchise
Agreement and executing the Promissory Note, the defendants began
negotiating the sale of the Yuma property to Young Lim, another
Choice franchisee. Choice was notified of the potential sale and
offered Lim a new Franchise Agreement relating to the defendants’
Yuma property. The proposed Franchise Agreement between Choice and
Lim differed from the Franchise Agreement between Choice and the
defendants in that the proposed Franchise Agreement to Lim provided
for the payment of an affiliation fee of $48,900 and higher royalty
fees throughout the duration of the new Franchise Agreement. Lim
paid the required affiliation fee and executed the new Franchise
Agreement on May 10, 2004. Two weeks later, the defendants closed
on their sale of the Yuma property to Lim.
Soon after the sale, Choice filed a complaint for confession
of judgment against the defendants, alleging that the Promissory
Note was in default “[d]ue to the termination of the Franchise
4
Agreement.” J.A. 7. The district court entered judgment in favor
of Choice.
The defendants thereafter moved the district court to open,
modify, or vacate the judgment. Choice argued two independent
grounds in opposition to the defendants’ motion: (1) the defendants
were in default because their Franchise Agreement terminated; or
(2) the defendants were in default because they transferred the
Yuma property without Choice’s prior written consent. Although the
district court ruled that there was a question of fact regarding
whether the defendants’ Franchise Agreement actually terminated,
the district court agreed with Choice that the defendants were in
default because they did not receive prior written consent from
Choice to transfer the Yuma property to Lim. The defendants now
appeal.
II.
The defendants argue that the district court erred by denying
their motion to vacate the confessed judgment in favor of Choice.
We disagree.
The parties agree that their dispute is governed by Maryland
law. Under Maryland law, a confessed judgment must be vacated if
the debtor presents evidence "sufficient to persuade the fair and
reasoned judgment of an ordinary man that there are substantial and
sufficient grounds for an actual controversy as to the merits of
5
the case.” Billingsley v. Lincoln Nat’l Bank, 320 A.2d 34, 37 (Md.
1974) (citation omitted); see D. Md. Local R. 108(e) (“If the
evidence presented establishes that there are substantial and
sufficient grounds for an actual controversy as to the merits of
the case, the Court shall order the judgment by confession vacated,
opened, or modified”). The debtor who moves to vacate a confession
of judgment “has the burden of presenting evidence satisfactorily
supporting its purported defense, and the burden is met if persons
of ordinary judgment and prudence could fairly draw different
inferences from the evidence presented.” Garliss v. Key Fed. Sav.
Bank, 627 A.2d 64, 68 (Md. Ct. Spec. App. 1993) (citations
omitted). Confessions of judgment are generally disfavored in
Maryland because of their potential for abuse. Id.After reviewing the evidence, we conclude that the defendants
have failed to present evidence establishing that a substantial and
sufficient ground for a meritorious defense exists. The Promissory
Note provides that the unpaid balance becomes due if the Franchise
Agreement between the defendants and Choice “is terminated or is
otherwise rendered ineffective.” J.A. 40. The defendants have
failed to present any evidence suggesting that their Franchise
Agreement with Choice was not terminated or was not rendered
ineffective. The undisputed evidence shows that Choice negotiated
a separate Franchise Agreement with Lim, the new owner of the Yuma
property, and that this new Franchise Agreement is now in effect in
6
place of the defendants’ Franchise Agreement. Although the
defendants argue that they effectively assigned their Franchise
Agreement to Lim, there is no evidence that they assigned their
rights and obligations under their Franchise Agreement to Lim. To
the contrary, the only evidence is that Choice negotiated a
separate Franchise Agreement with Lim containing different terms,
which necessarily terminated or rendered ineffective the
defendants’ Franchise Agreement when Lim’s new Agreement took
effect.2
III.
Because we conclude that the defendants have failed to present
sufficient evidence showing that they have a meritorious defense to
the confession of judgment, we affirm the judgment of the district
court.
AFFIRMED
2
Although the district court ruled in favor of Choice on a
different ground, we may affirm on any basis appearing in the
record. See United States v. McHan, 386 F.3d 620, 623 (4th Cir.
2004).
7
WILLIAMS, Circuit Judge, concurring:
Because I agree that Choice’s entry into a franchise agreement
with Lim “rendered ineffective” its franchise agreement with
Sonora, I concur in the judgment.
8