June 02, 2026|Franchise Frontlines
June 2, 2026 | U.S. District Court for the Eastern District of Wisconsin | Slip Copy (2026 WL 1556577); only the Westlaw citation is currently available (not officially reported)
Executive Summary
In this slip-copy order (2026 WL 1556577), U.S. District Judge Brett H. Ludwig of the United States District Court for the Eastern District of Wisconsin granted in part and denied in part Choice Hotels International, Inc.’s motion for default judgment against its former franchisee, Baba Nanak Hospitality Group Corp., and the corporation’s two individual owner-guarantors, Hardeep Arora and Parmeet Arora, who kept the Clarion family of marks displayed on a Milwaukee hotel property after their franchise agreement was terminated. Choice Hotels contended that this holdover use infringed its registered marks under the Lanham Act and Wisconsin common law and sought a permanent injunction, the defendants’ estimated profits, its own estimated damages trebled, costs, and attorneys’ fees on an “exceptional case” finding; the defendants defaulted and never appeared. Taking the well-pleaded liability allegations as true, the court found the defendants liable on all four counts and awarded a permanent injunction, $74,635.66 in lost-royalty damages, and $1,024.00 in costs, but it declined to award the defendants’ profits, to treble the damages, or to deem the case exceptional — largely because Choice Hotels’ own filings took the position that the hotel had ceased operating, which the court found undercut any profits or willfulness theory, and because the court concluded the defendants’ default-and-bankruptcy conduct was not extraordinary enough to justify fee-shifting.
Relevant Background
Choice Hotels International, Inc. is a lodging franchisor that offers lodging services under a variety of brands, including the Clarion family of trademarks, which the opinion describes as comprising sixteen relevant registrations, the majority of which have achieved incontestable status under 15 U.S.C. § 1065. On or about December 31, 2020, Choice Hotels entered into a Franchise Agreement authorizing Baba Nanak Hospitality Group Corp. to operate a Clarion franchise hotel at 6331 South 13th Street in Milwaukee. Hardeep Arora and Parmeet Arora each own 50% of Baba Nanak and personally guaranteed the corporation’s obligations under a separate Guaranty Agreement. According to the opinion, the Franchise Agreement licensed the defendants to use the Clarion marks while the hotel was in operation and required them to immediately discontinue all use of the marks upon termination.
Sometime before October 30, 2023, the defendants ceased operations at the property, and days later, on November 2, 2023, Choice Hotels issued a Notice of Termination stating it was entitled to $345,578.74 under the agreement and directing the defendants to remove all items bearing the Choice Hotels marks and to certify that they had de-branded. The defendants did not comply. Choice Hotels followed with a Notice of Service Mark Infringement on June 11, 2024, and a Second Notice of Infringement on September 23, 2024, each demanding that the defendants cease using the marks and certify compliance. Field-representative inspections on June 26, 2024, September 20, 2024, and April 24, 2025 confirmed that signage bearing the marks remained on the property, which the court described as a seemingly defunct hotel.
Procedurally, Choice Hotels filed its complaint on June 13, 2025, and the defendants accepted service on June 26, 2025 but never answered or otherwise responded. The Clerk entered default on August 13, 2025, and Choice Hotels moved for default judgment on September 25, 2025. Baba Nanak then filed a bankruptcy petition, automatically staying the case under 11 U.S.C. § 362, but the Bankruptcy Court dismissed that case on December 18, 2025, terminating the stay and allowing the matter to proceed. Throughout the proceedings, the defendants never responded to the complaint or the default-judgment motion.
Decision
The court first confirmed liability. Under Seventh Circuit law, “[a] default judgment establishes, as a matter of law, that defendants are liable to plaintiff on each cause of action alleged in the complaint,” and “the well-pled allegations of the complaint relating to liability are taken as true, but those relating to the amount of damages suffered ordinarily are not.” Wehrs v. Wells, 688 F.3d 886 (7th Cir. 2012). Applying the two-element infringement standard from Eli Lilly & Co. v. Natural Answers, Inc., the court found Choice Hotels had a protectable mark — its registrations were prima facie evidence of validity under 15 U.S.C. § 1057(b) — and that the defendants’ use created a likelihood of confusion. Citing Gorenstein Enterprises, Inc. v. Quality Care-USA, Inc. and Bunn-O-Matic Corp. v. Bunn Coffee Service, Inc., the court reiterated that “when a franchise is terminated, a former franchisee’s continued use of the trademark is a violation of trademark law” and that likelihood of confusion exists “as a matter of law” when a licensee keeps using the licensor’s marks after the license ends. The court held the defendants liable on all four counts — infringement under 15 U.S.C. § 1114, unfair competition under § 1125(a), and their Wisconsin common-law counterparts.
Turning to relief, the court granted the requested permanent injunction. Applying the four-factor test of eBay Inc. v. MercExchange, L.L.C. and the rebuttable presumption of irreparable harm afforded prevailing trademark plaintiffs under 15 U.S.C. § 1116(a), the court found that the defaulting defendants had not rebutted the presumption, that legal remedies were inadequate because damages could not be proved with reasonable certainty and Choice Hotels could not otherwise ensure control of its marks, and that the balance of hardships and public interest favored relief. It directed that the injunction issue by separate order.
On monetary relief under 15 U.S.C. § 1117(a), the court’s rulings diverged. It declined to award the defendants’ profits. Choice Hotels admitted it did not know when the defendants stopped operating the hotel and therefore did not know what revenue, if any, was generated during the holdover, yet it estimated profits of $932,946.52 by multiplying historical average monthly gross room revenue of $42,406.66 by twenty-two months. The court observed that this estimate “would be reasonable if there was some reason to believe Defendants operated the Property as a hotel during the holdover period,” but that Choice Hotels itself — through its complaint, its Notice of Termination, and photographs — had taken the position that the property was not operating, a position the supporting declaration of Assistant General Counsel Stuart Kreindler contradicted by asserting the hotel was still open. Because the plaintiff’s own filings said the hotel was not operating, the court would not award the profits estimate. It did, however, award Choice Hotels’ estimated damages measured by lost royalties, which “courts generally consider … a proper measure for damages” in holdover cases (Ramada Inns, Inc. v. Gadsen Motel Co.): applying the agreement’s combined 8% fee (a 5% royalty fee plus a 3% system fee) to the historical monthly revenue over the roughly 22-month holdover, the court awarded $74,635.66, plus $1,024.00 in costs.
The court declined both to treble the award and to designate the case exceptional. Treble or enhanced damages for “willful and deliberate infringement” lie within the district court’s discretion, and the court exercised that discretion against enhancement because Choice Hotels’ “own representations suggest Defendants stopped operating a hotel at the Property before the franchise agreement was terminated,” distinguishing La Quinta Corp. v. Heartland Properties, LLC, where the defendant kept operating and used the marks to advertise a new water park long after termination. On attorneys’ fees, the court applied the “exceptional case” standard of Octane Fitness, LLC v. ICON Health & Fitness, Inc. Notably, the court found Choice Hotels’ “litigation position is clearly strong, because holdover franchisees who continue to use trademarks cause consumer confusion as a matter of law,” but concluded that the defendants’ litigation conduct — defaulting and filing a short-lived bankruptcy — was “certainly not out of the ordinary” and did not put the case outside “the mine run of cases.” It therefore denied fees.
Looking Forward
For franchisors and their counsel, this order is a useful reminder that establishing liability and securing an injunction on default does not guarantee the full menu of monetary remedies. On this record, the profits claim failed not because a defendant contested it — none appeared — but because the franchisor’s own complaint, termination notice, and photographs described a shuttered hotel while its supporting declaration asserted the property was still operating. The practical lesson is that, before moving for default judgment, counsel may wish to reconcile the operative factual narrative, particularly whether the property was open and generating revenue during the holdover, because on this court’s reasoning that single fact underpinned both the profits theory and the willfulness rationale for trebling.
The decision also draws a helpful line between damages and profits that franchisors pursuing holdover claims may want to keep in view. The court awarded lost royalties because they flow from the terminated agreement’s fee structure and did not depend on proof that the property actually earned revenue; the profits remedy, by contrast, required a plausible basis to believe the infringer generated revenue attributable to the marks. Where a property’s operating status during the holdover is uncertain, a royalty-based damages measure may prove the more durable path, and counsel may prefer to frame the damages request so that it does not hinge on a contested operating fact.
Finally, on fee-shifting, this order suggests that a strong liability position will not, by itself, render a case “exceptional” under Octane Fitness; here the court expressly called the franchisor’s position “clearly strong” yet still declined fees because it viewed the defendants’ default and brief bankruptcy as ordinary litigation conduct. Because this is a single district-court order entered on default and not controlling authority elsewhere, its weight is limited, but its reasoning may inform how other courts approach enhanced Lanham Act relief in holdover matters. It counsels franchisors to treat the pre-default record as a genuine evidentiary submission — auditing termination notices, inspection reports, and any available revenue data for internal consistency — rather than assuming that a defendant’s silence converts an ambiguous record into support for the maximum award.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case. It was drafted with the assistance of an artificial intelligence system. AI systems can make mistakes, including in describing legal authority. Readers should independently confirm any legal authority before relying on it.
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