Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Century 21 Real Estate LLC, A Delaware Limited v. All Professional Realty

January 21, 2011

CENTURY 21 REAL ESTATE LLC, A DELAWARE LIMITED LIABILITY COMPANY FORMERLY KNOWN AS CENTURY 21 REAL ESTATE CORPORATION, PLAINTIFF,
v.
ALL PROFESSIONAL REALTY, INC., A CALIFORNIA CORPORATION DOING BUSINESS AS CENTURY 21 ALL PROFESSIONAL; STEVEN M. WRIGHT, AN INDIVIDUAL; AND CAROL WRIGHT, AN INDIVIDUAL, DEFENDANTS. STEVE WRIGHT, CAROL WRIGHT AND ALL PROFESSIONAL REALTY, INC., PLAINTIFFS,
v.
CENTURY 21 REAL ESTATE LLC,
AND DOES 1-100, INCLUSIVE,
DEFENDANTS.



MEMORANDUM AND ORDER RE: MOTIONS FOR A PRELIMINARY INJUNCTION

Century 21 Real Estate LLC ("Century 21") filed an action against All Professional Realty, Inc. ("All Professional"), Steven M. Wright, and Carol Wright arising from All Professional's continued use of Century 21's trademarks following the terminations of real estate brokerage franchise agreements for unpaid fees. (No. 2:10-2751.) Steve Wright,*fn1 Carol Wright, and All Professional filed a related action against Century 21 arising from the franchise agreements. (No. 2:10-2846.) Presently before the court are Century 21's motion for a preliminary injunction against All Professional, Steve Wright, and Carol Wright in the action initiated by it and Steve Wright, Carol Wright, and All Professional's motion for a preliminary injunction against Century 21 in the action initiated by them.

Both sides' motions for preliminary injunction were originally set for hearing on December 20, 2010. In order to accommodate the various evidentiary objections made by each side to the declarations submitted by the other, the court permitted the parties to file supplemental declarations to cure the alleged defects and permitted the parties to call witnesses to testify in support of or opposition to the motions. An evidentiary hearing was held on January 11, 2011.

I. Factual and Procedural Background

In 1994, Steve and Carol Wright formed All Professional, a real estate brokerage company. (Steve Wright Decl. in Supp. of Mot. for P.I. against Def. Century 21 ("Steve Wright Decl. II") ¶ 2 (No. 2:10-2846, Docket No. 9); Carol Wright Decl. in Supp. of Mot. for P.I. against Def. Century 21 ("Carol Wright Decl. II") ¶ 2 (No. 2:10-2846, Docket No. 9); see also Steve Wright Decl. in Opp'n to Century 21's Mot. for P.I. against Defs. ("Steve Wright Decl. I") ¶ 2 (No. 2:10-2751, Docket No.

18); Carol Wright Decl. in Opp'n to Century 21's Mot. for P.I. against Defs. ("Carol Wright Decl. I") ¶ 2 (No. 2:10-2751, Docket No. 18).) All Professional signed its first franchise agreement with Century 21 in 1995, which allowed it to operate an office under the name "Century 21 All Professional." (Steve Wright Decl. II ¶ 3; Carol Wright Decl. II ¶ 3; see also Steve Wright Decl. I ¶ 3; Carol Wright Decl. I ¶ 3.) Century 21 is a franchisor of real estate brokerages. (Bertet Decl. in Supp. of Opp'n by Century 21 to Pls.' Mot. for P.I. ("Bertet Decl.") ¶ 3 (No. 2:10-2846, Docket No. 12); see also Rudin Decl. in Supp. of Reply of Mot. for P.I. by Century 21 against Defs. ("Rudin Decl. I") Ex. A, ¶ 3 (No. 2:10-2751, Docket No. 22).)

All Professional operates multiple offices and each office is governed by a separate franchise agreement with Century 21. In November of 2005, All Professional signed three ten-year franchise agreements with Century 21 for two offices in Sacramento and one office in Folsom, California, with an effective date of December 1, 2005, for each franchise agreement. (Bertet Decl. Exs. A-C §§ 1.5, 1.7; see also Iuliano Decl. in Supp. of Century 21's Mot. for P.I. against Defs. ("Iuliano Decl. I") Exs. B-C §§ 1.5, 1.7 (No. 2:10-2751, Docket No. 10).) The Wrights state that at the time they signed the franchise agreements on behalf of All Professional they were told that Century 21 would be providing "new" tools and systems to grow their offices. (Steve Wright Decl. II ¶ 4; Carol Wright Decl. II ¶ 4; see also Steve Wright Decl. I ¶ 4; Carol Wright Decl. I ¶ 4.) The Wrights signed a personal guaranty. (Bertet Decl. Exs. A-C at 43-44; see also Iuliano Decl. I Exs. B-C at 43-44.)

Section 4.1 of the franchise agreements granted All Professional the nonexclusive license to use Century 21's "Marks" and "System." (Bertet Decl. Exs. A-C § 4.1; see also Iuliano Decl. I Exs. B-C § 4.1.) "Marks" meant Century 21's trademarks, service marks, and trade dress. (Bertet Decl. Exs. A-C § 3.1.8; see also Iuliano Decl. I Exs. B-C § 3.1.8.) "System" meant, inter alia, "policies, procedures, and techniques designed to enable [] offices to compete more effectively in the real estate sales market." (Bertet Decl. Exs. A-C § 3.1.14; see also Iuliano Decl. I Exs. B-C § 3.1.14.) Century 21's System also included "common use and promotion of certain Marks, copyrights, trade secrets, centralized advertising programs, recruiting programs, referral programs and sales management training programs." (Id.)

Century 21 has numerous registered trademarks. (See Iuliano Decl. I ¶¶ 3-4, Ex. A; see also Iuliano Decl. in Supp. of Opp'n by Century 21 to Pls.' Mot. for P.I. ("Iuliano Decl. II")

¶¶ 3-4, Ex. A (No. 2:10-2846, Docket No. 18).) According to Century 21, Century 21 uses the trademarks on goods and in advertisements, education, training manuals, newsletters, global computer networks, and residential, commercial, and mortgage brokerage services. (Iuliano Decl. I ¶ 6; see also Iuliano Decl. II ¶ 6.) The trademarks have become well recognized because of advertisements and promotions of goods and services offered by Century 21. (Iuliano Decl. I ¶ 6; see also Iuliano Decl. II ¶ 6.)

In exchange for the rights granted under the franchise agreements, All Professional agreed to pay royalty fees of six percent of gross revenue, with an initial monthly minimum fee of $500.00, due at the time of settlement or close of escrow. (Bertet Decl. Exs. A-C §§ 7-8; see also Iuliano Decl. I Exs. B-C §§ 7-8.) All Professional also agreed to pay two percent of its gross revenue for a National Advertising Fund ("NAF") for advertising expenses, with an initial monthly minimum fee of $562.00, due on the tenth of the following month.

Section 16.2.3 of the franchise agreements provided that Century 21 could terminate the agreement for good cause, which included curable and non-curable defaults. (Id. § 16.2.3.) Section 16.2.4, governing termination for curable defaults, provided that Century 21 could terminate the agreement with 30 days notice of the "proposed termination and the opportunity to cure the breach during the entire notice period, or such longer or shorter notice as is required or permitted by the law of the state where the Office is located," if the curable breach was the failure to pay financial obligations. (Id. § 16.2.4.)

In addition to entering into the three franchise agreements in November of 2005, All Professional borrowed $75,000.00 from Century 21 pursuant to a Development Advance Promissory Note ("Note"). The Note provided for a long-term, annual repayment plan. (Bertet Decl. Ex. D; see also Iuliano Decl. I Ex. D.) The Wrights signed a personal guaranty of the Note. (Id.) Provided that All Professional was not in breach of its franchise agreements, the yearly amount due would be forgiven if All Professional reached certain gross revenue annual thresholds. (Id.) The Wrights state that they executed the Note relying on statements from Century 21 that it would provide All Professional with the "necessary" tools, resources, and systems to enable All Professional to meet the threshold requirements. (Steve Wright Decl. II ¶ 7; Carol Wright Decl. II ¶ 6; see also Steve Wright Decl. I ¶ 7; Carol Wright Decl. I ¶ 7.) Thereafter, All Professional did not meet the annual thresholds and thus annual payments were not forgiven. (Steve Wright Decl. II ¶ 8; Carol Wright Decl. II ¶ 7; see also Steve Wright Decl. I ¶ 8; Carol Wright Decl. I ¶ 8.) The Wrights state that All Professional was unable to meet the threshold requirements because Century 21 failed to provide the necessary tools, resources, and systems. (Steve Wright Decl. II ¶ 8.; Carol Wright Decl. II ¶ 7; see also Steve Wright Decl. I ¶ 8.; Carol Wright Decl. I ¶ 8.) When All Professional failed to make its annual payment for 2007, Century 21 offered to cancel the payment in exchange for a one-year extension of each franchise agreement and a general release of claims. (Suppl. Steve Wright Decl. in Supp. of Pls.' Mot. for P.I. ("Suppl. Steve Wright Decl.") ¶ 8, Ex. 12 (No. 2:10-2846, Docket No. 13).) All Professional rejected Century 21's offer: "I refused to agree to release Century 21 from any liability because I thought that Century 21's representatives had actively misrepresented material facts to me. I did not believe that such a request was proper, and I felt that Century 21 was violating its duties to me by asking for such a waiver." (Steve Wright Decl. II ¶ 8; see also Steve Wright Decl. I ¶ 8.) Century 21 rejected All Professional's counteroffer. (Suppl. Steve Wright Decl. ¶ 8, Ex. 12.) Thereafter, All Professional failed to make its annual payments on the Note.

Beginning in 2008, Steve Wright informed Century 21 about franchisees "openly competing with [him] and stealing [his] business and employees" in violation of Century 21's "Code of Conduct."*fn2 (Steve Wright Decl. II ¶ 9; see also Carol Wright Decl. II ¶ 8; Steve Wright Decl. I ¶ 9; Carol Wright Decl. I¶ 9.) Steve Wright states that in about 2006 other Century 21 franchisees in the area began hiring agents away from All Professional and one Sacramento franchisee "stole" a commission check from All Professional.*fn3 (Steve Wright Decl. II ¶ 9; see also Steve Wright Decl. I ¶ 9.)

All Professional began to experience "short term cash flow problems in 2009" and decided to "temporarily" close the Folsom office. (Steve Wright Decl. II ¶ 10; see also Steve Wright Decl. I ¶ 10.) Another Century 21 franchisee then moved into the office that All Professional had vacated. (Steve Wright Decl. II ¶ 10; see also Steve Wright Decl. I ¶ 10.) Steve Wright states that he "continued to complain to Century 21 about the misrepresentations by Century 21 and the actions of other Century 21 franchisees" and became "concerned" that Century 21 was "actively trying" to "run us out of business." (Steve Wright Decl. II ¶ 11; Steve Wright Decl. I ¶ 11.) Steve Wright had heard "rumors" from other franchisees' agents that All Professional was being "forced out" and that other franchisees should recruit All Professional's agents. (Steve Wright Decl. II ¶ 11; Steve Wright Decl. I ¶ 11.)

With respect to Steve Wright's complaints to Century 21, Century 21 had no obligation in the agreements to prevent other franchisees from recruiting All Professional's agents. To the contrary, Century 21 did not have the right to do so. Section 21.2 provided:

[Century 21] will have no obligation to pay your commissions, taxes, wages or other expenses, and will have no right to regulate or participate in the recruitment, selection, engagement, retention, discipline or termination of your sales associates or employees, or to determine or limit the parties from whom you may accept listings or to or for whom you may sell property, the commission rates you charge, the commission splits between you and your sales associates, your working conditions, the manner or details of work performed by you or your sales associates or employees, except as may be necessary to protect the Marks and goodwill. (Bertet Decl. Exs. A-C § 21.2; see also Iuliano Decl. I Exs. B-C § 21.2.) The remedy, as brought out at the evidentiary hearing, was for All Professional to sue Select, the Century 21 franchisee that allegedly recruited All Professional's agents and moved into the same Folsom office that All Professional vacated.

According to Steve Wright's testimony, Bob Popp, a field representative for Century 21, did call Select about Steve Wright's complaints, even though Century 21 was not required to do so. It was Steve Wright's belief that Select denied recruiting All Professional's agents. This left Century 21 in what the court would characterize as a "he-said, she-said" dilemma. Century 21 did not have the right to run either business. It was at best in the position of a mediator, with no authority to enforce sanctions against either party. Steve Wright testified that he did not know what Bob Popp did beyond making a call, and the court finds it quite possible that Century 21 did do something about Steve Wright's complaint. Regardless, Select's alleged recruiting of All Professional's agents was no excuse for All Professional to stop paying fees to Century 21.

There is also no evidence that Century 21 cut off recruiting training because of Steve Wright's complaints. Steve Wright complained in 2008, and in that year Tara Scholl of Century 21 cut off recruiting training. No connection between the recruiting training and the complaints has been shown.

Beginning in May of 2009, All Professional stopped paying many of its franchise fees. All Professional knew it had failed to pay them. Century 21's System provides its franchisees with "detailed summaries of their account balances owed to Century 21, including specific information detailing the amounts owed by that franchisee, when the amounts are due, and the type of amount due (i.e., royalty fee, national advertising fee fund fee, Development Advance Note, etc.)[.]" (Suppl. Rodriguez Decl. in Supp. of Opp'n by Century 21 to Pls.' Mot. for P.I. ("Suppl. Rodriguez Decl.") ¶ 4 (No. 2:10-2846, Docket No. 19).); see also Rudin Decl. I Ex. A ¶ 21.) All Professional had access to these detailed account summaries. (Suppl. Rodriguez Decl ¶ 4; see also Rudin Decl. I Ex. A ¶ 21.) Century 21 has provided the Custom Account Reports for each franchise agreement. (Suppl. Rodriguez Decl Ex. A; see also Iuliano Decl. I Exs. I-J.) The Custom Account Report specifies the date, amount, transaction type, and due date.

In letters dated April 5, 2010, Century 21 notified All Professional of its intent to terminate the three agreements and of All Professional's opportunity to cure. (Bertet Decl. Exs. EG; see also Iuliano Decl. I Exs. E-F.) The notice pertaining to the River Park Drive office stated in pertinent part:

Century 21 has advised you on numerous occasions that you are delinquent in the payment of your account. Upon review, we have determined that you are in default of the above-referenced Agreement for failing to pay fees when due. Your default constitutes a material breach of the Agreement, for which Century 21 may terminate the franchise.

As of February 24, 2010, your account balance for this office was $59,327.41.

In order to avoid termination, you must pay the balance in full no later than May 10, 2010. (Bertet Decl. Ex. E; see also Iuliano Decl. I Ex. E.) The notice also provided contact information for Jacqueline Bertet, Century 21's Senior Director of Financial Services, and informed All Professional that failure to pay the balance would result in immediate termination of the franchise, which would then require All Professional to pay the amount past due at the time of termination, sums assessed in a post-termination audit, the remaining balance of the Note, and lost profits. (Bertet Decl. Ex. E; see also Iuliano Decl. I Ex. E.) The notice pertaining to the Florin Road, Sacramento, office contained similar language and stated that the balance was $23,492.69 as of February 24, 2010, requiring payment by May 10, 2010. (Bertet Decl. Ex. G; see also Iuliano Decl. I Ex. F.) The notice pertaining to the Folsom office contained similar language and stated that the balance was $13,274.34 as of February 24, 2010, and required payment by May 10, 2010. (Bertet Decl. Ex. F.)

Following receipt of the notices, both Steve and Carol Wright called representatives of Century 21. Carol Wright called Shalina ("Shelly") Rodriguez, a Director of Financial Services for Century 21. Carol Wright states that in the telephone call she asked for an accounting and "disputed certain discrepancies I saw in the notices of default." (Carol Wright Decl. II ¶ 12; see also Carol Wright Decl. I ¶ 13.) Carol Wright states that she identified the following issues in the telephone call: (1) the default amounts included amounts owed under the Note, which was not part of a franchise agreement; (2) Century 21 was "trying" to charge fees for the Folsom office even though it had ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.