Century 21 Real Estate LLC v. All Prof'l Realty, Inc.

889 F.Supp.2d 1198

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.

Nos. CIV. 2:10–2751 WBS GGH, 2:10–2846 WBS GGH, 2:11–2497 WBS GGH.

United States District Court, E.D. California.

Aug. 8, 2012.

Order Denying Motion for Stay Denied Pending Appeal Nov. 16, 2012.

Aaron Paul Rudin, Lisa Garner, Gordon & Rees LLP, Los Angeles, CA, Elior Daniel Shiloh, NCAED, Gordon & Rees LLP, Florham Park, NJ, for Plaintiff.

Lindsey H. Taylor, NCAED, Carella, Byrne, Cecchi, Olstein, Brody & Agnello, Roseland, NJ, Virginia Gay Cale, Karen M. Goodman, Goodman & Associates, Sacramento, CA, for Defendants.

MEMORANDUM & ORDER RE: CENTURY 21'S MOTION FOR SUMMARY ADJUDICATION

WILLIAM B. SHUBB, District Judge.

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,¹ Carol Wright, and All Professional filed a related action against Century 21 arising from the franchise agreements. (No. 2:10–2846.) Century 21 filed a third action against All Professional Hawaii Realty Inc. (“All Professional Hawaii”), John Sherman, Steve Wright, and Carol Wright arising from All Professional Hawaii's allegedly wrongful use of Century 21's trademarks following the termination of another real estate brokerage franchise agreement. (No. 2:11–2497.) All three of these cases have been consolidated. Presently before the court is Century 21's motion for summary adjudication pursuant to Federal Rule of Civil Procedure 56.

I. Factual and Procedural Background

In 1994, Steve and Carol Wright formed All Professional, a real estate brokerage company. (Compendium of Exhibits Ex. 42 (“Steve Wright Dep. I”) at 12:13–22 (Docket No. 106); ² Steve Wright Decl. in Opp'n to Century 21's Mot. for Prelim. Injunction (“Steve Wright Decl.”) ¶ 2 (Docket No. 18–2).) 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 Dep. I at 20:3–23; Steve Wright Decl. ¶ 3.) Century 21 is a franchisor of real estate brokerages. (Bertet Decl. ¶ 3 (Docket No. 88–4).)

A. Franchise Agreements

All Professional ³ 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 ⁴ 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.) The Wrights also signed a personal guaranty of All Professional's obligations under the three California franchise agreements. ( Id. Exs. A–C at 43–44.)

Shortly after signing the franchise agreements for the California franchises, the Wrights and their business partner John Sherman, on behalf of All Professional Hawaii, signed a ten-year franchise agreement with Century 21 for the operation of an office in Honolulu, Hawaii. ( Id.¶ 6, Ex. D.) The Wrights, together with Sherman, again signed a personal guaranty for All Professional Hawaii's obligations under the Hawaii franchise agreement. ( Id. Ex. D at 43–44.)

All four franchise agreements include the same relevant language. Section 4.1 of the franchise agreements granted All Professional a nonexclusive license to use Century 21's “Marks” and “System.” ( Id. Exs. A–D § 4.1.) “Marks” meant Century 21's trademarks, service marks, and trade dress. ( Id. Exs. A–D § 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.” ( Id. Exs. A–D § 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. ¶ 3, Ex. A (Docket No. 88–3).) According to Century 21, it uses the trademarks on goods and in advertisements, education, training manuals, newsletters, global computer networks, and residential, commercial, and mortgage brokerage services. ( Id. ¶ 5.) The trademarks have become well recognized because of advertisements and promotions of goods and services offered by Century 21. ( Id.)

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. (Bertet Decl. Exs. A–D §§ 7–8.) All Professional also agreed to pay two percent of its gross revenue to a National Advertising Fund (“NAF”) for advertising expenses, with an initial monthly minimum fee of $562.00.

Section 16.2.3 of the franchise agreements provided that Century 21 could terminate the agreement for good cause, including curable and non-curable defaults by All Professional. ( Id. Exs. A–D § 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. Exs. A–D § 16.2.4.) Section 16.2.5 provided that Century 21 could terminate the agreement without notice if termination was based on any non-curable defects. ( Id. Exs. A–D § 16.2.5.) Non-curable defects included abandonment of an office demonstrated by, among other things, a franchisee's failure to operate at an approved location for five consecutive business days. ( Id. Exs. A–D § 16.2.5.4.)

The agreements also contained language stating that they were integrated agreements and that the franchisee should not sign the agreement if any representative of Century 21 promised something that was not part of the agreement, an attached addendum, or the offering circular. ( Id. Exs. A–D § 22.15.) The agreements further stated that the success of the franchise was dependant on the efforts of the franchise owners and that neither Century 21 nor any other person “guaranteed or warranted that you will succeed in the operation of the Franchise, or has provided any sales or income projections of any kind to you.” ( Id. Exs. A–D § 23.9.) Finally, the agreements provided that Century 21 would “have no right to regulate or participate in the recruitment, selection, engagement, retention, discipline or termination of your sales associates or employees, except as may be necessary to protect the Marks and goodwill” and that defendants were “solely responsible for the conduct of the Business operated under this Agreement according to [their] own judgment, and in accordance with the provisions of this Agreement and the P & P Manual ....” ( Id. Exs. A–D § 21.2.)

B. Development Advance Promissory Note

In addition to entering into the California franchise agreements in November of 2005, All Professional borrowed $75,000.00 from Century 21 pursuant to a Development Advance Promissory Note (“DAN” or “Note”) for which the Wrights signed a personal guaranty. (Bertet Decl. Ex. D.) The Note provided for a long-term, annual repayment plan and provided that if 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.) If the revenue thresholds were not met, the Note stated that “an amount of Principal equal to the Yearly Principal shall become due and payable.” ( Id.) In the event that All Professional terminated its business or defaulted on “any other agreement or note” between the parties, the DAN provided for an acceleration of the unpaid principal. ( Id.) In addition to the Note, All Professional and the Wrights signed a Security Agreement in which they granted Century 21, as security for the prompt payment of the Note, a security interest in certain specifically described collateral. ( Id.¶ 20, Ex. F.)

The Wrights state that they executed the Note relying on statements by Dale Omer, Century 21's Western Regional Vice President, that “everything would be wonderful.” (Steve Wright Dep. I at 62:1–6.) According to the Wrights, Omer told them “not to worry” about repaying the DAN because the new “tools and systems” that Century 21 would provide would “revolutionize [Century 21] offices compared to the competition” and make All Professional more profitable. ( Id. at 59:19–60:2; 62:13–15.) Despite these representations, Steve Wright concedes that he does not “believe they ever said that we would be profitable. They said we would be more productive and sell more houses.” ( Id. at 67:11–15.)

C. Addenda to Franchise Agreements and Waiver of Claims

All Professional signed an addendum to the River Park franchise agreement, effective January 3, 2006, which amended the franchise agreement to include section 25.4 pertaining to the DAN. (Bertet Decl. ¶ 22, Ex. G § 25.4.) The addendum provided that “in the event of any termination of this agreement for any reason prior to the expiration of the Term ... any and all sums due and owing (and/or not otherwise previously forgiven) under the Development Advance Note may be accelerated (at Franchisor's discretion) and shall be immediately payable.” ( Id.)

All Professional also signed addenda to the other two California franchise...