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Real Estate
7 min read
Areas of Expertise :
Real Estate, Forensic Accounting, Economic Damages, Lost Profits, Franchise, Business Valuation, Breach Of Contract, Trademarks
Published Date:
Last Modified Date:
Jurisdiction:
Federal. Ninth Circuit
Century 21 Real Estate LLC v. All Professional Realty, Inc. involved several Century 21 real estate brokerage franchises operating in California and Hawaii. All Professional Realty, Inc. operated the California franchises, while the Honolulu franchise was operated by the separate entity All Professional Hawaii Realty, Inc. The dispute developed after required franchise fees went unpaid, obligations connected to a development advance were not satisfied, the Folsom office closed, and the franchisees accused Century 21 of failing to meet several obligations under the franchise relationship.
The litigation addressed franchise agreement breaches, termination rights, royalty and advertising payments, personal guarantees, post-termination trademark use, and damages tied to future franchise income. The U.S. District Court for the Eastern District of California ruled largely in Century 21's favor and awarded monetary and injunctive relief. Steve and Carol Wright appealed the judgment, but the U.S. Court of Appeals for the Ninth Circuit affirmed the central rulings on January 15, 2015.
Steve and Carol Wright formed All Professional Realty in 1994. The company entered its first Century 21 franchise agreement in 1995 and operated under the name Century 21 All Professional. Over time, the franchise relationship expanded to include several real estate brokerage offices in California and Hawaii.
All Professional Realty entered into three ten-year franchise agreements covering two Sacramento offices and one location in Folsom, California. The contracts generally required the company to pay royalties equal to 6 percent of gross revenue and contribute 2 percent of gross revenue to the National Advertising Fund, subject to applicable minimum fees.
Around the same period, Century 21 provided All Professional Realty with a $75,000 Development Advance Promissory Note. Portions of the principal could be forgiven if the franchisee met specified revenue thresholds and remained in compliance with its contractual obligations. Steve and Carol Wright also signed personal guarantees covering certain financial obligations associated with the franchises.
The Wrights and their business partner, John Sherman, acting on behalf of All Professional Hawaii Realty, Inc., entered into a separate ten-year Century 21 franchise agreement covering an office in Honolulu, Hawaii.
All Professional did not meet the revenue thresholds required for forgiveness of portions of the development advance for 2007, 2008, and 2009. During this period, the company complained that other Century 21 offices were recruiting its real estate agents and claimed that the recruiting activity contributed to declining revenue.
All Professional and the Wrights later alleged that Century 21 had failed to perform several contractual duties. Their claims concerned agent recruitment, franchise tools and systems, advertising expenditures, and other aspects of the franchisor-franchisee relationship.
Beginning in May 2009, All Professional stopped paying many of the fees required under its franchise agreements. In late August, the company also stopped operating its Folsom office without first obtaining Century 21's approval.
Century 21 treated the unpaid amounts and the office closure as contractual defaults. All Professional disputed the franchisor's allegations and continued to assert that Century 21 had failed to perform its own contractual obligations.
Century 21 sent formal notices addressing unpaid amounts associated with the franchise locations. The notices gave the franchisees an opportunity to cure certain financial defaults and warned that unresolved balances could result in termination and additional contractual liability.
The payment defaults remained unresolved after the notices were issued.
Century 21 terminated the Folsom franchise based on abandonment of the location. All Professional had stopped operating the office in August 2009 without obtaining prior approval.
The district court later found that the closure violated the franchise agreement. The Ninth Circuit upheld that finding on appeal.
Century 21 sent termination letters for the two remaining Sacramento franchises and the Hawaii franchise. The terminations became effective on July 9, 2010.
The franchisor sought outstanding balances and damages associated with the remaining terms of the contracts. The former franchisees were also directed to stop using Century 21 trademarks and other elements of the franchise system.
Following an evidentiary hearing, U.S. District Judge William B. Shubb granted Century 21's request for a preliminary injunction and denied the former franchisees' competing request for injunctive relief. The order restricted All Professional, Steve Wright, and Carol Wright from continuing unauthorized use of Century 21 trademarks while the lawsuit proceeded.
Century 21 was required to post a $100,000 bond before the injunction took effect.
Judge William B. Shubb signed a memorandum and order on August 7, 2012, which was filed the following day. The district court granted Century 21 summary adjudication on the principal breach-of-contract claims and found that All Professional had breached the franchise agreements and failed to satisfy obligations associated with the development advance. At that stage, the court awarded $195,454.90 in actual contract damages and $575,001.57 in future lost profits.
The future-loss calculation used the franchises' historical payments as a starting point. Average monthly royalties, National Advertising Fund contributions, and other applicable franchise fees generated before termination were projected across the remaining months of the agreements and discounted to present value. This connected the damages calculation to the businesses' actual operating history rather than relying solely on an unsupported estimate of future performance.
Applying New Jersey law, the court concluded that the franchisees had not established that the contractual damages formula was disproportionate to Century 21's anticipated losses. The court also ruled for Century 21 on the personal guarantees and trademark claims and granted summary adjudication against the claims asserted by All Professional and the Wrights.
Judge William B. Shubb signed the final judgment on August 16, 2012, and it was filed on August 17. For the California franchise obligations, the court awarded $668,016.41, consisting of $173,556.82 in actual damages and $494,459.59 in liquidated damages.
The judgment related to the Hawaii franchise totaled $102,440.06, consisting of $21,898.08 in actual damages and $80,541.98 in liquidated damages. The Hawaii judgment applied to All Professional Hawaii Realty, Inc., Steve Wright, and Carol Wright. The court also awarded separate trademark damages and permanently restricted the defendants from unauthorized use of Century 21 marks, advertising themselves as Century 21 franchisees, and using elements of the Century 21 franchise system.
The district court entered a separate judgment awarding Century 21 $292,526.31 in attorney fees and costs. The award was entered against All Professional Realty, Inc., All Professional Hawaii Realty, Inc., Steven Wright, and Carol Wright jointly and severally.
Steve and Carol Wright appealed, but the U.S. Court of Appeals for the Ninth Circuit affirmed the district court's judgment. The appellate court upheld the district court's treatment of the franchise agreement disputes, including the contractual defaults, development advance, personal guarantees, termination issues, and trademark relief.
The Ninth Circuit also rejected the Wrights' challenge to the contractual choice-of-law provisions and upheld application of New Jersey law. In reviewing the damages dispute, the court considered the franchise agreements, the businesses' historical performance, and the uncertainty associated with predicting revenue in the real estate market.
Court:
United States Court of Appeals for the Ninth Circuit
Case Name:
Century 21 Real Estate LLC v. All Professional Realty, Inc.
Century 21 terminated several California and Hawaii franchises in 2010 following unpaid franchise fees, unresolved financial obligations, and the unauthorized closure of the Folsom office.
The dispute involved franchise agreement breaches, development advance obligations, personal guarantees, trademark use, and future lost-profit damages.
Future damages were calculated using historical franchise royalties, advertising contributions, and other fees projected over the remaining contract terms.
The district court awarded $668,016.41 for California franchise obligations and $102,440.06 for Hawaii, along with separate trademark relief and attorney fees.
In 2015, the Ninth Circuit affirmed the judgment, upholding the franchise agreement rulings, personal guarantees, and application of New Jersey law.
Franchise Disputes
Franchise Operations
Royalties
Contract Disputes
Damages Calculations
Real estate broker
Promissory Note
Trademark Infringement
Century 21 Real Estate LLC v. All Professional Realty, Inc. involved several Century 21 real estate brokerage franchises operating in California and Hawaii. All Professional Realty, Inc. operated the California franchises, while the Honolulu franchise was operated by the separate entity All Professional Hawaii Realty, Inc. The dispute developed after required franchise fees went unpaid, obligations connected to a development advance were not satisfied, the Folsom office closed, and the franchisees accused Century 21 of failing to meet several obligations under the franchise relationship.
The litigation addressed franchise agreement breaches, termination rights, royalty and advertising payments, personal guarantees, post-termination trademark use, and damages tied to future franchise income. The U.S. District Court for the Eastern District of California ruled largely in Century 21's favor and awarded monetary and injunctive relief. Steve and Carol Wright appealed the judgment, but the U.S. Court of Appeals for the Ninth Circuit affirmed the central rulings on January 15, 2015.
Steve and Carol Wright formed All Professional Realty in 1994. The company entered its first Century 21 franchise agreement in 1995 and operated under the name Century 21 All Professional. Over time, the franchise relationship expanded to include several real estate brokerage offices in California and Hawaii.
All Professional Realty entered into three ten-year franchise agreements covering two Sacramento offices and one location in Folsom, California. The contracts generally required the company to pay royalties equal to 6 percent of gross revenue and contribute 2 percent of gross revenue to the National Advertising Fund, subject to applicable minimum fees.
Around the same period, Century 21 provided All Professional Realty with a $75,000 Development Advance Promissory Note. Portions of the principal could be forgiven if the franchisee met specified revenue thresholds and remained in compliance with its contractual obligations. Steve and Carol Wright also signed personal guarantees covering certain financial obligations associated with the franchises.
The Wrights and their business partner, John Sherman, acting on behalf of All Professional Hawaii Realty, Inc., entered into a separate ten-year Century 21 franchise agreement covering an office in Honolulu, Hawaii.
All Professional did not meet the revenue thresholds required for forgiveness of portions of the development advance for 2007, 2008, and 2009. During this period, the company complained that other Century 21 offices were recruiting its real estate agents and claimed that the recruiting activity contributed to declining revenue.
All Professional and the Wrights later alleged that Century 21 had failed to perform several contractual duties. Their claims concerned agent recruitment, franchise tools and systems, advertising expenditures, and other aspects of the franchisor-franchisee relationship.
Beginning in May 2009, All Professional stopped paying many of the fees required under its franchise agreements. In late August, the company also stopped operating its Folsom office without first obtaining Century 21's approval.
Century 21 treated the unpaid amounts and the office closure as contractual defaults. All Professional disputed the franchisor's allegations and continued to assert that Century 21 had failed to perform its own contractual obligations.
Century 21 sent formal notices addressing unpaid amounts associated with the franchise locations. The notices gave the franchisees an opportunity to cure certain financial defaults and warned that unresolved balances could result in termination and additional contractual liability.
The payment defaults remained unresolved after the notices were issued.
Century 21 terminated the Folsom franchise based on abandonment of the location. All Professional had stopped operating the office in August 2009 without obtaining prior approval.
The district court later found that the closure violated the franchise agreement. The Ninth Circuit upheld that finding on appeal.
Century 21 sent termination letters for the two remaining Sacramento franchises and the Hawaii franchise. The terminations became effective on July 9, 2010.
The franchisor sought outstanding balances and damages associated with the remaining terms of the contracts. The former franchisees were also directed to stop using Century 21 trademarks and other elements of the franchise system.
Following an evidentiary hearing, U.S. District Judge William B. Shubb granted Century 21's request for a preliminary injunction and denied the former franchisees' competing request for injunctive relief. The order restricted All Professional, Steve Wright, and Carol Wright from continuing unauthorized use of Century 21 trademarks while the lawsuit proceeded.
Century 21 was required to post a $100,000 bond before the injunction took effect.
Judge William B. Shubb signed a memorandum and order on August 7, 2012, which was filed the following day. The district court granted Century 21 summary adjudication on the principal breach-of-contract claims and found that All Professional had breached the franchise agreements and failed to satisfy obligations associated with the development advance. At that stage, the court awarded $195,454.90 in actual contract damages and $575,001.57 in future lost profits.
The future-loss calculation used the franchises' historical payments as a starting point. Average monthly royalties, National Advertising Fund contributions, and other applicable franchise fees generated before termination were projected across the remaining months of the agreements and discounted to present value. This connected the damages calculation to the businesses' actual operating history rather than relying solely on an unsupported estimate of future performance.
Applying New Jersey law, the court concluded that the franchisees had not established that the contractual damages formula was disproportionate to Century 21's anticipated losses. The court also ruled for Century 21 on the personal guarantees and trademark claims and granted summary adjudication against the claims asserted by All Professional and the Wrights.
Judge William B. Shubb signed the final judgment on August 16, 2012, and it was filed on August 17. For the California franchise obligations, the court awarded $668,016.41, consisting of $173,556.82 in actual damages and $494,459.59 in liquidated damages.
The judgment related to the Hawaii franchise totaled $102,440.06, consisting of $21,898.08 in actual damages and $80,541.98 in liquidated damages. The Hawaii judgment applied to All Professional Hawaii Realty, Inc., Steve Wright, and Carol Wright. The court also awarded separate trademark damages and permanently restricted the defendants from unauthorized use of Century 21 marks, advertising themselves as Century 21 franchisees, and using elements of the Century 21 franchise system.
The district court entered a separate judgment awarding Century 21 $292,526.31 in attorney fees and costs. The award was entered against All Professional Realty, Inc., All Professional Hawaii Realty, Inc., Steven Wright, and Carol Wright jointly and severally.
Steve and Carol Wright appealed, but the U.S. Court of Appeals for the Ninth Circuit affirmed the district court's judgment. The appellate court upheld the district court's treatment of the franchise agreement disputes, including the contractual defaults, development advance, personal guarantees, termination issues, and trademark relief.
The Ninth Circuit also rejected the Wrights' challenge to the contractual choice-of-law provisions and upheld application of New Jersey law. In reviewing the damages dispute, the court considered the franchise agreements, the businesses' historical performance, and the uncertainty associated with predicting revenue in the real estate market.
The following expert disciplines address issues presented by franchise disputes involving contractual payments, business operations, financial records, and projected losses. These categories describe expertise that may be relevant to disputes of this type and do not indicate that these experts testified in Century 21 v. All Professional Realty.
Franchise Operations Expert Witness
A franchise operations expert may analyze obligations imposed on a franchisor and franchisee, including operating requirements, payment provisions, location requirements, compliance procedures, and termination provisions. In a dispute involving facts similar to the Century 21 litigation, the analysis could address differences between a payment default and abandonment of an approved franchise location, as well as the contractual procedures governing notice, cure, and termination.
Forensic Accounting Expert Witness
A forensic accounting expert may reconstruct royalty payments, advertising contributions, promissory-note balances, gross revenue, and other financial transactions. In a multi-location franchise dispute, the expert may compare accounting records with contractual payment requirements, calculate unpaid balances, and separate obligations associated with individual franchise locations.
Economic Damages Expert Witness
An economic damages expert may analyze future royalties, lost profits, and other financial losses claimed after early termination of a franchise agreement. Relevant calculations may incorporate historical monthly revenue, royalty rates, advertising contributions, remaining contract terms, discount rates, and present-value adjustments. In the Century 21 dispute, historical franchise payments and the remaining terms of the agreements were central components of the contractual future-damages calculation.
Real Estate Broker Expert Witness
A real estate brokerage expert may address brokerage operations, agent recruitment, office production, staffing, revenue generation, and industry practices. Where a franchisee claims that recruiting practices or changing market conditions affected revenue, the expert may analyze brokerage performance, office operations, agent movement, and conditions in the relevant real estate market.
Franchise Royalties Were Based on Gross Revenue
The Century 21 agreements generally required All Professional to pay royalties equal to 6 percent of gross revenue and contribute 2 percent of gross revenue to the National Advertising Fund, subject to applicable minimum payments. Because the contractual payments were tied to brokerage revenue, the financial performance of each office directly affected the amounts owed under the franchise agreements.
Financial Defaults and Office Abandonment Had Different Contractual Remedies
The franchise agreements provided a cure period for certain financial defaults after notice. Abandonment of an approved franchise location was addressed under separate contractual provisions. The Folsom closure was therefore analyzed independently from the unpaid royalty and other financial obligations.
This distinction shaped the termination history. Century 21 terminated the Folsom franchise after the office stopped operating without prior approval, while the remaining franchises were terminated following unresolved financial defaults.
Historical Franchise Payments Formed the Basis of Future Damages
The contracts established a formula for calculating losses associated with early termination. Rather than selecting an arbitrary future revenue figure, the calculation drew from royalties, advertising contributions, and other franchise fees generated during the franchises' operating periods.
Those historical monthly amounts were applied to the time remaining on the agreements and adjusted to present value. The dispute therefore concerned both enforcement of the contractual formula and whether the resulting amount bore a reasonable relationship to the losses Century 21 could have anticipated from premature termination.
Personal Guarantees Extended Liability to Steve and Carol Wright
Steve and Carol Wright personally guaranteed specified obligations connected to the franchise agreements. Once the franchise companies were found liable for the covered contractual obligations, Century 21 also sought enforcement of those guarantees against the Wrights. The district court granted Century 21 summary adjudication on its breach-of-guaranty claim, and the resulting liabilities were reflected in the final judgment.
New Jersey Law Governed the Franchise Agreements
Although the franchise locations were in California and Hawaii, the contracts selected New Jersey law. The Wrights challenged application of that law, but the Ninth Circuit upheld the choice-of-law provisions. The appellate court explained that Century 21's principal place of business and headquarters were in New Jersey, providing a substantial relationship to the chosen state. It also rejected the argument that applying New Jersey law under the circumstances violated a fundamental California policy.
Century 21 Real Estate LLC v. All Professional Realty, Inc. ended with findings that the franchise companies had failed to make required payments, had not satisfied obligations connected to the development advance, and had violated contractual requirements associated with the Folsom franchise location. The district court upheld Century 21's franchise terminations and entered monetary and injunctive relief against the defendants.
The final judgment included actual damages, liquidated damages for future losses, enforcement of the Wrights' personal guarantees, separate trademark damages, and permanent restrictions on continued use of Century 21 marks and franchise materials. Steve and Carol Wright appealed, but on January 15, 2015, the Ninth Circuit affirmed the district court's judgment.
Why did Century 21 terminate the All Professional franchises?
Century 21 terminated the franchises after contractual defaults remained unresolved, including unpaid financial obligations, while the Folsom location was separately terminated following its closure without prior approval. The district court subsequently upheld Century 21's contractual claims arising from those events.
How were lost profit damages calculated in the Century 21 case?
Future losses were calculated using historical monthly royalties, National Advertising Fund contributions, and other applicable franchise fees over the remaining portions of the agreements. The projected amount was then discounted to present value.
What claims did All Professional make against Century 21?
All Professional and the Wrights alleged that Century 21 had failed to meet several obligations under the franchise relationship. Their claims involved matters including agent recruitment, franchise tools and systems, advertising expenditures, and other franchisor practices. The district court granted summary adjudication against their claims.
What happened to the Century 21 trademarks after termination?
The former franchisees were prohibited from continuing unauthorized use of Century 21 trademarks and franchise materials. The final judgment also permanently barred them from presenting themselves as authorized Century 21 franchisees and from using specified components of the Century 21 system.
What was the final ruling in Century 21 v. All Professional Realty?
The Ninth Circuit affirmed the district court's judgment on January 15, 2015. The appellate decision upheld the judgment challenged by Steve and Carol Wright, including the district court's enforcement of the franchise agreements and New Jersey choice-of-law provisions.
The following expert disciplines address issues presented by franchise disputes involving contractual payments, business operations, financial records, and projected losses. These categories describe expertise that may be relevant to disputes of this type and do not indicate that these experts testified in Century 21 v. All Professional Realty.
Franchise Operations Expert Witness
A franchise operations expert may analyze obligations imposed on a franchisor and franchisee, including operating requirements, payment provisions, location requirements, compliance procedures, and termination provisions. In a dispute involving facts similar to the Century 21 litigation, the analysis could address differences between a payment default and abandonment of an approved franchise location, as well as the contractual procedures governing notice, cure, and termination.
Forensic Accounting Expert Witness
A forensic accounting expert may reconstruct royalty payments, advertising contributions, promissory-note balances, gross revenue, and other financial transactions. In a multi-location franchise dispute, the expert may compare accounting records with contractual payment requirements, calculate unpaid balances, and separate obligations associated with individual franchise locations.
Economic Damages Expert Witness
An economic damages expert may analyze future royalties, lost profits, and other financial losses claimed after early termination of a franchise agreement. Relevant calculations may incorporate historical monthly revenue, royalty rates, advertising contributions, remaining contract terms, discount rates, and present-value adjustments. In the Century 21 dispute, historical franchise payments and the remaining terms of the agreements were central components of the contractual future-damages calculation.
Real Estate Broker Expert Witness
A real estate brokerage expert may address brokerage operations, agent recruitment, office production, staffing, revenue generation, and industry practices. Where a franchisee claims that recruiting practices or changing market conditions affected revenue, the expert may analyze brokerage performance, office operations, agent movement, and conditions in the relevant real estate market.
Franchise Royalties Were Based on Gross Revenue
The Century 21 agreements generally required All Professional to pay royalties equal to 6 percent of gross revenue and contribute 2 percent of gross revenue to the National Advertising Fund, subject to applicable minimum payments. Because the contractual payments were tied to brokerage revenue, the financial performance of each office directly affected the amounts owed under the franchise agreements.
Financial Defaults and Office Abandonment Had Different Contractual Remedies
The franchise agreements provided a cure period for certain financial defaults after notice. Abandonment of an approved franchise location was addressed under separate contractual provisions. The Folsom closure was therefore analyzed independently from the unpaid royalty and other financial obligations.
This distinction shaped the termination history. Century 21 terminated the Folsom franchise after the office stopped operating without prior approval, while the remaining franchises were terminated following unresolved financial defaults.
Historical Franchise Payments Formed the Basis of Future Damages
The contracts established a formula for calculating losses associated with early termination. Rather than selecting an arbitrary future revenue figure, the calculation drew from royalties, advertising contributions, and other franchise fees generated during the franchises' operating periods.
Those historical monthly amounts were applied to the time remaining on the agreements and adjusted to present value. The dispute therefore concerned both enforcement of the contractual formula and whether the resulting amount bore a reasonable relationship to the losses Century 21 could have anticipated from premature termination.
Personal Guarantees Extended Liability to Steve and Carol Wright
Steve and Carol Wright personally guaranteed specified obligations connected to the franchise agreements. Once the franchise companies were found liable for the covered contractual obligations, Century 21 also sought enforcement of those guarantees against the Wrights. The district court granted Century 21 summary adjudication on its breach-of-guaranty claim, and the resulting liabilities were reflected in the final judgment.
New Jersey Law Governed the Franchise Agreements
Although the franchise locations were in California and Hawaii, the contracts selected New Jersey law. The Wrights challenged application of that law, but the Ninth Circuit upheld the choice-of-law provisions. The appellate court explained that Century 21's principal place of business and headquarters were in New Jersey, providing a substantial relationship to the chosen state. It also rejected the argument that applying New Jersey law under the circumstances violated a fundamental California policy.
Century 21 Real Estate LLC v. All Professional Realty, Inc. ended with findings that the franchise companies had failed to make required payments, had not satisfied obligations connected to the development advance, and had violated contractual requirements associated with the Folsom franchise location. The district court upheld Century 21's franchise terminations and entered monetary and injunctive relief against the defendants.
The final judgment included actual damages, liquidated damages for future losses, enforcement of the Wrights' personal guarantees, separate trademark damages, and permanent restrictions on continued use of Century 21 marks and franchise materials. Steve and Carol Wright appealed, but on January 15, 2015, the Ninth Circuit affirmed the district court's judgment.
Why did Century 21 terminate the All Professional franchises?
Century 21 terminated the franchises after contractual defaults remained unresolved, including unpaid financial obligations, while the Folsom location was separately terminated following its closure without prior approval. The district court subsequently upheld Century 21's contractual claims arising from those events.
How were lost profit damages calculated in the Century 21 case?
Future losses were calculated using historical monthly royalties, National Advertising Fund contributions, and other applicable franchise fees over the remaining portions of the agreements. The projected amount was then discounted to present value.
What claims did All Professional make against Century 21?
All Professional and the Wrights alleged that Century 21 had failed to meet several obligations under the franchise relationship. Their claims involved matters including agent recruitment, franchise tools and systems, advertising expenditures, and other franchisor practices. The district court granted summary adjudication against their claims.
What happened to the Century 21 trademarks after termination?
The former franchisees were prohibited from continuing unauthorized use of Century 21 trademarks and franchise materials. The final judgment also permanently barred them from presenting themselves as authorized Century 21 franchisees and from using specified components of the Century 21 system.
What was the final ruling in Century 21 v. All Professional Realty?
The Ninth Circuit affirmed the district court's judgment on January 15, 2015. The appellate decision upheld the judgment challenged by Steve and Carol Wright, including the district court's enforcement of the franchise agreements and New Jersey choice-of-law provisions.
Franchise Disputes
Franchise Operations
Royalties
Contract Disputes
Damages Calculations
Real estate broker
Promissory Note
Trademark Infringement
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