Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—7th Cir.: Terminated Keller Williams franchisee denied liquidated damages, (Jul 7, 2016)

By Greg Hammond, J.D.

A former Regional Director of Keller Williams Realty, Inc., who also owned a Keller Williams franchise, was not entitled to $20 million in liquidated damages, arising from Keller Williams’ alleged violation of a confidentiality clause contained in a settlement agreement. The U.S. Court of Appeals in Chicago affirmed the lower court’s order denying liquidated damages, agreeing that $10,000 in liquidated damages for each breach of the confidentiality clause was not a reasonable estimate of damages and the former Regional Director did not suffer actual damages (Caudill v. Keller Williams Realty, Inc., July 6, 2016, Posner, R.).

Jana Caudill owned a real estate brokerage company that became a Keller Williams franchise and was a Regional Director of Keller Williams. After her position and franchise were terminated, Caudill filed suit against Keller Williams, but ultimately settled. The settlement contained a confidentiality clause, which Caudill claimed Keller Williams violated by distributing a Franchise Disclosure Document (FDD) to approximately 2,000 existing or potential franchisees and other interested firms or persons. The FDD purportedly described Caudill’s lawsuit, the total amount paid to Caudill and her company, and the share of the settlement that Keller Williams’ insurer had contributed. The district court denied Caudill’s request for $20 million in liquidated damages, pursuant to the liquidated damages clause in the settlement agreement—a clause that specified damages of $10,000 for each breach of the confidentiality clause. Caudill appealed.

The appellate court affirmed, noting that the basic principle underlying contract damages is compensation for losses sustained and no more, and that the court would not enforce punitive contractual damages provisions. Keller Williams had shown that there was no basis for supposing the damages to have been anywhere near an average of $10,000 per unauthorized recipient of the disclosure. In addition, actual damages did not exist in this case, according to the court. Caudill failed to identify a single recipient who had come to think less of her or her company as a result of it, or a single referral that she had lost. Although one could "imagine" Caudill’s business being seriously harmed by the disclosure of the terms of the settlement, it was merely speculation, the court concluded.

The case is No. 15-3313.

Attorneys: Ruth I. Major (Law Offices of Ruth I. Major, PC) for Jana Caudill and Leaders, LLC. Paula J. Morency (Schiff Hardin LLP) for Keller Williams Realty, Inc.

Companies: Keller Williams Realty, Inc.; Leaders, LLC

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