Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Cal.: Century 21 granted default judgment, permanent injunction against former franchisee, (Feb 12, 2015)

By Linda O’Brien, J.D., LL.M.

In an action by a real estate agent franchisor against a former franchisee for breach of contract, trademark infringement, and unfair business practices following the termination of the franchise agreement, a magistrate judge in the federal district court in Fresno, California has granted the franchisor’s motion for a default judgment (Century 21 Real Estate, LLC v. Ramron Enterprises, February 9, 2015, Thurston, J.).

Century 21 Real Estate, LLC is a real estate agent franchise company that is the exclusive licensee of several word and design marks registered with the U.S. Patent and Trademark Office. Century 21 uses the marks to provide brand identity for its system of real estate brokerage franchisors. In June 2010, Century 21 entered into a franchise agreement with Ramron Enterprises for a ten year term. Under the agreement, Ramron was granted the nonexclusive license to utilize the Century 21 marks and system. In return, Ramron agreed to pay royalty and advertising fees, and to cease using all Century 21 marks upon termination of the agreement. The parties also entered into two promissory notes where Century 21 loaned Ramron over $20,000 to be repaid in installments.

In 2013, Ramron failed to pay the amounts owed under the franchise agreement and Century 21 exercised its right to terminate the agreement. Subsequently, Century filed suit against Ramron, alleging that Ramron continued to use Century 21 marks after the termination of the franchise agreement and asserted claims, in part, for breach of contract, unfair business practices, and infringement of Century registered trademarks in violation of California’s Unfair Competition Law and the Lanham Act. In July 2014, a default was entered against Ramron for failure to timely respond to the complaint. Century 21 then moved for a default judgment and to permanently enjoin Ramron from using Century 21 marks and advertising as a Century 21 franchisee.

Merits of the complaint. The court determined that Century 21 sufficiently alleged facts to state claims for breach of contract, trademark infringement, and unfair competition. The plaintiff established the existence of a franchise agreement through which Ramron agreed to pay royalties and advertising fees and that Ramron breached that agreement by failing to make the agreed upon payments. Century 21 also established that it had a valid and protectable interest in the registered mark and Ramron’s use of the mark was likely to cause consumer confusion.

Damages. Additionally, Century 21 established damages in an amount that included unpaid franchise fees, amounts due under the promissory notes, liquidated damages under the franchise agreement, and damages for trademark infringement. According to the court, the plaintiff produced an account status report which detailed the amounts owed by Ramron for past due royalty and advertising fees and promissory note payments. Moreover, the franchise agreement provided that Century 21 was entitled to liquidated damages in the event Ramron breached the agreement and caused its early termination. Since the defendant did not appear or challenge the reasonableness of the liquidated damages provision and the provision included a method to calculate a fair and reasonable amount of damages, the provision was enforceable. Furthermore, an award of treble damages under the Lanham Act was appropriate because the defendant refused to cease use of the Century 21 marks after being advised of the termination of the franchise agreement. Thus, the amount of damages requested by the plaintiff was appropriate.

Injunctive relief. Injunctive relief was appropriate to prevent Ramron from continued trademark violations and unfair competition, the court found. The defendant continued to use the marks despite knowledge that Century 21 had terminated the franchise agreement and Ramron no longer had permission to use the word and design marks. Moreover, since the plaintiff had already shown the likelihood of confusion, Century 21 established that it would suffer irreparable harm if the injunctive relief was not granted.

Attorneys’ fees. Finally, the plaintiff was entitled to its attorney fees and costs. Century 21 prevailed in seeking enforcement of the franchise agreement and termination of the defendant’s use of its marks and the court’s entry of default was sufficient to establish its entitlement to its fees and costs, the court concluded.

The case is No. 1:14-cv-00788-AWI-JLT.

Attorneys: Aaron Paul Rudin (Gordon & Rees LLP) for Century 21 Real Estate LLC.

Companies: Century 21 Real Estate LLC; Ramrom Enterprises

Cases: FranchisingDistribution CaliforniaNews