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Coldwell Banker Real Estate LLC, F/K/A Coldwell Banker Real Estate Corporation v. Premier Real Estate Brokerage Services

March 28, 2012

COLDWELL BANKER REAL ESTATE LLC, F/K/A COLDWELL BANKER REAL ESTATE CORPORATION, PLAINTIFF,
v.
PREMIER REAL ESTATE BROKERAGE SERVICES, INC., D/B/A COLDWELL BANKER PREMIER, AND KARL S. GASBARRA, DEFENDANTS.



The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER

This suit arises from the failure on the part of Defendant and Franchisee Premier Real Estate Brokerage Services ("Premier") to pay various fees it owed Plaintiff and Franchisor Coldwell Banker under four franchise agreements the parties executed in December 2003. Plaintiff also sues Premier's owner, Karl S. Gasbarra, on his personal guaranties. Additionally, both Premier and Gasbarra have defaulted on a loan they obtained from Plaintiff to help foster the growth of the four new branches, thereby prompting Plaintiff to exercise an acceleration clause in the loan document and seek collection of the remaining principal on the loan. Plaintiff seeks summary judgment on the following claims: breach of contract against Premier (Count I); breach of the guaranties against Gasbarra (Count III); and breach of contract against both Defendants on the loan (Count IV).*fn1 For the reasons explained herein, the court enters a liability judgment in favor of Plaintiff on all counts, but will schedule an evidentiary hearing to determine the amount of damages.

FACTUAL BACKGROUND*fn2

Defendant Premier Real Estate Brokerage Services Inc. ("Premier") entered into four franchise agreements (the "Agreements") with Coldwell Banker, effective December 29, 2003, to operate real estate brokerage offices in Rockford, Illinois; Roscoe, Illinois; Belvidere, Illinois; and Beloit, Wisconsin.*fn3 (Pl.'s Local Rule 56.1 Statement of Undisputed Material Facts ¶ 7.) Under the Agreements, Coldwell Banker permitted Premier to use the Coldwell Banker name and system in the operation of Premier's brokerage offices. (Def.'s 56.1 ¶ 8.) In return, Premier was obligated to pay certain fees, including (1) royalties equal to 6% of all gross revenues upon closing of any transaction; (2) advertising fees equal to 2.5% of Premier's monthly gross revenues, up to $1,000 but no less than $500 per month per office; (3) interest "at the highest applicable rate of interest permitted by law," but not higher than 1.5%, for late payments; and (4) costs and reasonable attorneys' fees, should a judicial proceeding be necessary to enforce the provisions of the Agreements. (Def.'s 56.1 ¶¶ 9, 10, 11, 12, 15.) The Agreements also provide that Coldwell Banker is entitled to audit Premier's financial records at will (Def.'s 56.1 ¶ 13), and to terminate the Agreements for a number of reasons, including Premier's failure to pay the fees required by the contract. (Def.'s 56.1 ¶ 14.) The Agreements are governed by New Jersey law. (The Agreements ¶ 16.4.)

A provision in the Agreements describes the cash awards, called "Performance Premium Awards" ("PPAs"), that franchisees were eligible to receive upon achieving a certain high level of gross revenues. (Agreements Ex.¶ 7.3.) Plaintiff asserts that payment of the PPAs was contingent upon Premier's compliance with other provisions of the Agreements (Pl.'s Objections and Resp. to Def. Gasbarra's Statement of Facts ¶ 4), but the contract provision Plaintiff cites states only that Plaintiff "may" require franchisees' compliance with the Agreements before issuing a PPA.*fn4

(Agreements ¶ 7.3.) Moreover, Defendant Gasbarra states that throughout his seventeen years as a Coldwell Banker franchisee, PPAs that Premier has earned have always been paid or credited against any outstanding balance.*fn5 (Def. Gasbarra's Statement of Facts ¶ 4.)

As suggested by Gasbarra's reference to his seventeen-year relationship with Plaintiff, the Agreements were not the initiation of a new business relationship. Gasbarra had owned at least one Coldwell Banker franchise for many years; on January 27, 2004, he settled a dispute, on behalf of Premier and in his individual capacity, arising out of his operation of the franchise. (Agreement to Settle Outstanding Past Due Balances for Royalties and Advertising and Audit Fees (hereinafter "Letter Agreement"), Ex. 1 to Iuliano's Aff. (hereinafter "Iuliano's Second Aff."), Ex. A to Pl.'s Resp.) Pursuant to that Letter Agreement, Coldwell Banker converted $225,000 of Defendants' unpaid balance at the time into a Development Advance Promissory Note ("DAN").*fn6 (Letter Agreement ¶ 1.) Defendants' substantial unpaid balance as of January 2004 demonstrates that they had been in business with Plaintiff, and that they had already defaulted on the payment of a great many fees, long before the execution of the Agreements.

The DAN appears to be Plaintiff's attempt to reset the relationship with Defendants. Executed on December 23, 2003, the DAN obligated Defendants to pay Coldwell Banker the principal sum of $225,000, "which amount shall bear no interest." (Development Advance Promissory Note ("DAN"), Ex. E to Second Am. Compl., at 1.) The DAN required Defendants to pay the principal on the date eight years from "the determination date," as calculated therein,*fn7 but also provided for the annual reduction of the principal by one-ninth if Defendants fulfilled all obligations under the Agreements and maintained aggregate gross revenues across all of Premier's offices of at least $3 million. (DAN at 1.) If Defendants did not meet these conditions, a portion of the principal would be due annually on the determination date. (DAN at 1.) Regardless of any payments made by Premier, Coldwell Banker retained the right to apply PPA payments due to Premier to the principal instead. (DAN at 1.) Coldwell Banker further retained the right, should Premier be in default of any of the Agreements, to "accelerate the unpaid [p]rincipal and all interest accrued thereon to become immediately due and payable . . . ." (DAN at 1-2.) Finally, the DAN required Defendants to pay all attorneys' fees and costs incurred in any attempt by Coldwell Banker to collect any payment due under the DAN. (DAN at 2.) Like the Agreements, the DAN is governed by New Jersey law. (DAN at 3.)

Gasbarra signed the Agreements and the DAN on behalf of Premier. (Agreements ¶ 1.2; DAN at 3.) He also executed a "Guaranty of Payment and Performance" for each of the Agreements and co-signed the DAN in his individual capacity. (Agreements at 34; DAN at 3.) Under the Guaranties, Gasbarra is jointly and severally liable for all obligations due under the Agreements, including "all franchise Royalties, Advertising Fees, . . . audit fees, assignment fees, attorneys fees, referral fees, obligations to idemnify and other such charges, fees, and assessments provided for under the [Agreements]." (Guaranties at 1.) The Guaranties, too, are governed by New Jersey law. (Guaranties at 3.)

At no point in his response to Plaintiff's motion for summary judgment does Gasbarra contest the validity of the Agreements, the Guaranties, or the DAN. Gasbarra also does not contest Plaintiff's allegations that Premier breached the Agreements, that he breached the Guaranties, and that both Premier and Gasbarra breached their obligations under the DAN. His only apparent dispute concerns "the amount claimed by Plaintiff to be in breach . . . ." (Def. Gasbarra's Resp. to Pl.'s Mot. for Summ. J., at 1.)

The exact date(s) of the breach are not apparent from the record, but Coldwell Banker retained counsel for collection purposes in the fall of 2008. (Iuliano Aff., Ex. C to Def.'s 56.1, ¶¶ 16-17.) By a letter dated November 7, 2008, Coldwell Banker's counsel advised Gasbarra of Premier's failure to pay more than $150,000 in fees owed and threatened suit within 30 days. (Nov. 7, 2008 Letter, Ex. 5 to Iuliano Aff., at 1.) The letter refers to an accounting statement, but no such statement is attached to the copy that appears in the record. (Id.)

Evidently, there was no resolution; on April 29, 2009, Coldwell Banker filed this lawsuit. (See Compl. [1].) Coldwell Banker nevertheless continued negotiations to settle the dispute: in a letter dated March 4, 2010, a contract administrator at Coldwell Banker reminded Gasbarra that Premier's account was delinquent and stated that Gasbarra owed $124,190.78. (Mar. 4, 2010 Letter, Ex. 6 to Iuliano Aff., at 1.) In the event of termination, the letter explained, Gasbarra would be required to pay the balance, post-termination audit fees, and $100,000 in remaining DAN principal.*fn8 (Id.)

There is no direct evidence in the record concerning how or whether Gasbarra responded to the March 4, 2010 letter. Coldwell Banker sent a follow-up letter on June 30, 2010, however, stating that, although Gasbarra had made some payments on his account, he had not cured the default. (June 30, 2010 Letter, Ex. 7 to Iuliano Aff., at 1.) Instead, the balance due had actually increased since the March 4, 2010 letter, to $130,996.98. (Id.) In the June 30, 2010 letter, Coldwell Banker also volunteered to extend the termination deadline until August 4, 2010. (Id.) Gasbarra did not cure the default or to negotiate another deadline extension. As of August 3, 2010,*fn9 Coldwell Banker terminated the Agreements "and accelerated the $150,000 balance due under the DAN." (Def.'s 56.1 ¶ 21.)

As noted, there is no genuine dispute concerning Defendants' liability. What is disputed is the amount of damages Defendants owe Coldwell Banker as a result of the breaches. Based on the affidavit of Debbie Iuliano, Vice-President of Franchise Administration & Compliance, Coldwell Banker submitted a table stating the various fees ...


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