the date of execution, the Defendants had been operating the franchise for 14 months) or whether
it differed in any respect that would amount to sufficient consideration for the Guaranty. See
Ross v, Realty Abstract Co., 141 A.2d 319, 322 (N.J. Sup. A.D. 1958) (“Hither a slight benefit to
the promisor or a trifling inconvenience to the promisee is good consideration when bargained
for.”). The parties concede that, at the time CLTM began operating as a Century 21 franchise in
October 1996, personal guarantees were not a condition of the franchise. Thus, Plaintiff's
argument that the Franchise Agreement “supercede[s] and cancel[s]” all “prior and
contemporaneous agreements” does not, on its own, establish that the parties’ relationship
and/or dealings changed in any way that would provide sufficient consideration for the Guaranty.
As Plaintiff has not established there was consideration for LaPak and Max to execute the
Guaranty, this Court DENIES Century 21's motion for summary judgment on Count II.

C. CLTM’S COUNTERCLAIM

Plaintiff also moves for summary judgment on CLTM’s breach-of-contract counterclaim
against it. Because this Court finds that a genuine issue of material fact exists as to whether
Century 21 “fully performed its contractual obligations during the lifetime of the Franchise

Agreement,” summary judgment on the counterclaim is DENIED.

4 Indeed, this Court notes that a cursory review of the language of the provision in the
Franchise Agreement that Plaintiff cites could be read to invalidate the Guaranty ifit was a
“contemporaneous agreement.”

13



(4}6A). In addition, Century 21 agreed to provide a supply manual suggesting sources of office
materials, make available sample referral forms for use in referring business, operate a sales
training program for Century 21 franchises, pay for certain of CLTM’s costs for attendance at an
orientation and management program, and contribute to the National Advertising Fund, provided
that the franchisee met certain royalty payment requirements. ({{] 6B-6F).

According to the Franchise Agreement, CLTM was required to pay service fees in the
amount of six percent (6%) of the gross revenue earned, derived or received by CLTM from all
real estate related transactions set forth in paragraph 8A of the Franchise Agreement (“royalty
fees”). Royalty fees more than ten (10) days late bear interest from the due date until paid at the
lower rate of either the highest rate allowed by law or a rate that is five percent (5%) per annum
higher than the prime rate then currently established by Mellon Bank, N.A., Pittsburgh, PA.
({8B). CLTM agreed to pay, in addition to the Service Fees, a monthly contribution to the
National Advertising Fund (“NAF”) equal to two percent (2%) of the gross revenue earned as
specified in the Franchise Agreement. (9A). Century 21 could assess a late fee equal to ten
percent (10%) and/or accrue interest as specified in the Franchise Agreement for any NAF
contribution not timely received. (9B). The Franchise Agreement provided that Century 21
could terminate the Agreement for various reasons including, but not limited to, CLTM’s (a)
breach of its representations or warranties; or (b) failure to perform any of its obligations under
the Franchise Agreement or under any other agreement or indebtedness with Century 21
including, but not limited to, the failure to pay sums due and owing. (17). CLTM agreed that,
upon termination of the Franchise Agreement, CLTM would pay all sums then due and owing, as

well as royalty fees plus NAF contributions based upon the gross revenue received from any


Century 21's Actions as Franchisor

Defendants contend that Century 21 failed to provide CLTM the services outlined in
paragraph 6 of the Agreement. Namely, Defendants state that, for approximately two years,
CLTM’s franchise was not recognized in the Century 21 system; it was not listed in the system
directories or on the system website. Defendants state that, since referrals accounted for 20-25%
of CLTM’s business, Century 21's failure adversely effected CLTM’s ability to earn
commissions and contributed to the franchise’s demise. According to Defendants, Century 21
failed to maintain an adequate support staff. When Century 21 staff changes were made,
including the replacement of regional director Tony Porterfield, these changes were not
communicated to Defendants, and the new director also did not communicate with Defendants.
Century 21 disputes these facts, asserting that it fulfilled each of its obligations under the
Franchise Agreement.

After CLTM’s purchase of the Northbrook franchise, Cendant Corporation, which owned
the Century 21 franchise system, acquired the Coldwell-Banker real estate brokerage system.
Defendants contend that, after this acquisition, Century 21 devoted less resources to Century 21
on the North Shore and instead supported the Coldwell-Banker system. Century 21 disputes this
fact.

Ill. Discussion

Count I of Century 21's Complaint seeks damages from CLTM resulting from CLTM’s
breaches of the Franchise Agreement, including CLTM’s failure to pay monthly royalty fees and
contributions to the National Advertising Fund. Plaintiff also seeks lost future profits against

CLTM in Count I. In Count Il, Century 21 seeks relief from LaPak and Max individually for



records, transaction records, cash receipt logs, detailed closing information and cash
disbursement records. By letter dated February 20, 2001, Century 21 provided notice to CLTM
that it had fallen well below the minimum operating standards required of a Century 21
franchisee pursuant to Paragraph 17F of the Franchise Agreement. Specifically, Century 21 noted
that the office revenues reported for the year 2000 were only $26,070.75 while the average
revenue generated by franchisees in the local area was $466,469.55 during the same time period.
The letter warned that if production did not increase for the first six months of 2001, the Century
21 franchise may be terminated.

By letter dated March 21, 2001, Century 21 provided notice to CLTM that its account
with Century 21 was seriously past due and CLTM was in default of its monetary obligations
under the Franchise Agreement. By letter dated April 20, 2001, Century 21 provided notice to
CLTM that it remained in default under the Franchise Agreement for its non-payment of royalty
fees and NAF contributions due and owing to Century 21, despite numerous notices from
Century 21. In addition, Century 21 advised CLTM that it was in default under Paragraph 8A(i)
of the Franchise Agreement for its failure to fully report and pay Century 21 on closed
transactions since February 2000. Century 21 specifically reminded CLTM that the Franchise
Agreement was subject to termination unless CLTM fully cured the defaults by May 22, 2001.

Tn March and April of 2001, James Brown (“Brown”), a Century 21 auditor, performed an
audit of the CLTM franchise at the CLTM offices in Northbrook. Brown’s audit determined that
CLTM had failed to report royalty fees and NAF contributions on real estate transactions as
required under the Franchise Agreement. Working with Century 21’s books and records and the

Century 21 site in Northbrook, Brown discovered that CLTM had failed to report and pay royalty


transaction in process as of the date of termination; any referral sent to or received from any other
Century 21 office prior to the date of termination; or any transaction occurring after termination,
the listing of which was procured by CLTM during the time it was operating under the Franchise
Agreement. ({18A, 18B). CLTM also agreed that, in the event there was an early termination
of the Franchise Agreement, CLTM would immediately become obligated to pay Century 21
“Jost future profits.” (19A). Lost future profits, as defined in that paragraph, consist of all
amounts that CLTM would have paid to Century 21 as royalty fees and as NAF contributions
from the date of early termination through the Expiration Date of the Franchise Agreement, had
there been no early termination. Lost future profits are calculated in accordance with a formula
set forth in that paragraph.

As to record keeping, CLTM agreed that it would maintain its books and records for three
years after termination and that it would cooperate with Century 21 and permit Century 21 to
conduct a final inspection and audit of CLTM’s records after the Franchise Agreement expired or
was terminated. (11). Pursuant to Paragraph 20 of the Franchise Agreement, the parties agreed
that, in the event a legal action was instituted to enforce the terms and conditions of the Franchise
Agreement, “the prevailing party shall be entitled to recover all litigation costs, including
attorneys’ fees.”

Termination of the Franchise Agreement

By letter dated January 31, 2001, Century 21 advised CLTM that it had not cooperated
with Century 21 in scheduling an audit and that pursuant to Paragraph 11C(iv) of the Franchise
Agreement, it must allow Century 21 access to CLTM’s books and records. The letter further

requested a series of documents to be produced at the audit, including tax returns, bank account



notice from Century 21, CLTM failed to make the required payments as Century 21 requested.
On July 19, 2001, Century 21 sent CLTM a notice of termination, effective July 20, 2001.
Century 21’s termination notice set forth CLTM’ s defaults and noted that CLTM owed
$212,955.76 in royalty fees and NAF contributions to Century 21, and demanded payment in that
amount by no later than August 2, 2001. In addition, Century 21 reserved its rights to conduct a
post-termination audit of CLTM’s records.

On September 17, 2001, CLTM sent LaPak and Max a letter that informed them that they
were delinquent in paying the past due amounts owed under the Franchise Agreement and would
face litigation in the event that they did not repay all such sums immediately. By letter dated
November 16, 2001, through its litigation counsel, Century 21 sent correspondence to LaPak and
Max advising them that pursuant to the personal guaranty that they had executed, they were
liable for all sums owed by CLTM and demanded payment immediately of same. To date,
Century 21 has received no payments from any of the defendants.

At approximately the same time that Century 21 terminated CLTM as a Century 21
franchise, CLTM sold the Northbrook building which housed the franchise. Sometime after the
sale, CLTM destroyed all its documentation, including documents that would have allowed
Century 21 to complete its audit to determine the total amount of closed transactions that were

unreported and for which royalty fees and NAF fees had not been paid.


* atinate Oreer Forrn (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge David H. Coar Sitting Judge if Other
| or Magistrate Judge * than Assigned Judge
CASE NUMBER 02 C 1735 DATE 2/7/2003
CASE Century 21 Real Estate Corp. v. CLTM Assoc., et al.
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
Plaintiff's Motion for Summary Judgment
DOCKET ENTRY:
qd) oO Filed motion of [ use listing in “Motion” box above.]
(2) Qa Brief in support of motion due
(3) a Answer brief to motion due . Reply to answer brief due.
(4) a Ruling/Hearing on set for at
(5) Oo Status hearing[held/continued to] [set for/re-set for] on set for at
(6) Qa Pretrial conference[held/continued to} [set for/re-set for] on set for at :
(7) QO Trial[set for/re-set for] on at
(8) Qo [Bench/Jury triat] [Hearing] held/continued to at
(9) Qo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to)
OOFRCP4(m) General Rule21 CFRCP41(a)(1) CO FRCP41(a)(2).
(0) «x [Other docket entry] For the reasons stated in the attached memorandum opinion and order,
Plaintiff's motion for summary judgment [15-1] is DENIED in its entirety.
¥
(1) (For further detail see attached memorandum opinion and order.]
No notices required, advised in open court. Document
- Number
No notices required, 2 Ties
Notices mailed by judge’s staff. FEB i & 2003
Notified counsel by telephone. date docketed
v | Docketing to mail notices.
Mail AO 450 form. WUune 1 sf LU. ds 2 4
Copy to judge/magistrate judge. SOD 6 28NR .
fe TA TAL date maited notige
courtroom 7 7
mds(te) deputy’s ,
initial Pere : }
om Date/time received in L A rn J
central Clerk's Office smaiting deputy ini



of that breach. Nat’! Utility Servs. Inc. v. Chesapeake Corp., 45 F. Supp. 2d 438, 448 (D.N.J.
1999) (applying New Jersey law); AT&T Credit Corp. v. Zurich Data Corp., 37 F.Supp.2d 367,
370 (D.N.J. 1999) (same). Neither party disputes that the Franchise Agreement signed on
December 9, 1997 is a valid, binding contract. The parties also do not dispute that Defendants
stopped making royalty payments to Century 21. Thus, at issue in this case is whether Century
21 complied with and performed its obligations under the contract.
Century 21's Performance

Defendants argue that summary judgment should not be granted in favor of Century 21
because a genuine issue of material fact exists as to whether Century 21 fulfilled all of its
obligations under the Franchise Agreement. Namely, Defendants assert that Century 21 failed to
fulfill its obligations under paragraph 6 of the Franchise Agreement. Century 21 did not include
CLTM in the directory of Century 21 offices or on the Century 21 website for almost two years,
and it also failed to provide a proper support staff. Defendants assert that, by not being listed,
CLTM was denied referrals, which normally amount to about 20-25% of CLTM’s business.
Defendants further assert that, by not having the support of or being able to communicate with
Century 21's staff, and by Century 21 supporting the Coldwell-Banker real estate brokerage
system after Cendant Corporation acquired it, Century 21 violated the Franchise Agreement and
caused CLTM to lose business.

This Court finds that Century 21 has not stated sufficient facts that warrant summary
judgment in its favor on Count I. Namely, it has not proved that it complied with and performed
its obligations under the contract. While Plaintiff summarily concludes it “substantially

performed” its contractual duties, Century 21 has not asserted facts to establish that as a matter of

il



breach of their guaranty agreement, as they have failed to make each payment and/or perform
each obligation required of CLTM as they agreed in the Guaranty of Payment and Performance.
CLTM counterclaims against Century 21 for breach of contract.

Defendants do not dispute that a valid contract existed between the parties. Indeed,
Defendants concede that, on December 9, 1997, CLTM executed the Franchise Agreement for
the operation of the Northbrook Century 21 real estate brokerage office that CLTM had been
operating since October 17, 1996. Rather, Defendants argue that they did not breach the
contract; they argue that Century 21 materially breached its contractual obligations and therefore
the Franchise Agreement is unenforceable. Defendants further argue that defendants LaPak and
Max are not individually liable because, as there was no consideration for the Guaranty of
Payment and Performance they executed, it is unenforceable as a matter of law. The Court
addresses each Count in turn.

A. Count I - Breach of Contract

Under New Jersey law,’ for Century 21 to succeed on its breach of contract claim against
Defendants, it must prove: (1) the existence of a valid and binding contractual relationship with
Defendants; (2) that Century 21 complied with and performed its obligations under the contract;

(3) that Defendants breached the contract; and (4) that Century 21 sustained damages as a result

3 Though the parties rely on both Illinois and New Jersey law, the Franchise Agreement
between Century 21 and Defendants specified that New Jersey law would gover disputes arising
under the Agreement. In diversity cases, district courts follow the choice of law rules of the
courts of the state in which they sit. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941);
7th Cir. Case. In Illinois courts, “the law applicable to a contract is that which the parties
intended . ... When that intent is expressed, it should be followed.” H.B. Fuller Co. v. Kinetic
Sys., Inc., 932 F.2d 681, 685 (7th Cir. 1991) citing Hofeld v. Nationwide Life Ins. Co., 322
N.E.2d 454, 454 (Ill. 1975). As Illinois courts would respect the parties’ choice of New Jersey
law, so does this Court.

10



fees for 334 real estate transactions dating back from January 1998 through and including March
30, 2001. Brown calculated that CLTM had failed to report $128,462.19 in royalty fees, as well
as $42,820.71 in national advertising fund fees. Brown determined that CLTM owed Century 21
a total of $190,143.85, which included interest assessed on the unreported and unpaid royalty
fees.’ Brown further determined that not all the books and records that were requested had been
supplied by CLTM and that further amounts might be due based on the missing documentation.

Using the formula provided in paragraph 19A of the Franchise Agreement, Plaintiff
calculated that Defendants owed an additional $171,172.57 for lost future profits. This amount
was computed by taking the average royalty fee and national marketing fees owed by CLTM
during the time period during which it reported to Century 21 for real estate transactions as
required by the Franchise Agreement. That amount was multiplied by the remaining number of
months of the Franchise Agreement after it was terminated but before the expiration of the
franchise term or 63 months. An 8% discount was then applied to that figure to arrive at the
present value of $171,172.57 for lost future profits.

By letter dated May 16, 2001, Century 21 advised CLTM that it was required to pay
immediately all amounts that it had failed to report and pay to Century 21, as uncovered by the
audit, Century 21 noted that the audit was limited because CLTM had failed to provide adequate

financial records, as requested by Century 21 and required by the Franchise Agreement. Despite

2 The total amount of damages relating to royalty fees, audit charges, and NAF
contributions is $190,443.85. That figure is comprised of the audit cost of $300.00 and the audit
finding that $190,143.85 is due. Defendants dispute the amount due. They assert Brown
overstates the amount of fees due and owing because he included transactions that were not
closed in his determination. Defendants state that, for them to owe approximately $190,000, they
would have had to generate $120,000,000 in sales during the period January 5, 1998 through
March 30, 2001, which they did not. Century 21 disputes Defendants’ calculation.

7



on October 1996, CLTM purchased a Century 21 franchise in Northbrook, which was about to
close. This Northbrook franchise was the sole Century 21 franchise in the North Shore suburbs
of Chicago. At that time, Century 21 did not request or require a personal guarantee either from
LaPak or Max, and neither LaPak nor Max agreed to personally guarantee any aspect of CLTM’s
performance as a franchisee. Beginning in October 1996, CLTM operated the Century 21
franchise in Northbrook under the Century 21 trademark and CLTM paid franchise fees.

On December 9, 1997, CLTM executed a Franchise Agreement for the operation of the
Century 21 real estate brokerage office in Northbrook. Also on December 9, 1997, LaPak and
Max guaranteed payment of all sums due under the Franchise Agreement when it signed the
“Guaranty of Payment and Performance.” The Franchise Agreement provided that the real
estate brokerage office would be located at 1220 Meadow Road in Northbrook. The location of
the real estate office was later changed pursuant to an Addendum to the Franchise Agreement
executed by CLTM and Century 21, effective July 6, 1999. The location was thus changed to
1336 Shermer Road in Northbrook.

The Franchise Agreement provided that the franchise term would be for a period of 10
years, commencing October 17, 1996, through and including October 16, 2006. (42). Century 21
granted CLTM the right to use the Century 21 trademarks and Century 21 System for the

promotion and assistance of independently owned and operated real estate brokerage offices.

' Defendants contend that the Franchise Agreement merely recited the same terms and
conditions under which CLTM had been operating since October 1996, and that neither LaPak
nor Max received additional consideration for guaranteeing payment. Century 21 disputes these
fact, citing paragraph 21(A) of the Franchise Agreement, which is an integration provision that
states this agreement supersedes and cancels any previous agreement between the parties. This
paragraph, however, does not establish that LaPak and Max received additional consideration.

3


IV. Conclusion
For the foregoing reasons, Plaintiff's Motion for Summary Judgment is DENIED in its

entirety.

Enter:

David H. Coar
United States District Judge

Dated: February 7, 2003

14


inferences drawn from it in a light most favorable to the non-movant, a reasonable jury could

return a verdict for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986);

Fritcher v. Health Care Servs. Corp., 301 F.3d 811, 815 (7th Cir. 2002).
The movant bears the burden of establishing that no genuine issue of material fact exists.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Hedberg v. Indiana Bell Tel. Co., 47 F.3d

928, 931 (7th Cir. 1995). If the movant meets this burden, the non-movant must set forth

specific facts that demonstrate the existence of a genuine issue for trial. Rule 56(e); Celotex, 477

US. at 324. A scintilla of evidence in support of the non-movant’s position is insufficient, and
the non-movant “must do more than simply show that there is some metaphysical doubt as to the
material fact.” Matsushita Elec, Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); see
also Anderson, 477 U.S. at 250. Weighing evidence, determining credibility, and drawing
reasonable inferences are jury functions, not those of a judge deciding a motion for summary
judgment. Anderson, 477 U.S. at 255.
II. Background
The following facts are taken from the parties Local Rule 56.1 materials. Defendant
Century 21 Real Estate Corporation (“Plaintiff’ or “Century 21”) is a corporation under
Delaware law with its principal place of business in Parsippany, New Jersey. CLTM Associates,
Ltd. (“CLTM”) was, at all relevant times, an Illinois corporation with its principal place of
business in Northbrook, Illinois (“Northbrook”). Christopher G. LaPak (“LaPak”) and Terry
Max (“Max”) are individuals who reside in Northbrook.
The Franchise Agreement

At the urging and with the approval of Tony Porterfield, Century 21's Regional Director,


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
CENTURY 21 REAL ESTATE )
CORPORATION, )
) No.02.C1735
Plaintiff, }
) HONORABLE DAVID H. COAR
v. )
)
CLTM ASSOCIATES, LTD., )
CHRISTOPHER G. LaPAK, and TERRY A. )
MAX, )
)
Defendants. )

MEMORANDUM OPINION AND ORDER

Plaintiff Century 21 Real Estate Corporation brings a three-count diversity action against
Defendants CLTM Associates, Ltd., Christopher G. LaPak, and Terry A. Max to recover monies
allegedly owed by defendants pursuant to a real estate franchise agreement. Century 21 moves
for summary judgment in its favor on ail counts in the Amended Complaint and on the

Defendants’ counterclaim, For the following reasons, Century 21's motion is mane erg
arr es

Ar
entirety.
FEB i @ 2003
I, Summary Judgment Standard
Summary judgment is proper “if the pleadings, depositions, answers to interrogatories
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as
to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.

R. Civ. P. 56(c); Kamler v. H/N Telecom. Servs.. Inc., 305 F.3d 672, 677 (7th Cir. 2002). A

genuine issue of material fact exists for trial when, in viewing the record and all reasonable


law. It is unclear at what point Century 21 ceased contact with CLTM, whether and for how long
the franchise was excluded from the website and/or directory, and what impact those actions had
on Defendants’ business. These facts are important not only to determine whether Plaintiff
fulfilled its obligations under the contract, but also in determining damages. Further,
Defendants’ allegation that Century 21 supported the Coldwell-Banker system rather than CLTM
is similarly important in determining damages, particularly any future lost profit calculation. The
Court therefore DENIES Plaintiff's motion for summary judgment as to Count I.
B. Count Il - Breach of the Guaranty of Payment and Performance

Defendants argue that LaPak and Max are not individually liable for any sum due under
the Franchise Agreement because, as there was no consideration for the Guaranty of Payment and
Performance they executed, it is unenforceable as a matter of law. Plaintiff counters that,
because the guaranty was executed contemporaneously with the Franchise Agreement, there was
sufficient consideration.

Ifa guaranty lacks consideration, it is merely an unenforceable gratuitous promise. Great
Falls Bank v. Pardo, 622 A,2d 1353, 1359 (N.J. Sup. Ch. 1993). Thus, if LaPak and Max did not
execute the Guaranty of Payment and Performance at the same time as the Franchise Agreement
and as part of the same agreement, then the guaranty “must be supported by separate
consideration moving to the guarantor or the renunciation of something substantial by the
guarantee.” Id. at 1359 (citations omitted).

In this case, it is clear that the parties signed the Franchise Agreement and the Guaranty at
the same time on December 9, 1997. What is not clear from the parties’ statements of facts,

however, is whether the Franchise Agreement signed on December 9 was merely a formality (on

12