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Industry News

Legal Action

February 13, 2002

C21 Franchisee Claims Cendant Diverts Chain?s Advertising Money To Other Brands

By Bridget McCrea
Inman News Features

Frank K. Cooper Real Estate #1 in Miami, Fla., last week filed a lawsuit against its franchisor Century 21 Real Estate Corp. and the franchisor parent company Cendant Corp., claiming the latter favors competing real estate brokers and diverts money allocated for Century 21 advertising to Cendant?s Coldwell Banker and ERA brands.

The lawsuit seeks class-action status and unspecified damages from Century 21 and Cendant Corp., both of Parsippany, N.J.

Three law firms, McElroy, Deutsch & Mulvaney in New York, Atlas Pearlman in Ft. Lauderdale, Fla., and Zwerling, Schachter & Zwerling in Seattle, announced the lawsuit, calling it a "class action lawsuit being filed on behalf of Century 21 franchisees as of January 1, 1995, and those who became franchisees after that date," in a press release.

But so far the lawsuit involves just one franchisee, even though Dan Drachler, who is of counsel with law firm Zwerling, Schachter, said others have expressed interest in providing information and possibly participating.

"When filing such cases, you always indicate whether you intend for it to be a class action, but it can?t be until the court certifies the class," said Drachler. "It?s a procedural step that occurs after the case is filed and assigned a judge."

Now, said Drachler, the ball is in Cendant?s court.

But if Cendant is a player in this game, it hasn?t yet been officially notified.

Cendant VP of Communications Kevin Meyer said the company hadn?t been served with the lawsuit as of yesterday afternoon.

The crux of the dispute appears to be a complaint from a single Century 21 franchisee who claims, according to Drachler, that he?s seen dramatic decreases in the levels of service provided to franchisees since Cendant acquired the chain in 1995.

For instance, Drachler alleged, the number of Century 21 employees working in regional offices has declined dramatically from more than 5,000 in 1995 to only hundreds today.

The lawsuit also alleges that funds franchisees paid to Cendant have been misappropriated and aren?t being used exclusively for the benefit of Century 21 franchisees, said Drachler. He singled out the Web site, which Cendant developed then sold to, as an example of diverted funds.

"We have full disclosure on this," Meyer rebutted. "An outside auditor audits the national advertising fund annually, and (the auditor?s) report is communicated throughout the system and available to any franchisee that wants one."

Also at issue is NRT?s aggressive acquisition strategy and addition of company-owned Coldwell Banker franchises to its portfolio. Drachler alleges that NRT?s actions don?t sit well with Century 21 franchisees because they dislike competing against other brands owned by the same franchise parent company. The attorney declined to name the franchisees he said were harboring such beliefs.

"Century 21 franchisees have lost significant market share," Drachler alleged. "Our plaintiff has told us Century 21 was once the number one brokerage in (the plantiff's) market and today ranks number six."

Drachler said the complaint filed with the court seeks class-action status on behalf of former and current franchisees in the system post-1995. Cendant now has a predetermined number of days to answer the lawsuit or otherwise settle the matter out of court.

Drachler also said the plaintiff is seeking monetary damages.

"They want the funds that weren?t spent on the franchise returned to the franchisees," he said, adding that damages for alleged lost business have yet to be quantified by the plaintiff?s side. "Current franchisees want their contracts enforced and they want the parent company to stop violating the expressed and implied terms of the contract?mainly, not to compete with them," he stated.

But Meyer said Cendant isn?t aware of any such grumblings among its Century 21 franchisees. He said disagreements between franchisors and franchisees aren?t uncommon in the real estate business, but the company had no warning from the franchisee involved in this legal action.

"We didn?t know we had an issue of this severity," said Meyer, adding that the plaintiff entered into its franchise agreement with Century 21 in 1994, then renewed the agreement in December 1998.

"At that time," he said, "there was no issue raised about these concerns."

Drachler didn?t know whether the plaintiff had ever approached Cendant directly to discuss these concerns.

Meyer said Cendant and Century 21 plan to "vigorously and aggressively" defend themselves against the allegations.

"We believe (the complaint) is inaccurate, wholly without merit," he said. "And it does not satisfy the legal standards for certification (as a) class action."

Copyright: Inman News Service

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