SINGLE LARGEST WINDERMERE FRANCHISEE QUITS THE WINDERMERE BRAND...

 

Windermere SoCal / Bennnion & Deville, 29 California offices, 1,200+ agents, become "bennion deville HOMES" Independent Brand

 

 

STUNNING ALLEGATIONS...

 

 

Windermere SoCal / Bennion & Deville Sue Franchiser Windermere Services Company for

"...an utter disregard for California's franchise laws violating both the California Franchise Relations Act and the California Franchise Investment Laws," and because "...WSC has failed to make any material effort to combat Windermere Watch."

 

RECENT CASE UPDATE: THE COMPLETE FIRST AMENDED COMPLAINT STATES IN PART: “...While neither Bennion nor Deville were involved in the solicitation, negotiation, or sale of these new franchises, Drayna still directed Deville to sign each of the agreements on behalf of Services SoCal. Again, these offers and sales constitute the unlawful sale of an unregistered franchise under the CFIL. Drayna's continued efforts to cover up WSC's failure to register the Southern California FDD in 2014 represents separate breaches of the Area Representative Agreement.”

 

U.S. DISTRICT COURT, CENTRAL DISTRICT OF CALIFORNIA—Case No. 5:15-cv-01921-R-KK

(Transferred to U.S. District Court Central District, Eastern Division)

TRIAL DATE SET FOR OCTOBER 18, 2016, AT 9:00 A.M.

 

 

DOWNLOAD THE COMPLETE FIRST AMENDED COMPLAINT HERE

DOWNLOAD FIRST AMENDED COMPLAINT EVIDENCE 1 HERE

DOWNLOAD FIRST AMENDED COMPLAINT EVIDENCE 2 HERE

 

Franchiser Windermere Real Estate Services Company (WSC) Sued by Multi-Windermere-Franchisee Bennion & Deville Fine Homes and Windermere Services Southern California, on Three Breach of Contract Claims, also Breach of Implied Covenant of Good Faith and Fair Dealing, and Violation of the California Franchise Relations Action (Cal. Bus. & Prof. Code § 20020), in a Forty-Seven Page First Amended Complaint, Alleging in Part:

 

"The Windermere Watch anti-marketing campaign has had a very significant and monetarily damaging effect on Plaintiffs...” and "...insurance carrier Lloyd's of London had recently refused to insure a franchisee in Plaintiffs' region after discovering the Windermere Watch websites on the internet," and "By June 2013, Windermere Watch had severely impacted Plaintiffs' ability to function in Southern California. They were losing listings, clients, and agents on a regular basis."

"By July 2013, Plaintiffs' competitors in Southern California were using elaborate PowerPoint presentations - based entirely upon information the competitors obtained from the Windermere Watch websites and mailings - with both clients and agents painting Windermere as an untrustworthy real estate firm."

"As reflected below, representatives of WSC - most notably, WSC's General Counsel Drayna - attempted to cover up WSC's failure to maintain the registration of the 2013 Southern California FDD in breach of the Area Representation Agreement by instructing Plaintiffs to offer prospective franchisees the wrong FDD. This blatant violation of the CFIL was not apparent to Plaintiffs who are not attorneys and relied entirely upon Drayna for support and guidance with respect to any legal issues involving the Windermere FDD."

"Drayna was not the only representative of WSC directing Plaintiffs to unknowingly violate the franchise laws. As is reflected in an email dated June 21, 2013, Drayna included WSC's President, Geoff Wood, in an email instructing Plaintiffs that the Southern California FDD was mailed to the State of California "last week," and [i]n the mean time (sic) you may proceed with the Northern California [FDD] as we discussed." A true and accurate copy of Drayna's June 21, 2013 email is attached hereto as Exhibit O. Wood - the President of a large national-wide franchisor - did nothing to correct the misleading direction of Drayna or stop Plaintiffs' from offering the Northern California FDD to Southern California prospects in violation of the CFIL,"

 

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

 

BENNION & DEVILLE FINE HOMES, INC., a California corporation, BENNION & DEVILLE FINE HOMES SOCAL, INC., a California corporation, WINDERMERE SERVICES SOUTHERN CALIFORNIA, INC., a California corporation,

 

Plaintiffs,

 

v.

 

WINDERMERE REAL ESTATE SERVICES COMPANY, a Washington corporation; and DOES 1-10.

 

Defendant.

 

AND RELATED COUNTERCLAIMS

 

Case No. 5:l5-cv-0192l-R-KK

Hon. Manual L. Real

 

FIRST AMENDED COMPLAINT

 

Complaint filed: September 17, 2015

 

DEMAND FOR JURY TRIAL

 

 

            Pursuant to the Court's Order of November 13, 2015 [D.E. 30], Plaintiffs Bennion & Deville Fine Homes, Inc. ("B&D Fine Homes"), Bennion & Deville Fine Home SoCal, Inc. ("B&D SoCal"), and Windermere Services Southern California, Inc. ("Services SoCal") (collectively, "Plaintiffs") hereby submit this First Amended Complaint as follows:

 

NATURE OF ACTION

 

            1. Plaintiffs are Area Representatives and franchisees of Defendant Windermere Real Estate Services Company ("WSC"), a large real estate brokerage company based in the Pacific Northwest. Plaintiffs expanded the Windermere brand into Southern California establishing a thriving business with franchises and offices stretching from San Diego to the Coachella Valley.

 

            2. What was once a viable real estate system offered by WSC to its Southern California franchisees has become antiquated and irrelevant. WSC' s real estate technology and related services have become outdated, unstable, and no longer a real option for its franchisees in the Southern California region.

 

            3. WSC has also failed to provide local and regional marketing and advertising support crucial to the success of any franchise system in a competitive marketplace. This lack of marketing and brand support was only exacerbated by the highly visible Windermere Watch marketing campaign undertaken by Gary Kruger - a self-proclaimed "public service consumer advocate" directing prospective real estate clients to avoid Windermere "at all costs."

 

            4. WSC's shortcomings forced Plaintiffs, through the substantial expenditure of both time and money, to develop much of the technology and others services needed for the Southern California region to succeed. As a direct result of Plaintiffs' efforts, the Southern California region has grown into one of WSC' s most successful regions, and Plaintiffs became the most successful Area Representative and franchisees in the Windermere system.

 

            5. By early 2014, there came a tipping point in the parties' relationship where WSC grew jealous of Plaintiffs' success and desired to take back Plaintiffs' rights as Area Representative - most notably, Plaintiffs' right to 50% of all initial franchise fees and monthly licensing fees paid by the franchisees in Southern California.

 

            6. In pursuing the Area Representative rights to the Southern California region, WSC has (i) committed numerous express breaches of the parties' franchise and area representation agreements, (ii) deprived Plaintiffs of the implied benefits of these agreements, and (iii) shown an utter disregard for California's franchise laws violating both the California Franchise Relations Act and the California Franchise Investment Law. This conduct by WSC has caused serious damage to Plaintiffs and their businesses.

 

            7. For these reasons, set forth in detail below, Plaintiffs now seek compensatory and statutory damages in an amount to be proven at trial, and a judicial determination and declaration that WSC did not have cause to terminate the Area Representation Agreement.

 

THE PARTIES

 

            8. Defendant Windermere Real Estate Services Company is a Washington corporation registered with the California Secretary of State to do business in California.

 

            9. Plaintiff Bennion & Deville Fine Homes, Inc. is a California Corporation with its principal place of business in Rancho Mirage, California.

 

            10. Plaintiff Bennion & Deville Fine Homes SoCal, Inc. is a California Corporation with its principal place of business in Rancho Mirage, California.

 

            11. Plaintiff Windermere Services Southern California, Inc. is a California Corporation with its principal place of business in Rancho Mirage, California.

 

JURISDICTION AND VENUE

 

            12. Plaintiffs have satisfied the amount in controversy requirement as the value of the requested relief exceeds the jurisdictional threshold of $75,000.

 

            13. This Court has jurisdiction over this action under diversity of citizenship jurisdiction, 28 U.S.C. § 1332. Plaintiffs are all California corporations and Defendant is a Washington corporation. Therefore, complete diversity exists.

 

            14. Venue is also proper in this district in that the Defendant is subject to personal jurisdiction in this District, a substantial part of the events occurred in this District, and all parties specifically agreed to the Western Division of the Central District of California pursuant to a forum selection clause contained within a contract that is in dispute in this action. (Ex. G [Modification Agreement], § 9.)

 

RELEVANT FACTUAL BACKGROUND

 

A. Background On The Windermere Franchise System And Bennion And Deville

 

            15. Defendant Windermere Real Estate Services Company ("WSC") is the franchisor of the Windermere system of franchisees providing real estate brokerage services to customers seeking to buy, sell or lease real property. The Windermere network of franchisees and company-owned locations is collectively considered the largest real estate company in the Pacific Northwest with locations in Washington, Oregon, British Columbia, Idaho, Montana, California, Nevada, Arizona and Colorado.

 

            16. The Plaintiffs are each owned and operated by Robert L. Bennion ("Bennion") and Joseph R. Deville ("Deville"). Bennion and Deville are both experienced real estate brokers working in the real estate industry since 1988 and 1971, respectively. Sometime in 1993, Bennion and Deville merged their brokerage firms and quickly became one of the leading real estate partnerships in Seattle, Washington and the surrounding area.

 

            17. Due to their success, Bennion and Deville decided to expand their real estate brokerage business to California. It was this move that spurred a series of contractual relationships between WSC and entities owned by Bennion and Deville that serve as the subject of this litigation.

 

            B. The Coachella Valley Franchise Agreement

 

            18. On August 1,2001, Bennion, Deville, and their company Plaintiff Bennion & Deville Fine Homes, Inc. ("B&D Fine Homes") entered into a "Windermere Real Estate License Agreement" with WSC (hereafter referred to as the "Coachella Valley Franchise Agreement"). A true and correct copy of the Coachella Valley Franchise Agreement is attached hereto as Exhibit A.

 

            19. Bennion, Deville, and B&D Fine Homes entered into the franchise relationship with WSC "to obtain and benefit from the right to use the [Windermere] Trademark and the Windermere System and the services to be provided by WSC under the terms set forth in this Agreement."¹ (Ex. A, Recital D.) As with any noteworthy franchise concept, the Windermere name and brand carried with it a certain recognition and goodwill that Plaintiffs (and any reasonable franchisee) expected to benefit from in the operation of their real estate business.

 

            20. Thus, in exchange for an initial fee of $15,000.00 and license fees in an amount equal to five percent of the gross revenues earned during the term of the agreement (see Ex. A, § 5), WSC agreed to provide Bennion, Deville, and B&D Fine Homes the following:

 

            a. A license to use the Windermere trademarks, service marks, logotypes (collectively, the "Trademark") and "Windermere System" in the conduct of real estate brokerage and sales activities at 850 N. Palm Canyon Drive, in Palm Springs, California (see Ex. A, § 2);²

 

            b. An undefined "variety of services" that are specifically "designed to complement the real estate brokerage business activities of [Bennion,

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¹ Item 13, page 21 of Windermere Franchise Disclosure Document states that: "WSC must protect your right to use the principal trademark identified above."

 

² The "Windermere System" is defined broadly by the Coachella Valley Franchise Agreement as "the standards, methods, procedures, techniques, specifications and programs developed by WSC for the establishment, operation and promotion of independently owned real estate brokerage offices." (See Ex. A, Recital A.)

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            Deville, and B&D Fine Homes] and to enhance [their] profitability" (see Ex. A, § 1); and

 

            c. To take action (legal or otherwise) "consistent with good business judgment to prevent infringement of the Trademark or unfair competition against [Bennion, Deville, and B&D Fine Homes]." (See Ex. A, § 4.)

 

            21. In addition to the initial fee and ongoing license fees identified above, Bennion, Deville, and B&D Fine Homes were also required to pay certain other fees to WSC outlined in the "Affiliate Fee Schedule" attached to the Coachella Valley Franchise Agreement. (See Ex. A, Affiliate Fee Schedule.) These fees included (i) a "Technology Fee" of "$1 0 per month per licensed agent and agent assistant," (ii) an "Administrative Fee" of "$25 per agent per month," and (iii) a "Windermere Foundation Fee" of"$7.50 per transaction side for each closed transaction." (Id.)

 

            22. The Coachella Valley Franchise Agreement provided that the parties' franchise relationships was for an indefinite term, terminable by either party subject to no less than six months written notice by the terminating party of its intent to terminate the agreement. (Ex. A, § 6.)

 

            23. Consistent with its rights and obligations under the Coachella Valley Franchise Agreement, B&D Fine Homes opened its first California Windermere franchised business in Palms Springs, CA.

 

            24. As explained below, over the course of the parties' fifteen year relationship, Bennion and Deville, with the approval of WSC, would ultimately become the Windermere Area Representative for Southern California and, through the substantial expenditure of time and money, would open a series of Windermere franchised businesses in their region, making Bennion and Deville the most successful Windermere franchisees and Area Representative in the Windermere system.

 

C. Bennion And Deville Become Windermere Area Representatives For The Southern California Region

 

            25. On or around May 1,2004, Bennion and Deville, on behalf of their newly formed entity Plaintiff Windermere Services Southern California, Inc. ("Services SoCal"), on the one hand, and WSC, on the other hand, entered into a document titled, "Windermere Real Estate Services Company Area Representation Agreement for the State of California" (the "Area Representation Agreement"). A true and correct copy of the Area Representation Agreement is attached hereto as Exhibit B.

 

            26. The Area Representation Agreement was the byproduct of WSC's desire to further expand its franchising operation into California by utilizing the experience, knowledge and success of Bennion and Deville to develop that "Region." (See Ex. B, Recital A, §§ l.5, 2.)

 

            27. As the "Area Representative," Services SoCal was tasked with two distinct roles. First, it was granted the "the non-exclusive right to offer Windermere licenses to real estate brokerage businesses to use the Trademark^[3] and the Windermere System^[4] in the Region." (Ex. B, § 2.) Second, Services SoCal was to provide certain "support and auxiliary services" to both incoming and existing Windermere franchisees in the Region. (See Ex. B, §3.)

 

            28. In exchange, Services SoCal was to share "equally" with WSC in "all initiation and licensing fees" for (i) the seven existing Windermere franchises in

 

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³ The term "Trademark" is defined by the Area Representation Agreement to mean various Windermere trade names, trademarks, service marks, and other symbols. (See Ex. B, § l.6.)

 

⁴ The term "Windermere System" is defined as "the standards, methods, procedures, techniques, specifications and programs developed by WSC for the establishment, operation and promotion of independently owned real estate brokerage offices [ ... expressly including] the Windermere foundation, Windermere Personal Marketing Programs, Premier Properties Program, Windermere Retirement Plan for Real Estate Salespersons and Windermere salesperson educational formats and outlines." (Ex. B, § l.7.)

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Southern California (see Ex. B, Exhibit A - emphasis added), and (ii) "all future Windermere offices" opened in Southern California. (See Ex. B, §§ 3, 10, Exhibit A, § 3.)

 

            29. Although Services SoCal was responsible for collecting the fees from the franchisees and remitting 50% to WSC, Services SoCal was not a guarantor of any of the fees. (See Ex. B, §§ 3, 11-13, Exhibit A, § 3 - "It is understood that collection of fees will be the responsibility of Area Representative, but Area Representative will not be responsible for payment of uncollectable fees.")

 

            30. In order for Services SoCal to be in a position to provide the Area Representative services set forth in the Area Representative Agreement, and thereby benefit financially from providing those services, WSC was required to comply with certain franchisor-specific obligations of its own. These obligations included, but were not limited to the following:

 

            a. Maintain and make available to franchisees and Services SoCal a viable "Windermere System" (Ex. B, § 1.7);

 

            b. "[P]rovide servicing support in connection with the marketing, promotion and administration of the Trademark and Windermere System" (Ex. B, § 3);

 

            c. "[P]romptly and diligently commence and pursue the preparation and filing of all Franchise registration statements, disclosure statements, or applications required under the laws of the state of California and/or the United States of America" (Ex. B, § 7);

 

            d. "[M]aintain the registration or disclosure documents and all necessary amendments, updates and/or applications for renewal" (Ex. B, § 7);

 

            e. "[B]e responsible for any registration filing fee and for all legal expenses incurred in the revision and registration of all required disclosure documents" (Ex. B, § 7);

 

            f. "[M]ake available to Area Representative its key people to the extent necessary to assist Area Representative in carrying out its obligations as set forth in this Agreement" (Ex. B, § 3); and

 

            g. Make available to Area Representative and franchisees an up-to-date and viable "technology system" including the website Windermere. com and Windermere Online Resource Center Intranet system - necessary for the operation of the franchised businesses. (Ex. B, § 13.)

 

            31. The Area Representation Agreement was for a perpetual term and could only be "terminated": (i) by mutual agreement of the parties, (ii) without cause "upon one hundred eighty (180) days written notice to the other party," or (iii) “for cause based upon a material breach of the Agreement and following "ninety (90) days written notice" to the breaching party and opportunity to cure. (Ex. B., § 4.1.) The parties further agreed to comply with the termination provision "in good faith" and "give the other [party] reasonable notice and opportunity to cure any real or perceived default or misperformance or malperformance on either party's part." (Id.)

 

            32. In the event the Area Representative Agreement is terminated without cause, the terminating party is required to make termination payments to the terminated party in an "amount equal to the fair market value of the Terminated Party's interest in the Agreement." (See Ex. B., § 4.2.) The "fair market value" is to be "determined by mutual agreement of the parties or, if unable to reach agreement, by each party selecting an appraiser and the two appraisers selecting a third appraiser." (See Ex. B, § 4.2.) No termination payment is required to be made if the Area Representation Agreement was terminated for cause.

 

            33. As discussed in detail below, WSC ultimately neglected and/or intentionally refused to comply with its obligations under the Area Representation Agreement, thereby damaging Services SoCal by preventing it from benefiting as the Area Representative for Southern California. Further, WSC's conduct constituted a constructive termination of the Area Representation Agreement, without cause, subjecting WSC to comply with the buyout provision of Section 4.2.

 

D. Bennion And Deville Significantly Expand Their Windermere Businesses

 

            34. As Area Representatives, Bennion and Deville, through their company Services SoCal, were now entitled to 50% of all initial franchise fees and monthly royalties owed to WSC under the Coachella Valley Franchise Agreement and any other franchise agreement facilitated by Services SoCal in Southern California. This 50% reduction in all initial franchise fees and monthly royalties created a symbiotic relationship between the Area Representative business and any Windermere franchise business owned by Bennion and Deville. This underlying economic benefit to Bennion and Deville from serving as both the Area Representative and franchisee was a significant material consideration of Bennion and Deville when they agreed to (and did) aggressively expand their Windermere franchise operations in Southern California.

 

            35. Beginning in early 2004, Bennion and Deville, with the approval of WSC, began developing new Windermere franchises throughout Southern California. This included more than thirteen franchised businesses located in various Southern California cities including, but not limited to, Desert Hot Springs, Rancho Mirage, La Quinta, Indian Wells, Palm Springs, Palm Desert, Indio, and Cathedral City, among others. Instead of entering into new franchise agreements for each new location, the parties memorialized the new franchise businesses in addenda to the Coachella Valley Franchise Agreement.

 

            36. Without the 50% reduction in initial franchise fees and monthly licensing fees provided by the Area Representation Agreement, Bennion and Deville would not have engaged in this subsequent mass expansion of the Windermere brand in Southern California.

 

E. Services SoCal Becomes A Party To The Coachella Valley Franchise Agreement

 

            37. On August 10, 2007, the parties formalized the symbiotic relationship between the Coachella Valley Franchise Agreement and the Area Representation Agreement by amending the Coachella Valley Franchise Agreement to add Services SoCal as a party to that agreement and all subsequent addenda thereto. A true and accurate copy of the August 10, 2007 amendment is attached hereto as Exhibit C.

 

            38. From this point forward, Service SoCal was included as a party to every Windermere franchise agreement facilitated by Bennion and Deville, including those agreements involving third-party franchisees. As a party to these agreements, Services SoCal was (and continues to be) entitled to 50% of all franchise fees paid by the franchisees - irrespective of the subsequent termination of the Area Representative Agreement.

 

F. Bennion and Deville Enter Into New Windermere License Agreement

 

            39. By 2011, Bennion and Deville had become the most successful franchisee and Area Representative in the entire Windermere system. In order to continue capitalizing on this success, on March 29,2011, WSC entered into a new franchise agreement, titled "Windermere Real Estate Franchise License Agreement" (the "SoCal Franchise Agreement"), with Services SoCal and Bennion and Deville's newly formed entity Plaintiff Bennion & Deville Fine Homes SoCal, Inc. ("B&D SoCal"). The SoCal Franchise Agreement allowed B&D SoCal to open new franchise locations in La Mesa, Laguna Niguel, Carmel Valley, and Solana Beach. A true and correct copy of the SoCal Franchise Agreement is attached hereto as Exhibit D.

 

            40. Pursuant to the SoCal Franchise Agreement, B&D SoCal agreed to pay to WSC and Services SoCal: (i) a monthly "Ongoing License Fee," (ii) a "Technology Fee" of "$25 per month per licensed agent and agent assistant for basic service," and (iii) a "Windermere Foundation Suggested Donation" of "$1 0.00 per transaction side for each closed transaction.t"⁵ (Ex. D, § 7, Appendix l.) As reflected above, Services SoCal was entitled to 50% of the ongoing license fees, thereby effectively reducing by half the amount owed by Bennion and Deville to WSC. This, of course, was an integral part of Bennion and Deville's decision to enter into the SoCal Franchise Agreement. (See Ex. D, Recital C.)

 

            41. In exchange for these fees, WSC agreed to provide B&D SoCal with the following:

 

            a. A license to use the Windermere Trademark and Windermere System in the conduct of real estate brokerage services (Ex. D, §§ 1, 2);

 

            b. "[G]uidance" in operating the franchised businesses, "furnished in the form of written materials distributed physically or electronically, including through the Windermere Online Resource Center (WOC) intranet website, consultations by telephone or in person, or by other means of communication" (Ex. D, § 3); and

 

            c. To take action, "in its discretion and consistent with good business judgment to prevent infringement of the Trademark or unfair competition against Windermere licensees." (Ex. D, § 6(e).)

 

            42. Similar to that of the Coachella Valley Franchise Agreement, the SoCal Franchise Agreement provided that it could be terminated by either party upon no less than 180 days' notice of intent to terminate. (Ex. D, § 8.)

 

            43. Also like that of the Coachella Valley Franchise Agreement, Bennion and Deville acquired numerous subsequent franchised businesses under the SoCal Franchise Agreement. These subsequent acquisitions too were memorialized by addendums to the SoCal Franchise Agreement.

 

            44. Bennion and Deville's aggressive pursuit of new Windermere franchise locations in San Diego County was actively encouraged by WSC, and resulted in

 

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⁵ The Windermere Foundation was purportedly a not-for-profit organization managed by WSC.

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investments by Bennion and Deville of more $4,000,000 into the San Diego businesses alone.

 

G. The Windermere Brand Is Severely Damaged In Southern California By Windermere Watch

 

            45. Upon information and belief, in or around 2005, Gary Kruger, a disgruntled former Seattle Windermere client, and his associates initiated an anti-marketing campaign under the name "Windermere Watch," which was specifically designed to direct defamatory statements, materials, and focused conduct against Windermere, and its franchisees and real estate agents. Plaintiffs had no prior personal history or relationship with Kruger.

 

            46. On March 9, 2006, Windermere Watch created its first known anti-Windermere website at www.windermerewatch.com. The website has been (and continues to be) used by Kruger as a tool to generate and/or spread negative and derogatory articles and comments concerning Windermere's purported business practices, litigation, owners, executives, brokers, agents, and general participation in the real estate market. A true and accurate copy of a portion of a printout from www.windermerewatch.comis attached hereto as Exhibit E.

 

            47. On the website, Kruger identifies himself as "[a] public service consumer advocate reporting clear, compelling evidence of America's most dangerous and unethical corporate predator, Windermere Real Estate." He claims that, "[w]hen your home is listed for sale by Windermere, the resulting commission will fund Windermere's predatory legal strategies[ ... ]," and encourages each consumer to "[p]rotect your life, home, family and future by cancelling or not renewing your Windermere listing. Don't risk doing business with Windermere Real Estate, the brand built on lies, fraud and ruined lives." (See www.windermerewatch.com.)

 

            48. Windermerewatch.com is utilized and designed by Kruger to maximize its search engine presence. As a result, when internet users search for Windermere on Google and other internet search engines, windermerewatch.com has appeared as one of the top search results - often ahead of Windermere's own website. The obvious (if not express) intent of Kruger is to use windermerewatch.com to turn potential clients, agents, and franchisees away from Windermere. In Kruger's own words, "WindermereWatch.com is an indispensable internet news and opinion resource that provides hard evidence why consumers, agents and prospective realty franchisees should avoid Windermere Real Estate at all costs." (See www.windermerewatch2.com.)

 

            49. On August 8, 2010, Kruger created a second anti-Windermere website at www.windermerewatch2.com. This second website does more of the same, referring to Windermere as "the most poorly managed, unethical and predatory real estate company in America - thoroughly dishonest and incompetent." (See www.windermerewatch2.com.)

 

            50. In the real estate industry, it is common for potential clients to select their real estate broker and/or agent based upon information that is made available on the internet. The prominent placement of Windermere Watch - and its negative marketing campaign - which is palpably prominent in internet search results often diverted potential clients away from Windermere's brokers and agents. The loss of actual and potential clients as a result of Windermere Watch's negative marketing campaign ultimately forced many agents to disassociate themselves from Windermere.

 

            5l. In addition to the websites' strong anti-Windermere rhetoric, Kruger also regularly sent out mass mailings of postcards and other materials containing anti-Windermere propaganda to residents and potential clients in areas where new Windermere franchise locations were scheduled to open. Examples of Kruger's anti-Windermere mass mailings to clients and prospective clients of Windermere franchisees in Southern California are reflected in Exhibit F, hereto.

 

            52. Although WSC was legally obligated under the terms of the Coachella Valley Franchise Agreement, the SoCal Franchise Agreement, and the Area Representative Agreement to take action to protect the Windermere System, trademark, and brand, and to prevent unfair competition against its franchisees and their businesses, WSC did virtually nothing to combat Windermere Watch's anti-Windermere marketing campaign in Southern California. (See Ex. A, § 4, Ex. B, § 3, Ex. D, § 6(e).)

 

            53. The Windermere Watch anti-marketing campaign has had a significant and monetarily damaging effect on Bennion and Deville's businesses. As Bennion and Deville expanded the Windermere brand in Southern California, they had to push against the headwind that was (and continues to be) Windermere Watch with little or no assistance from WSC.

 

            54. By 2012, the growing Windermere Watch anti-marketing campaign and internet presence - coupled with WSC' s failure to make any serious effort to combat the anti-marketing campaign in Southern California - nearly forced Bennion and Deville to leave the Windermere System. Not only were Plaintiffs prevented from receiving any positive benefits from the use of the Windermere name and mark, but they also sustained damage to their businesses, personal reputations and goodwill as a result of the negative connotation now associated with the Windermere name and mark.

 

H. The Parties Amend The Terms Of The Franchise Agreements To Account For The Damage Caused By Windermere Watch

 

            55. In late 2012, and in an effort to entice Bennion and Deville to remain in the Windermere System, WSC offered to amend both the Coachella Valley Franchise Agreement and the SoCal Franchise Agreement in favor of Bennion and Deville. The amendments promised would (i) require WSC to make "commercially reasonable efforts" against Windermere Watch and its anti-marketing campaign, and (ii) alleviate some of the financial burden that Windermere Watch had caused Bennion and Deville.

 

            56. Consistent with these promises, on December 18, 2012, WSC, Services SoCal, B&D Fine Homes, and B&D SoCal amended the Coachella Valley Franchise Agreement and the SoCal Franchise Agreement by collectively entering into a document titled "Agreement Modifying Windermere Real Estate Franchise License Agreement" ("Modification Agreement"). A true and accurate copy of the Franchise Amendment is attached hereto as Exhibit G.

 

            57. The Modification Agreement amended the parties obligations under the Coachella Valley Franchise Agreement and the SoCal Franchise Agreement as follows:

 

            a. WSC was now obligated to "make commercially reasonable efforts to actively pursue counter-marketing, and other methods seeking to curtail the anti-marketing activities undertaken by Gary Kruger, his Associates, Windermere Watch and/or the agents of the foregoing persons." This included WSC express obligation to "curtail the impact of the activities of Kruger and/or windermerewatch" (Ex. G, § 3(A));

 

            b. WSC waived and forgave $1,151,060 in past due franchise fees and technology fees owed to it by B&D Fine Homes and B&D SoCal under the franchise agreements (Ex. G, § 3(B));

 

            c. The franchise fees owed by B&D Fine Homes and B&D SoCal were reduced for the preceding eight month period. This included a 90% reduction in fees for the months of April and May 2012, a 75% reduction for the months of June and July 2012, a 50% reduction for the months of August and September 2012, and a 25% reduction for the months of October and November 2012 (Ex. G, § 3(C));

 

            d. The technology fees owed by B&D Fine Homes and B&D SoCal were capped at no more than $25,000 per month and $25 per agent (Ex. G, § 3(D)); and

 

            e. Bennion and Deville were released from any personal liability under the personal guarantees they provided WSC for all amounts incurred and owed by B&D Fine Homes and B&D SoCal prior to April 1, 2012.⁶ (Ex. G, § 3(G).)

 

            58. In addition to the above amendments to the parties' franchise relationships, the Modification Agreement also extended the length of each franchise agreement to five years, commencing on December 18,2012. (Ex. G, § 3(E).) The five-year period would, however, "automatically expire in the event [ ... ] it is adjudicated that WSC has

 

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⁶ Bennion and Deville had executed personal guaranties in connection with their ownership and operation of their Windermere franchised businesses.

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committed a material, uncured breach of [its amended obligations under the franchise agreements]." (Id.) Section 3(F) of the Modification Agreement also contains a liquidated damages provision in the event that the franchise agreements are terminated early, without cause.

 

            59. As explained below, despite its heightened obligations identified in the Modification Agreement, and repeated requests by Plaintiffs that it take action consistent with those obligations, WSC has failed to make any material effort to combat Windermere Watch. WSC's failure to take action has resulted in significant harm to Plaintiffs and constitutes breaches of the amended terms of both the Coachella Valley Franchise Agreement and the SoCal Franchise Agreement.

 

I. WSC Continued To Ignore Its Obligations To Take Action Against Windermere Watch

 

            60. Notwithstanding the enhanced obligations which the Modification Agreement imposed upon WSC - e.g., to take action against Windermere Watch - WSC continued to ignore Windermere Watch's impact in Southern California and failed to take any action whatsoever to counteract its negative marketing campaign.

 

            61. On February 11, 2013, just weeks after entering into the Modification Agreement, Bennion and Deville and their legal counsel participated in a conference call with representatives of WSC to discuss the efforts that WSC planned to undertake to combat Windermere Watch's anti-marketing campaign. This was the last (and only time) WSC showed any interest in actively combating Windermere Watch in Southern California as required by the Modification Agreement.

 

            62. By the end of March 2013, WSC still had not taken any action on the Windermere Watch front. On March 29, 2013, Bennion and Deville sent a series of emails to WSC' s General Counsel, Paul Drayna, requesting an update on WSC' s efforts to combat Windermere Watch. In the email, Bennion and Deville also informed Drayna that (i) Windermere Watch propaganda had recently been circulated among several of Plaintiffs' clients, costing Plaintiffs' multiple real estate listings, (ii) insurance carrier Lloyd's of London had recently refused to insure a franchisee in Plaintiffs' region after discovering the Windermere Watch websites on the internet, and (iii) customers had voiced concerns that Windermere - along with Plaintiffs' businesses - would be going out of business after viewing the postings on the Windermere Watch websites. No one at WSC ever responded to Bennion and Deville's March 29th email.

 

            63. After another month of continued silence from WSC, on April 20, 2013, Deville send [sic] another email - this time to Drayna and WSC' s President, Geoff Wood - informing them that Windermere Watch was continuing to pose significant problems for the Windermere businesses in Southern California. In the email, Deville explained that he and one of his real estate agents had recently been at a listing presentation for property in excess of $5,000,000. During the presentation, the seller of the property "Googled" the names of Bennion and Deville only to be directed to the Windermere Watch websites. Not only did Bennion and Deville not get the property listing, but Deville also expressed a likelihood that they were going to lose the agent to a competitor. At the conclusion of the email, Deville asked Drayna and Wood to "[p]lease advise [what] has been done since our phone discussion months ago about [Windermere Watch] and what [are] the plans to make this go away." Incredibly, Drayna, Wood, and everyone else at WSC again ignored Deville's email, and WSC still failed to take any action against Windermere Watch.

 

            64. By June 2013, Windermere Watch had severely impacted Plaintiffs' ability to function in Southern California. They were losing listings, clients, and agents on a regular basis. Windermere Watch continued not only posting anti-Windermere content on its websites, but also flooded the markets of new Windermere franchise locations with the anti-Windermere postcards and other mailings. (See Ex. F.)

 

            65. On June 12, 2013, both Bennion and Deville voiced their frustration in emails to Drayna concerning WSC's failure to act. First, Deville wrote: "[p]lease let me know what is being done about [Windermere Watch]. It has now been months since we have discussed this problem and it is still affecting our business both in [Southern California] as well as Seattle." Deville also informed Drayna that Windermere Watch continued to be used against them by competitor real estate companies vying for both real estate listings and agents, and that Services SoCal had recently lost a prospective franchisee to a competitor after the prospect learned about Windermere Watch's antimarketing propaganda.

 

            66. Bennion followed Deville's email with one of his own, telling Drayna that they "really need[ed] an update" on Windermere Watch, and that Bennion had "sent several emails in the past with no response" from WSC, which he described as "disheartening." Again, Bennion and Deville's pleas for support regarding Windermere Watch were ignored by WSC.

 

            67. By July 2013, Plaintiffs' competitors in Southern California were using elaborate PowerPoint presentations - based entirely upon information the competitors obtained from the Windermere Watch websites and mailings - with both clients and agents painting Windermere as an untrustworthy real estate firm. This too was brought to Drayna and Wood's attention in emails dated July 4, 2013 and July 8, 2013. For instance, in the July 8, 2013 email, Deville again wrote to Drayna and Wood, "are we anywhere near developing a plan [to] address the [Windermere Watch] issue?"

 

            68. By the middle of summer 2013, WSC's failure to take any action to combat the anti-marketing campaign of Windermere Watch had metastasized to other areas of Bennion and Deville's businesses, including Windermere Watch's direct campaign against Bennion and Deville personally. At this point and time, the positive goodwill that Plaintiffs sought by joining the Windermere system no longer existed, and instead, Plaintiffs were harmed by continuing to use such marks.

 

            69. More than seven months after WSC signed the Modification Agreement, it still had not taken any effort to counteract the damage that Windermere Watch was causing in Southern California. Helpless, and expressing his clear frustration over WSC' s inaction, on July 24, 2013, Deville sent another email to Drayna questioning whether "anyone on your end [was] doing anything to make this go away?" Again, Deville's pleas for assistance went unanswered.

 

            70. The following week, on July 31, 2013, Deville sent another email to Drayna and Wood with a detailed report summarizing the recent events involving Windermere Watch. A true and accurate copy of this July 31, 2013 email is attached hereto as Exhibit H. Deville started the email by informing Drayna and Wood that:

 

[Plaintiffs] continue to get bombarded with the same negative campaign against Windermere in the Desert, the Coast and in our San Diego market. Addressing these issues needs to be made a priority. There has been nothing forthcoming from [WSC] on this matter and I respectfully mention again we feel this is a responsibility of the Franchisor to protect its brand and the brand we are selling.

(Id.)

 

            71. Deville continued by identifying specific instances in which several franchisees in the Southern California region were prevented from hiring new agents because of Windermere Watch. Also, he noted that the Windermere Watch "postcard campaign" continued to be used by competitors vying for the same real estate listings. (Ex. H.) Again, no response was forthcoming.

 

            72. Deville followed his unanswered July 31, 2013 email to Drayna with an August 10, 2013 email, asking "again for an update and what approach [WSC] is taking on this." Deville also demanded that Drayna forward him "any information that [Drayna] may have on responding and addressing this matter."

 

            73. WSC's failure to take action left Bennion and Deville with no choice but to take the matter into their own hands. In late summer 2013, Bennion and Deville hired three internet programmers and devoted their employment full-time to increasing Windermere's internet search engine rankings in an attempt to bury Windermere Watch's online presence. Of course, this did nothing to offset Windermere Watch's continued use of postcards and other print materials to mail to Windermere agents and clients.

 

            74. On August 24,2013, Deville sent another pointed email to Drayna and Wood. This time, Deville wrote: "I had sent numerous emails to both of you regarding [Windermere Watch], our challenges and the effect it is having on us in Southern California with both my company as well as our [Windermere] Southern California [franchisees]. To date I have received no response other than one email some time back [indicating] that we need to get together again and see what we are going to do about them." However, Deville concluded, "I have seen nothing from [WSC] to make that happen."

 

            75. Drayna and Wood remained silent on the Windermere Watch matter until Robert Sunderland, counsel for Bennion and Deville, sent an email to Drayna on August 26, 2013, addressing the Windermere Watch situation in Southern California and making clear that the Southern California businesses sought "a definite response in terms of what is being done" about Windermere Watch. The next day, on August 27, 2013, Drayna contacted Deville and asked to set up a meeting to discuss the matter by phone. Deville responded expressing a strong interest to "finally learn what [WSC] is doing about [Windermere Watch]," and asked that in advance of their call that Drayna email the "plan." True of form, no written plan was ever provided.

 

            76. On information and belief, instead of providing Plaintiffs with a cohesive written plan of their intended counter-marketing efforts against Windermere Watch, in September 2013, WSC sent its Senior Vice President of Client Services (also a licensed attorney), Michael Teather, to meet with Kruger to negotiate an end to Windermere Watch. As predicted by Bennion and Deville before the meeting, Teather's efforts only brought about more incendiary posts on Windermere Watch and more negative attention to Windermere.

 

            77. By October 2013, Bennion and Deville had devoted a minimum of five employees full-time to offsetting Windermere Watch's negative marketing campaign. Through this significant expenditure of time, money, and effort, Bennion and Deville were able to temporarily forestall the negative effects of the Windermere Watch websites. Unfortunately, Bennion and Deville's efforts were too little too late. By the end of 20l3, virtually all of Windermere's competitors had incorporated information from Windermere Watch into their sales pitches to both agents and clients. Moreover, the continued mailings of Kruger coupled with the continued existence of Windermere Watch were now permanent impediments into the operations of all Windermere businesses in Southern California. These ongoing concerns continued to be relayed to WSC to no avail.

 

            78. After a year of essentially ignoring Bennion and Deville's pleas for assistance, on January 10, 2014, Bennion and Deville sent a formal demand letter to WSC to provide "immediate assistance addressing the ongoing challenges of the Windermere Watch." A true and accurate copy of the January 10, 2014 letter is attached hereto as Exhibit R. This demand letter sets forth detail involving the recruitment and staffing challenges and marketplace impact caused by Windermere Watch, together with the identification of costs incurred by Plaintiffs in attempting to offset Windermere Watch's negative and defamatory campaign.

 

            79. In response to Bennion and Deville's formal demand letter, on January 16, 2014, Wood sent an email to Deville which made clear that, notwithstanding its contractual obligations to the contrary, WSC would not be taking any action against Kruger or Windermere Watch. A true and accurate copy of Wood's January 16, 2014 email is attached hereto as Exhibit 1. While the January 16, 2014 letter marked a concession by WSC that it had breached the franchise agreements as amended, it did not mark the end of the damage that Plaintiffs and their business would incur as a result of WSC's failure to take immediate action to curtain Windermere Watch.

 

            80. WSC's failure to take any meaningful action against Windermere Watch's anti-marketing campaign in Southern California constitutes a clear breach of both the Coachella Valley Franchise Agreement and the SoCal Franchise Agreement, as amended by the Modification Agreement.

 

            81. Further, WSC' s inaction with respect to Windermere Watch also breached the Area Representation Agreement to the extent that WSC was contractually obligated to provide Southern California franchisees a viable "Windermere System" (Ex. B, § 1.7), and "support in connection with the marketing, promotion and administration of the Trademark and Windermere System." (Ex. B, § 3.)

 

            82. Each Plaintiff has been severely damaged by WSC's inaction with respect to Windermere Watch in an amount unknown at this time. Additionally, WSC's failure to act forced Plaintiffs to incur significant time and expense employing their own countermarketing campaign. In doing so, Plaintiffs have incurred in excess of $125,000 in additional expenses attempting to mitigate the negative impact of Windermere Watch.

 

J. WSC Disregarded State And Federal Franchise Registration And Disclosure Laws Subjecting Bennion And Deville To Civil And Criminal Liability

 

            83. WSC' s overt failure to provide the required support in combatting Windermere Watch was not its only material breach of the Area Representation Agreement. Instead, and unknown to Bennion and Deville at the time, WSC showed a complete disregard for California's franchise registration and disclosures laws, thereby breaching its obligations to Services SoCal under the Area Representation Agreement.

 

            84. In California, the offer and sale of franchises is heavily regulated by both state and federal law. Under the Federal Trade Commission's ("FTC") Amended Franchise Rule, located at title 16, part 436 of the Code of Federal Regulations, a franchisor is required to disclose to prospective franchisees a franchise disclosure document ("FDD") that contains a copy of the form franchise agreement and twenty-three specific "Items" about the franchised business, including specific information about the franchisor's executives and managers, its relevant litigation history, the expected business of the franchisee, the costs and fees associated with the franchised business, the financial wellbeing of the franchisor, and the conditions in which the franchise can be terminated or renewed, among other things. 16 CFR 436.

 

            85. The California Franchise Investment Law ("CFIL") builds upon the FTC's Amended Franchise Rule and serves as the primary vehicle for regulating the registration, offer, and sale of franchises in California. Under the CFIL, a franchisor must register a franchise application - including its current FDD - with the California Department of Business Oversight ("DBO") before a franchise can be offered or sold within the state.⁷ Cal. Corp. Code §§ 31110, 31119. A franchisor's California registration must be renewed every year. Cal. Corp. Code § 31120.

 

            86. Once the franchise application is properly registered with - and approved by - the DBO, the FDD, together with copies of all proposed agreements and other exhibits, must be provided to any prospective franchisee at least 14 days before the earlier of the day the franchisee executes the franchise agreement or pays the franchisor any consideration for the franchised business. Cal. Corp. Code § 3lll9(a).

 

            87. These statutory registration and disclosure obligations are intended to assure that prospective franchisees have the information necessary to make an intelligent decision concerning the franchise offered, to prohibit the sale of franchises that would lead to fraud or a likelihood that the franchisor's promises would not be fulfilled, and to protect both the franchisor and franchisee by clarifying the parties' business relationship. Failure to comply with these obligations can (and will) subject the franchisor, its principal executive officers and directors, and the sales agents to both civil and criminal liability. Cal. Corp. Code §§ 31302, 31404, 31410, 3l4ll.

 

            88. WSC has historically offered materially different contract terms to its Northern California prospective franchisees from the terms that it offered to its Southern California prospective franchisees.⁸ These divergent terms required WSC to file two different FDDs with the DBO - one for Northern California and the other for Southern California. In order to quickly and easily identify one California FDD from the other, the bottom of every page of the FDD was identified either "Northern California" or

 

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⁷ There are certain exemptions from California's registration obligations, but none of those apply to the facts of this case. See, e.g., Cal. Corp. Code §§ 31101, 31106, 31108, 31109; 10 Cal. Code Regs. § 310.100.2.

⁸ Most notably, the initial franchise fees and ongoing monthly fees offered to the Southern California prospective franchisees were significantly lower than those offered to the prospects in Northern California.

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"Southern California." See, e.g., Windermere's April 18, 2013 FDD for Northern California, attached hereto as Exhibit J.

 

            89. WSC' s California franchise registrations expire every year on April 20th. See 10 Cal. Code Regs. § 310.120. To avoid a lapse in registration - and thus, a hiatus on offering franchises in California - WSC was required to file both a Northern California and a Southern California renewal franchise application with the DBO at least 15 business days before the registrations expired - i.e. sometime in late March.

 

            90. In 2013, WSC filed a franchise registration renewal for Northern California on April 19, 2013, but for unknown reasons, delayed in filing its Southern California franchise registration until June 17, 2013. A true and accurate copy of a printout of the DBO's online Securities & Franchise Filings portal reflecting WSC's historical franchise filings in California is attached hereto as Exhibit K.

 

            91. Because of WSC's late Southern California franchise registration filing, it was statutorily prohibited from offering or selling franchises in Southern California from April 21, 2013 to July 5, 2013, when the DBO approved of WSC's June 17, 2013 Southern California franchise filing. A true and accurate copy of the DBO's approval notice is attached hereto as Exhibit L. Any offer or sale of a franchise during this "dark" period would result in a violation of the CFIL.

 

            92. As reflected below, representatives of WSC - most notably, WSC's General Counsel Drayna - attempted to cover up WSC's failure to maintain the registration of the 2013 Southern California FDD in breach of the Area Representation Agreement by instructing Plaintiffs to offer prospective franchisees the wrong FDD. This blatant violation of the CFIL was not apparent to Plaintiffs who are not attorneys and relied entirely upon Drayna for support and guidance with respect to any legal issues involving the Windermere FDD.

 

            93. In early June 2013, Deville met with a prospective franchisee for the Southern California region and requested a copy of the current, registered FDD from WSC. Instead of advising Deville that the Southern California FDD had not yet been registered, and that under these conditions the offer of a franchise could expose Deville personally to both civil and criminal liability, Drayna sent an email to Deville on June 12, 2013, instructing him to provide the prospect with the Northern California FDD containing a franchise agreement with significantly different terms - and that they could simply "swap out" the signed franchise agreement with the Southern California franchise agreement at a future time. A true and accurate copy of Drayna's June 12, 2013 email is attached hereto as Exhibit M. Drayna directed Deville to engage in conduct that Drayna knew would violate the CFIL in an effort to avoid admitting that he had failed to timely register the Southern California FDD. Unbeknownst to Plaintiffs, and adhering to Drayna's legal advice and direction, Plaintiffs provided the prospective franchisee with the Northern California FDD.

 

            94. Drayna's deceitful legal instruction concerning the disclosure to prospective franchisees did not end there. Two days later, on June14, 2013, Drayna sent another email to Plaintiffs stating that:

 

Your [Southern California FDD] renewal packet is going out today to the State of California for filing. We typically receive approval within two weeks. As soon as it is approved I will let you know, and upload it to [Windermere's intranet]. In the meantime you can use the Northern California filing, which is already approved for this year, and which I sent to [Deville] earlier this week. We can use that one to sign up the new San Diego office as a temporary solution until the SoCal version is ready. Be sure to have them sign the Item 23 receipt (crossing off [the Northern California Area Representative's] name and writing in [Deville's]).

 

A true and accurate copy of Drayna's June 14, 2013 email is attached hereto as Exhibit N.

 

            95. As reflected in his email, Drayna conceded that the Southern California FDD registration packet had not yet been approved (or even received) by the DBO. Nonetheless, he continues to hide WSC's breach of its obligation to maintain registration of the Southern California FDD by instructing Plaintiffs to provide prospective franchisees in San Diego the Northern California FDD.

 

            96. Drayna was not the only representative of WSC directing Plaintiffs to unknowingly violate the franchise laws. As is reflected in an email dated June 21, 2013, Drayna included WSC's President, Geoff Wood, in an email instructing Plaintiffs that the Southern California FDD was mailed to the State of California "last week," and [i]n the mean time (sic) you may proceed with the Northern California [FDD] as we discussed." A true and accurate copy of Drayna's June 21, 2013 email is attached hereto as Exhibit O. Wood - the President of a large national-wide franchisor - did nothing to correct the misleading direction of Drayna or stop Plaintiffs' from offering the Northern California FDD to Southern California prospects in violation of the CFIL.

 

            97. Incredibly, on July 3, 2013, and still without approval of the Southern California FDD from the DBO, Drayna continued to instruct Services SoCal to have franchisees sign the Northern California franchise agreement as a "stop gap" while they are "waiting on approval on the SoCal UFDD," and until they can "get the real agreement in place." A true and correct copy of Drayna's July 3, 2013 email is attached hereto as Exhibit P.

 

            98. The communications reveal that Drayna clearly knew that the terms of the franchise agreement in the Northern California FDD were materially different than those in the Southern California FDD, but still instructed Services SoCal to have the Southern California franchisees sign the Northern California franchise agreement "as is, even though it doesn't yet reflect the terms [Services SoCal has] discussed with them. Those terms will be shown in the new [Southern California FDD], and in the real license agreement they will sign ASAP." (See Ex. P.)

 

            99. As reflected above, the DBO did not approve of WSC's Southern California FDD until July 5, 2013 (see Ex. L), and this approval notice was not received by WSC until July 12, 2013. A true and accurate copy of the July 12, 2013 email from Drayna identifying receipt of the DBO's letter "today" is attached as Exhibit Q.

 

            100. Drayna's advice and counsel is a clear contradiction of the law and could have subjected Services SoCal and it owners, Bennion and Deville, to civil and criminal liability under the CFIL. Moreover, WSC's failure to timely register the 2013 Southern California FDD, and Drayna's subsequent intentional and malicious misrepresentations to Plaintiffs concerning the substituted use of the Northern California FDD constitute multiple breaches of the Area Representation Agreement.

 

            10l. Most notably, WSC breached the Area Representation Agreement for failing to:

 

            a. "promptly and diligently commence and pursue the preparation and filing" of the Southern California FDD with the DBO breached Section 1.7 of the Area Representation Agreement;

 

            b. "maintain the registration" of the Southern California FDD breached Section 7 of the Area Representation Agreement; and

 

            c. provide competent "key people to the extent necessary to assist Area Representative in carrying out its obligations as set forth in this Agreement" violated Section 3 of the Area Representation Agreement.

 

            102. Ultimately, WSC's failure to properly and timely renew its California franchise registration and provide competent assistance to Plaintiffs in lawfully navigating that nonrenewal, not only negatively impacted Service's SoCal's ability to offer new franchises under the Area Representation Agreement, but, more importantly, exposed Services SoCal and its owners to civil and criminal personal liability. The action or inaction by WSC constitutes material breaches of the Area Representation Agreement.

 

            103. Further, as discussed in detail below, WSC did not renew its Southern California FDD for the 2014 year in violation of Sections 1.7 and 7 of the Area Representative Agreement. Moreover, on July 11, 2014, July 30, 2014, and December 2, 2014, WSC offered new franchises to existing franchisees in the region. While neither Bennion nor Deville were involved in the solicitation, negotiation, or sale of these new franchises, Drayna still directed Deville to sign each of the agreements on behalf of Services SoCal. Again, these offers and sales constitute the unlawful sale of an unregistered franchise under the CFIL. Drayna's continued efforts to cover up WSC's failure to register the Southern California FDD in 2014 represents separate breaches of the Area Representative Agreement.

 

K. WSC Implements A Strategy To Take Back The Southern California Region From Bennion And Deville

 

            104. Notwithstanding the affirmative damage caused to Plaintiffs and their businesses by Windermere Watch and WSC' s failure to timely renew the 2013 Southern California FDD, Bennion and Deville, through significant financial investment into the region along with the devotion of countless hours cultivating relationships with franchisees, agents and clients, improving Windermere brand recognition and goodwill, and developing a tried and tested regional business model and technology services that the franchisees utilized in the opening and operation of dozens of Windermere franchise locations, were able to ameliorate these problems and maintain the Southern California region as an overall success.

 

            105. Upon information and belief, by early 2014, WSC had decided to remove Bennion and Deville as the Area Representative from the Southern California region in order to claim all of the benefits - most notably, all franchise fees and royalties - for itself.

 

            106. In spring 2014, Teather traveled to Southern California to meet with Deville about the region and to discuss WSC's new strategy intended to "bring on" as many franchisees as possible, and if/when they failed, resell the territory to a new franchisee.⁹ Deville expressed his disgust with Teather's proposed strategy and made clear that this was not the strategy of the Windermere that he and Bennion had joined over a decade earlier.

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⁹ In the franchise world, this is referred to as the "churn and burn" franchising model.

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            107. After discussions involving WSC's new franchising model were met with distaste by Deville, Teather announced WSC's interest in reacquiring the Area Representative responsibilities from Bennion and Deville. After a brief dialogue in which Deville refused to hand over the Area Representative rights without just compensation, the discussion on this topic also quickly ended.

 

            108. It is believed to be around this time when WSC decided to terminate the Area Representation Agreement, and with it, Bennion and Deville's rights to serve as Area Representative for Southern California. However, before WSC could end the Area Representative relationship with Bennion and Deville, it knew that it had to first inject its own personnel into the region, develop a better relationship with the existing franchise base, learn and acquire the regional business model and technology services developed and utilized by Bennion and Deville in the region, and thwart Bennion and Deville's ability to continue bringing on new franchisees while the rest of these efforts were being pursued. WSC also knew that dislodging Bennion and Deville as the Area Representative for Southern California without first accomplishing these objectives was likely to result in upsetting the existing franchise base followed by a potential mass exodus from the Windermere system.

 

            109. In order to effectively push Bennion and Deville out of the Windermere system with little disruption to the Southern California region, WSC implemented a plan that allowed it to (i) stop Bennion and Deville from bringing on new "friendly" franchisees, (ii) surreptitiously acquire Bennion and Deville's technology and system offered to the Southern California franchisees, and (iii) install new franchisees and develop relationships with existing franchisees in the region without the involvement of Bennion and Deville.

 

            110. As discussed below, WSC's execution of its plan throughout the 2014 year ultimately culminated in its delivery of a notice of termination of the Area Representation Agreement to Bennion on January 28,2015. However, the notice of termination is rendered moot in light of WSC's conduct leading up to the January 28, 2015 date which resulted in a constructive termination of the Area Representation Agreement, without proper notice or just cause.

 

                        (i) WSC surreptitiously elected not to register a Southern California FDD for 2014 year, thus, precluding Bennion and Deville from bringing on new franchisees

 

            111. Every year from 2003 to 2013, WSC dutifully - even if untimely - registered or renewed its franchise application for the Southern California region. (See Ex. K.) In 2014, however, WSC elected not to renew its Southern California offering, thereby precluding Bennion and Deville from bringing on any new franchises after April 20, 2014.¹⁰

 

            112. Although WSC elected not to renew the franchise application for Southern California, it misled Bennion and Deville for months into believing that the franchise registration was forthcoming in an attempt to avoid Bennion and Deville's discovery of WSC's plan to surreptitiously strip the Area Representative rights from them.

 

            113. For instance, in an email from Deville to Drayna, dated October 28, 2014, Deville wrote, "[a]sked about 4 weeks ago when we would have the new [FDD]. I have 2 prospects and need to have for them to sign a receipt. Please advise when we will have the new [FDD].¹¹ A true and correct copy of Deville's October 28, 2014 email is attached hereto as Exhibit S.

 

            114. The next day, Teather responded, "I spoke with [Drayna] today regarding the [Southern California FDD], I will make sure that it is out to you by the end of the week." A true and accurate copy of Teather's October 29, 2014 email is attached as

 

_____________________________________________

 

¹⁰ As reflected above, WSC's California franchise registration expired every year on April 20th. See 10 Cal. Code Regs. § 310.120.

 

¹¹ This did not stop prospective franchisees from contacting Bennion and Deville about franchise opportunities. However, without an updated FDD, Bennion and Deville could not pursue new franchisees.

______________________________________________

 

Exhibit T. In truth, Teather wrote his email knowing that the Southern California FDD had not been (and was not going to be) filed with the DBO.

 

            115. Thereafter, on October 31, 2014, Drayna sent an email representing that the FDD "[j]ust went out via UPS overnight delivery to the State of CA." The records of the DBO show otherwise. (See Ex. G.)

 

            116. After April 20, 2014, Bennion and Deville were deprived of one of their primary benefits under the Area Representation Agreement - i.e., the right to 50% of all franchise fees and subsequent royalties paid by all new Windermere franchisees in the Southern California region. (See Ex. B, §§ 2, 3.) WSC's unilateral termination of Bennion and Deville's right and ability to solicit and sell new Windermere franchises resulted in the premature, constructive termination of the Area Representation Agreement.

 

            117. WSC' s termination of the Area Representation Agreement without first providing Bennion and Deville 180 days written notice of the termination breached Section 4 of the Area Representation Agreement.

 

            118. Further, WSC's termination of the Area Representation Agreement without cause, obligated WSC to pay Bennion and Deville the fair market value of their interest in the Area Representation Agreement pursuant to Section 4.2 of that agreement. WSC's failure to pay this amount constitutes a breach of Section 4.2.

 

            119. Bennion and Deville now seek damages in the form of 50% of all lost franchise fees they should have recovered for the period April 20, 2014 to the commencement of this litigation and the fair market value of their rights in the Area Representation Agreement.

 

            120. Moreover, Bennion and Deville's lost franchise fees - and the ability to aggressively solicit and sell new franchises from April 20, 2014 forward - artificially depressed the value of Bennion and Deville's rights under the Area Representation Agreement. The fair market value to be paid by WSC should reflect these lost sales as well.

 

                        (ii) WSC attempted to surreptitiously acquire Bennion and Deville's technology and other services offered to the Southern California franchisees

 

            121. It was apparent to all in the Windermere System that the technology and services offered by Bennion and Deville were far superior to those made available by WSC. Because of this, WSC knew that it had to acquire - and be able to offer the Southern California franchisees - Bennion and Deville's services and technology before it could take the Area Representative rights from Bennion and Deville.

 

            122. In pursuit of this goal, Teather, on behalf of WSC, opened a dialogue with Bennion and Deville regarding a feigned interest in "working together" to grow their respective businesses by "sharing" services and technology. This, of course, was all a farce as Teather knew that WSC had not renewed (and was not going to renew) the franchise registration for the Southern California region.

 

            123. With this in mind, on July 18,2014, Teather sent an email to Deville and others in an attempt to "begin a dialog regarding what services [WSC] provide [ s], what services [Bennion and Deville] provide and consider the possibility of eliminating duplicity where quality will not be impacted." Knowing that Bennion and Deville's services were far superior to those offered by WSC, this email was Teather's opening attempt to convince Bennion and Deville to allow WSC access to their services and corresponding technology.

 

            124. Through late summer and early fall, Teather continued pushing Bennion and Deville to "combine our tech companies, and put [Bennion and Deville's Director of Technology] in charge of the customer experience and have [WSC] pick up his salary."

 

            125. Once Bennion and Deville denied Teather's request, Teather attempted to solicit several of Bennion and Deville's employees and sales agents to join WSC or other franchisees. For example, WSC invited several of Plaintiffs' employees and sales agents to a relocation event scheduled in San Diego without notifying either Bennion or Deville of the event. Following this event, multiple sales agents terminated their employment with Bennion and Deville.

 

            126. WSC also solicited Plaintiffs' IT personnel in an effort to coerce these individuals to join WSC's operations in Seattle. Teather himself approached and offered a job to Bennion and Deville's Director of Technology.

 

            127. WSC's efforts to acquire Bennion and Deville's superior services and related technology constitute a clear breach of the obligation of good faith and fair dealing implied in the Area Representation Agreement.

 

                        (iii) WSC interfered with Bennion and Deville's relationships with prospective and existing franchisees in the Southern California region in attempt to disrupt these relationships

 

            128. By May 2014, Teather had begun bypassing Services SoCal as the Area Representative for the region and dealing directly with current and prospective Windermere franchisees.

 

            129. While unbeknownst to Bennion and Deville at the time, they have since learned that during his direct communications with the Southern California franchisees, Teather was telling them that Bennion and Deville were "giving up" their right to serve as Area Representative in the Southern California region, and that all communications involving the region should be directed to him.

 

            130. Teather also ingratiated himself to the existing franchisees by approving of franchise locations and expansion plans that Bennion and Deville had already rejected for legitimate business reasons. For instance, in July 2014, Deville was approached by an existing franchisee that was interested in expanding its operations by opening additional franchise locations in San Diego County. After learning more about the possible expansion, Deville could not recommend it due to concerns over the franchisee's aggressive expansion plans, the cost of the expansion, and the finances of the franchisee. Notwithstanding Deville's comments and position, Teather met with the franchisee and approved of the expansion without any further input from Bennion or Deville.

 

            13l. On October 3, 2014, fully cognizant of WSC's plan to soon terminate Bennion and Deville's Area Representation Agreement, Teather sent Bennion and Deville an email urging them to give up several of their franchise locations on the basis that they "own more than enough offices" and that "the future lies in franchising" - i.e., selling franchised businesses and not operating them. Disingenuously, Teather professes that "working together we can succeed as franchisors" although WSC has already taken away Bennion and Deville's ability to offer franchises and solicited several of their employees and agents to come work for WSC. A true and accurate copy of Teather's October 3, 2014 email is attached hereto as Exhibit U.

 

            132. Throughout the remainder of Bennion and Deville's time as Area Representative, Teather continued to secretly tell the local franchisees that Bennion and Deville were on their way out and that he, on behalf of WSC, was taking over as the Area Representative. Because of this, some of the local franchisees began to pirate customers and agents that were in the territory of Bennion and Deville's franchised businesses.

 

            133. Teather's efforts to interfere with and undermine Bennion and Deville's rights as Area Representative only compounded the problems they already faced in the region. Again, this conduct by WSC frustrated Bennion and Deville's rights as Area Representative in breach of the obligation of good faith and fair dealing implied in the Area Representation Agreement.

 

L. WSC's Termination Of The Area Representation Agreement Was A Material Breach Of The Franchise Agreements

 

134. Once WSC was satisfied that it had strung out Bennion and Deville long enough, on January 28, 2015, Drayna sent a short, one paragraph letter to Deville announcing that WSC was "exercising its right to terminate [the] Area Representation Agreement dated May 1, 2004, pursuant to the l80-day notice provision of Paragraph 4.1," and that Bennion and Deville's "rights and responsibilities as Area Representative will terminate on Tuesday, July 28,2015." A true and accurate copy of the January 28, 2015 letter is attached hereto as Exhibit V.

 

            135. As reflected above, WSC had constructively terminated the Area Representation Agreement eight months earlier, when WSC failed register the FDD and long before sending the notice of termination letter. However, whether the Area Representative Agreement was terminated at the end of April 2014, or on July 28,2015, WSC's unilateral termination of the Area Representation Agreement breached both the express and implied terms of the franchise agreements.

 

            136. As reflected above, there existed a symbiotic relationship between the Area Representation Agreement and the franchise agreements to the effect that Bennion and Deville would not have entered into the SoCal Franchise Agreement or built out the Coachella Valley Franchise Agreement but for the benefits that flowed to them as the Area Representative for the region.

 

            137. Moreover, at the time Bennion and Deville entered into the SoCal Franchise Agreement and the amendments to the Coachella Valley Franchise Agreement, the parties agreed that Services SoCal would be the Area Representative for the region - not WSC or some third-party. The knowledge, experience, and services made available to the franchisees in the region by Bennion and Deville through Services SoCal rendered Services SoCal an indispensable part of not only Plaintiffs' franchise agreements, but also the franchise agreements of many of the other franchisees in the Southern California region. See, for example, Recital B to the SoCal Franchise Agreement, which provides that Services SoCal has the right "to administer the Windermere System in the Region in accordance with this Agreement." (Ex. D, Recital B.)

 

            138. Due to the literal and implied integration of Bennion and Deville's Area Representation Agreement and the franchise agreements, the termination of the Area Representation Agreement also constitutes a de facto breach of the franchise agreements.

 

M. WSC Failed to Provide The Technology Services Implied In Each Agreement

 

            139. In addition to WSC's numerous breaches of the parties' agreements set forth above, WSC also frustrated the Plaintiffs' rights under each of the agreements by failing to provide the technology services either expressly identified or implied in each agreement.

 

            140. B&D Fine Homes and B&D SoCal are required to pay certain technology fees pursuant to the franchise agreements. Although the agreements do not expressly identify the "technology" that WSC is to provide for said fees, it is at least implied by the very nature of the fee that WSC would provide certain technology services needed by real estate franchises and their agents to post and manage real property listings and to otherwise carry out their real estate business.

 

            141. Moreover, pursuant to the Area Representation Agreement, WSC expressly agreed to provide "technology systems, including without limitation the public website operated at www.windermere.com, as well as the Windermere Online Resource Center Intranet system," to its franchisees in exchange for the technology fees. (See Ex. B, § 13.)

 

            142. Whether characterized as an express or implied obligation, the technology that was to be provided by WSC was integral to the operation of its franchisees' real estate businesses.

 

            143. Notwithstanding the importance of this service by WSC, the technology provided by WSC was underwhelming at best, and more recently had become unusable and irrelevant.

 

            144. Examples of the recent shortcomings of WSC's technology includes the following:

 

            a. Properties listed by the Windermere Southern California agents often did not properly display (if at all) on WSC's websites;

 

            b. WSC's technology team was inexperienced at best, often causing numerous unnecessary delays to the posting and visibility of Southern California real estate listings;

 

            c. Repeated listing syndication problems for agents' listings on third-party websites, often resulting in extended disruption in the syndication (i.e., publishing) of the listings of Bennion and Deville's agents; and

 

            d. WSC removed entirely the listings and/or pictures of real estate listing belonging to numerous Southern California agents resulting in lost clients and, ultimately, the loss of agents.

 

            145. WSC's inferior technology services have caused Bennion and Deville to incur substantial costs in developing and supporting their own technology systems for the franchisees in their region in order to offset the inferior technology services offered by WSC.

 

            146. Despite the numerous shortcomings of WSC's technology services, Bennion and Deville continued to pay their monthly, non-trivial technology fees of approximately $16,000 to $25,000 per month.

 

            147. The failure of WSC to provide the technology services has breached the express and/or implied terms of the Coachella Valley Franchise Agreement, Area Representation Agreement and SoCal Franchise Agreement. (See Ex A, §§ 1, 5, Affiliate Fee Schedule, Ex., B, § 13, Ex. D, §§ 3, 7(c).)

 

FIRST CLAIM FOR RELIEF

Breach of Contract - Coachella Valley Franchise Agreement

(By B&D Fine Homes and Services SoCal against WSC)

 

            148. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            149. As alleged above, B&D Fine Homes entered into the Coachella Valley Franchise Agreement with WSC on August 1, 2001. This agreement was later amended on August 10, 2007 to include Services SoCal as a party, and again amended on December 18, 2012 pursuant to the parties' execution of the Modification Agreement.

 

            150. Plaintiffs performed all obligations required of them under the Coachella Valley Franchise Agreement as amended, unless otherwise excused by WSC' s breach.

 

            151. WSC breached the Coachella Valley Franchise Agreement by failing to comply with the following requirements:

 

            a. Section 1, for failing to provide the promised "variety of services" designed to enhance Plaintiffs' "profitability;

 

            b. Section 2, for failing to provide Plaintiffs with a viable "Windermere System" as defined in the agreement;

 

            c. Section 4, for failing to take necessary action (legal or otherwise) to prevent infringement of the Windermere trademark or the related unfair competition faced by Plaintiffs in the Southern California region as a result of the Windermere Watch websites; and

 

            d. Section 3(A) of the Modification Agreement, for failing to make commercially reasonable efforts to curtail Windermere Watch and related attacks on the Windermere brand in Southern California.

 

            152. As a result of WSC's breaches of the Coachella Valley Franchise Agreement, Plaintiffs suffered actual damages in an amount to be proven at trial, but far in excess of the jurisdictional minimums of this Court.

 

            153. Further, Plaintiffs seek liquidated damages pursuant to Section 3(F) of the Modification Agreement as a result of WSC' s early termination of the Coachella Valley Franchise Agreement without cause.

 

            154. Plaintiffs are also entitled to recover "reasonable attorneys' fees" under the Coachella Valley Franchise Agreement. (See Ex. A, § 11; Ex. G, § 7.)

 

SECOND CLAIM FOR RELIEF

Breach of Implied Covenant of Good Faith and Fair Dealing - Coachella Valley Franchise Agreement

(By B&D Fine Homes and Services SoCal against WSC)

 

            155. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            156. As alleged above, B&D Fine Homes entered into the Coachella Valley Franchise Agreement on August 1, 2001, the parties amended the agreement to include Services SoCal as a party on August 10, 2007, and further amended the agreement pursuant to the terms of the Modification Agreement on December 18, 2012.

 

            157. Plaintiffs performed all obligations required of them under the Coachella Valley Franchise Agreement as amended.

 

            158. Incorporated into every contract is an implied covenant of good faith and fair dealing. WSC breached the implied covenant of good faith and fair dealing by acting in a manner so as to deprive Plaintiffs of the benefits of the Coachella Valley Franchise Agreement. This included:

 

            a. Failing to provide adequate technology services in return for the excessive technology fees;

 

            a. [sic] Failing to provide a viable Windermere System to the Southern California region. To the extent WSC provided service or assistance, it was worthless;

 

            b. Improperly recruiting Plaintiffs' sales agents and other employees to join WSC and other Windermere offices;

 

            c. Terminating Services SoCal as the Area Representative for the Southern California region and thereby negating Plaintiffs' 50% reduction in franchise fees owed to WSC under the Coachella Valley Franchise Agreement; and

 

            d. Terminating Services SoCal as the Area Representative for the Southern California region and not providing a comparable replacement.

 

            159. As a result of WSC's breach of the implied covenant of good faith and fair dealing, Plaintiffs have suffered damages in an amount to be proven at trial.

 

THIRD CLAIM FOR RELIEF

Breach of Contract - Area Representation Agreement

(By Services SoCal against WSC)

 

            160. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            161. As alleged above, on May 1, 2004, Services SoCal entered into the Area Representation Agreement with WSC.

 

            162. Services SoCal performed all obligations required of it under the Area Representation Agreement, unless otherwise excused by WSC' s breach.

 

            163. WSC breached the Area Representation Agreement by failing to comply with the following requirements:

 

            a. Section 2, for failing to provide Services SoCal with the uninterrupted right to offer Windermere franchised businesses in Southern California;

 

            b. Section 2, for failing to provide a viable "Windermere System" as defined in the agreement;

 

            c. Section 3, for failing to provide servicing support in connection with the marketing, promotion and administration of the Trademark and Windermere System;

 

            d. Section 3, for failing to make available to Services SoCal competent "key people" necessary to assist Services SoCal in carrying out its obligations to offer and sell franchises as the Area Representative;

 

            e. Section 4.2, for failing to pay Services SoCal the termination fee - i.e. the fair market value of its interest in the Area Representation Agreement - following termination without cause;

 

            f. Section 7, for failing to promptly and diligently commence and pursue the preparation and filing of all franchise registration filings required under California law and/or the United States of America;

 

            g. Section 7, for failing to maintain the registration of the Southern California FDD'

 

            h. Section 10, for depriving Services SoCal of its right to offer new Windermere franchises rendering it unable to collect initial franchise fees and continuing license fees from new franchisees;

 

            i. Section 13, for failing to provide a technology system to support the operation and development of the franchise system in Southern California, and for unilaterally increasing the technology fees to amounts that on information and belief bear no relationship to the amounts actually spent on Windermere's technology system; and

 

            j. Exhibit A, § 3, by attempting to terminate the Area Representation Agreement under the pretense that Services SoCal was the "guarantor" of the franchise fees owed by the franchisees in the Southern California region.

 

            164. As a result of WSC's breaches of the Area Representation Agreement, Services SoCal has suffered (and will continue to suffer) actual damages in an amount to be proven at trial, but far in excess of the jurisdictional minimums of this Court.

 

            165. Further, Services SoCal seeks a judicial determination and declaration that WSC did not have cause to terminate the Area Representation Agreement.

 

            166. Services SoCal is also entitled to recover "reasonable attorneys' fees" under the Area Representative Agreement. (See Ex. B, § 2l.)

 

FOURTH CLAIM FOR RELIEF

Breach of Implied Covenant of Good Faith and Fair Dealing - Area Representation Agreement

(By Services SoCal against WSC)

 

            167. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            168. As alleged above, WSC and Services SoCal entered into the Area Representation Agreement on May 1, 2004.

 

            169. Services SoCal performed all obligations required of it under the Area Representation Agreement.

 

            170. Incorporated into every contract is an implied covenant of good faith and fair dealing. WSC breached the implied covenant of good faith and fair dealing by acting in a manner so as to deprive Services SoCal of the benefits of the Area Representation Agreement. This included:

 

            a. Failing to provide a viable Windermere System in the Southern California region. To the extent WSC provided service or assistance, it was worthless;

 

            b. Taking action to interfere with and damage many of the relationships between Services SoCal and franchisees in the Southern California region;

 

            c. Soliciting Services SoCal' s participation in offers and sales of franchises in violation of the franchise laws;

 

            d. Making effort to acquire Services SoCal' s superior services and related technology; and

 

            e. Failing to act in good faith and conduct its business such that Plaintiffs received the benefits of being an Area Representative in the franchise system.

 

            171. As a result of WSC' s breach of the implied covenant of good faith and fair dealing, Plaintiffs have suffered damages in an amount to be proven at trial.

 

FIFTH CLAIM FOR RELIEF

Breach of Contract - So Cal Franchise Agreement

(By B&D SoCal and Services SoCal against WSC)

 

            172. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            173. As alleged above, on March 29, 2011, B&D SoCal and Services SoCal entered into the SoCal Franchise Agreement with WSC. The Services SoCal Franchise Agreement was subsequently amended by the Modification Agreement on December 18, 2012.

 

            174. Plaintiffs performed all obligations required of them under the SoCal Franchise Agreement as amended, unless otherwise excused by the conduct of WSC.

 

            175. WSC breached the SoCal Franchise Agreement by failing to comply with the following sections of the agreement:

 

            a. Section 1, for failing to provide Plaintiffs with a viable "Windermere System" as defined in the agreement;

 

            b. Section 3, for failing to provide the promised "guidance" to Plaintiffs with respect to the "Windermere System";

 

            c. Section 6, for failing to take necessary action (legal or otherwise) to prevent infringement of the Windermere trademark or the related unfair competition faced by Plaintiffs in the Southern California region as a result of the Windermere Watch websites; and

 

            d. Section 3(A) of the Modification Agreement, for failing to make commercially reasonable efforts to curtail Windermere Watch and related attacks on the Windermere brand in Southern California.

 

            176. As a result of WSC's breaches of the SoCal Franchise Agreement as modified, Plaintiffs suffered actual damages in an amount to be proven at trial, but far in excess of the jurisdictional minimums of this Court.

 

            177. Plaintiffs are also entitled to recover "reasonable attorneys' fees" under the SoCal Franchise Agreement. (See Ex. D, § 13.)

 

SIXTH CLAIM FOR RELIEF

Breach of Implied Covenant of Good Faith and Fair Dealing

(By B&D SoCal and Services SoCal against WSC)

 

            178. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            179. As alleged above, B&D SoCal and Services SoCal entered into the SoCal Franchise Agreement on March 29, 2011, and the parties amended the agreement pursuant to the terms of the Modification Agreement on December 18,2012.

 

            180. Plaintiffs performed all obligations required of them under the SoCal Franchise Agreement as amended.

 

            181. Incorporated into every contract is an implied covenant of good faith and fair dealing. WSC breached the implied covenant of good faith and fair dealing by acting in a manner so as to deprive Plaintiffs of the benefits of the SoCal Franchise Agreement. This included:

 

            a. Failing to provide adequate technology services in return for the excessive technology fees;

 

            e. Failing to provide a viable Windermere System to the Southern California region. To the extent WSC provided service or assistance, it was worthless;

 

            f. Improperly recruiting Plaintiffs' sales agents and other employees to join WSC and other Windermere offices;

 

            g. Terminating Services SoCal as the Area Representative for the Southern California region and thereby negating Plaintiffs' 50% reduction in franchise fees owed to WSC under the SoCal Franchise Agreement; and

 

            h. Terminating Services SoCal as the Area Representative for the Southern California region and not providing a comparable replacement.

 

            182. As a result of WSC's breach of the implied covenant of good faith and fair dealing, Plaintiffs have suffered damages in an amount to be proven at trial.

 

SEVENTH CLAIM FOR RELIEF

Violation of the California Franchise Relations Action (Cal. Bus. & Prof. Code § 20020)

(By Services SoCal against WSC)

 

            183. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            184. As reflected above, the Area Representation Agreement, by its very terms, continued into perpetuity "until it is terminated" by the parties. Notwithstanding the procedure identified in Section 4 of the Area Representation Agreement purportedly allowing the parties to terminate the agreement without cause, the California Franchise Relations Act ("CFRA"), at California Business & Profession Code § 20020, precludes WSC from terminating the Area Representation Agreement absent "good cause."

 

            185. As reflected above, WSC' s termination (constructive or by written notice) of the Area Representation Agreement without good cause violated § 20020 of the CFRA.

 

            186. As a result of the WSC's violation of the CFRA, Plaintiffs seek both statutory and contractual damages for the unlawful termination of the Area Representation Agreement.

 

            WHEREFORE, Plaintiffs pray for relief against WSC as follows:

 

            l. On Counts One through Six:

 

            a. For compensatory damages in amounts to be proven at trial;

 

            b. For a judicial determination and declaration that WSC did not have cause to terminate the Area Representation Agreement, as provided for in the agreement.

 

            2. On Count Seven for statutory and contractual damages permitted under the CFRA;

 

            3. For reasonable costs and attorneys' fees incurred in this action pursuant to Section 11 of the Coachella Valley Franchise Agreement, Section 21 of the Area Representation Agreement; Section 13 of the SoCal Franchise Agreement; and Section 7 of the Modification Agreement; and

 

            4. For such other and further relief as the Court may deem just and proper.

 

DATED: November 16, 2015                                MULCAHY LLP

 

                                                                        By: /s/ James M. Mulcahy

                                                                        James M. Mulcahy

                                                                        Kevin A. Adams

                                                                        Attorneys for Plaintiffs/Counter-Defendants

                                                                        Bennion & Deville Fine Homes, Inc.,

                                                                        Bennion & Deville Fine Homes SoCal, Inc.,                                                                                                                                                           Windermere Services Southern California,

                                                                        Inc., and Counter-Defendants Robert L.

                                                                        Bennion and Joseph R. Deville

 

 

JURY DEMAND

 

            Pursuant to Federal Rule of Civil Procedure 3 8(b), Plaintiffs demand a jury trial on all issues triable to a jury.

 

DATED: November 16, 2015                                MULCAHY LLP

 

                                                                        By: /s/ James M. Mulcahy

                                                                        James M. Mulcahy

                                                                        Kevin A. Adams

                                                                        Attorneys for Plaintiffs/Counter-Defendants

                                                                        Bennion & Deville Fine Homes, Inc.,

                                                                        Bennion & Deville Fine Homes SoCal, Inc.,                                                                         Windermere Services Southern California,

                                                                        Inc., and Counter-Defendants Robert L.

                                                                        Bennion and Joseph R. Deville

 

 

U.S. DISTRICT COURT, CENTRAL DISTRICT OF CALIFORNIA—Case No. 2:15-CV-07322

(Transferred to U.S. District Court Central District, Eastern Division)

 

DOWNLOAD THE COMPLETE ORIGINAL COMPLAINT HERE

DOWNLOAD EVIDENCE 1 HERE

DOWNLOAD EVIDENCE 2 HERE

 

 

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

 

BENNION & DEVILLE FINE HOMES, INC., a California corporation, BENNION & DEVILLE FINE HOMES SOCAL, INC., a California corporation, WINDERMERE SERVICES SOUTHERN CALIFORNIA, INC., a California corporation,

 

Plaintiffs,

 

v.

 

WINDERMERE REAL ESTATE SERVICES COMPANY, a Washington corporation; and DOES 1-10.

 

Defendant.

 

Case No. 2:15-CV-07322

[Transferred to U.S. District Court, Central District, Eastern Division, as Case No. 5:15-cv-01921 (KKx)]

 

COMPLAINT FOR:

 

(1) Breach of Contract - Coachella Valley Franchise Agreement;

 

(2) Breach of Contract - Area Representation Agreement;

 

(3) Breach of Contract - SoCal Franchise Agreement;

 

(4) Breach of Contract - Modification Agreement;

 

(5) Breach of Contract - Confidentiality Agreement;

 

(5) [sic] Breach of the Covenant of Good Faith and Fair Dealing;

 

(6) Intentional Interference with Contractual Relations; and

 

(7) Intentional Interference with Prospective Economic Advantage.

 

DEMAND FOR JURY TRIAL

 

            Plaintiffs Bennion & Deville Fine Homes, Inc. ("B&D Fine Homes"), Bennion & Deville Fine Home SoCal, Inc. ("B&D SoCal"), and Windermere Services Southern California, Inc. ("Windermere SoCal") (collectively, "Plaintiffs") hereby complain and allege as follows:

 

NATURE OF ACTION

 

            1. Plaintiffs are Area Representatives and franchisees of Defendant Windermere Real Estate Services Company ("WSC"), a large real estate brokerage company based in the Pacific Northwest. Plaintiffs expanded the Windermere brand into Southern California establishing a thriving business with franchises and offices stretching from San Diego to the Coachella Valley.

 

            2. What was once a thriving real estate system that WSC offered its Southern California franchisees become [sic] antiquated and irrelevant. The once fruitful relationship would quickly erode as WSC's contractually obligated support to Plaintiffs diminished. Plaintiffs would be essentially left in the desert for years on end with little support from WSC, forcing Plaintiffs to establish their own system at a significant expense. WSC was out of touch, ineffective and behind the times while focused on increasing its fees instead of supporting its franchise system.

 

            3. WSC had assured Plaintiffs that it would provide trained staff that would be able to assist and advise Plaintiffs and the franchisees within California in all aspects of the franchised business. It did not. WSC failed to provide the local and regional marketing and advertising materials critical for any franchise system to be successful in a competitive marketplace. When Plaintiffs took it upon themselves to market their businesses, WSC exerted significant pressure on certain advertisers to discontinue Plaintiffs' marketing campaigns and otherwise terminate their relationships with Plaintiffs.

 

            4. WSC's real estate technology provided to its franchisees and necessary for the operation of the franchised businesses was outdated, unstable, and no longer a viable option for the Southern California region. Notwithstanding WSC's failure to update this technology, it continued to increase the fees and threatened franchisees with termination for refusing to pay for this unstable, antiquated technology.

 

            5. There came a tipping point in the parties' relationship where WSC grew insecure about the Plaintiffs' superior operations, marketing and support for the Windermere brand in Southern California and began treating Plaintiffs as competitors instead of partners.

 

            6. In 2014, Michael Teather ("Teather"), WSC's Senior Vice President of Client Services implemented a strategy wherein WSC changed its focus from providing ongoing services to collecting new initial franchise fees. This was a "churn and burn" franchise model — i.e., forcing existing franchisees out of business in order to resell the territory/location to generate new, substantial initial franchise fees.

 

            7. For all practical purposes, WSC stopped supporting its franchise system in Southern California. It failed to respond to operational, marketing and technical requests submitted by Plaintiffs and franchisees in their territory. WSC essentially refused to process new franchised businesses in the Southern California region although its Vice President, Teather, had approved of the locations and continued to encourage Plaintiffs to expend significant sums of money and time pursuing new franchise locations.

 

            8. After Plaintiffs expressed disagreement with WSC's churn and burn strategy, Teather and WSC's other executives began implementing a strategy to systematically damage Plaintiffs' businesses, thereby pushing them out of the Windermere franchise system. In pursuing this strategy, WSC has violated several terms of their contractual agreement with Plaintiffs, marketed franchises in Plaintiffs' territory without consultation, infringing and interfering with Plaintiffs' business relationships with sales agents, employees, advertisers, and other franchisees. As a result of WSC's strategy, several franchisees have left or otherwise been terminated from the Windermere franchise system.

 

            9. WSC's actions have destroyed its relationship with Plaintiffs and left Plaintiffs with no recourse but to seek legal action to protect their franchisees and employees from WSC's detrimental conduct.

 

            10. For these reasons, set forth in detail below, Plaintiffs now seek compensatory and punitive damages in amounts to be proven at trial, a judicial determination and declaration that WSC did not have cause to terminate the Area Representation Agreement and a preliminary and permanent injunction enjoining WSC from improperly recruiting B&D Fine Homes and B&D SoCal's sales associates and other employees to join WSC and other Windermere offices.

 

THE PARTIES

 

            11. Defendant Windermere Real Estate Services Company is a Washington corporation registered with the California Secretary of State to do business in California.

 

            12. Plaintiff Bennion & Deville Fine Homes, Inc. is a California Corporation with its principal place of business in Rancho Mirage, California.

 

            13. Plaintiff Bennion & Deville Fine Homes SoCal, Inc. is a California Corporation with its principal place of business in Rancho Mirage, California.

 

            14. Plaintiff Windermere Services Southern California, Inc. is a California Corporation with its principal place of business in Rancho Mirage, California.

 

JURISDICTION AND VENUE

 

            15. Plaintiffs have satisfied the amount in controversy requirement as the value of the requested relief exceeds the jurisdictional threshold of $75,000.

 

            16. This Court has jurisdiction over this action under diversity of citizenship jurisdiction, 28 U.S.C. § 1332. Plaintiffs are all California corporations and Defendant is a Washington corporation. Therefore, complete diversity exists.

 

            17. Venue is also proper in this district in that the Defendant is subject to personal jurisdiction in this District, a substantial part of the events occurred in this District and all parties specifically agreed to the Western Division of the Central District of California pursuant to a forum selection clause contained within a contract that is in dispute in this action. (Ex. E [Modification Agreement], § 9.)

 

RELEVANT FACTUAL BACKGROUND

 

A.   Background On The Windermere Franchise System And Bennion And Deville

 

            18. Defendant Windermere Real Estate Services Company ("WSC") is the franchisor of the Windermere system of franchisees providing real estate brokerage services to customers seeking to buy, sell or lease real property. The Windermere network of franchisees and company-owned locations is collectively considered the largest real estate company in the Pacific Northwest with locations in Washington, Oregon, British Columbia, Idaho, Montana, California, Nevada, Arizona and Colorado.

 

            19. The Plaintiffs are each owned and operated by Robert L. Bennion ("Bennion") and Joseph R. Deville ("Deville"). Bennion and Deville are both experienced real estate brokers working in the real estate industry since 1988 and 1971, respectively. Sometime in 1993, Bennion and Deville merged their brokerage firms and quickly became one of the leading real estate partnerships in Seattle, Washington and surrounding area.

 

            20. Due to their success, Bennion and Deville decided to expand their real estate brokerage business to California. It was this move that spurred a series of contractual relationships between WSC and entities owned by Bennion and Deville that serve as the subject of this litigation.

 

B.   The Coachella Valley Franchise Agreement

 

            21. On August 1, 2001, Bennion, Deville, and their company Plaintiff Bennion & Deville Fine Homes, Inc. (doing business as Windermere Real Estate Coachella Valley)(hereafter, "B&D Fine Homes"), entered into a "Windermere Real Estate License Agreement" with WSC (hereafter referred to as the "Coachella Valley Franchise Agreement"). A true and correct copy of the Coachella Valley Franchise Agreement is attached hereto as Exhibit A.

 

            22. Pursuant to the Coachella Valley Franchise Agreement, and in exchange for an initial fee of $15,000.00 and license fees in an amount equal to five percent of the gross revenues earned during the term of the agreement (see Ex. A, § 5), WSC agreed to provide Bennion, Deville, and B&D Fine Homes the following:

 

a. A license to use the Windermere trademarks, service marks, logotypes (collectively, the "Trademark"), and "Windermere System" in the conduct of real estate brokerage and sales activities at 850 N. Palm Canyon Drive, in Palm Springs, CA. (See Ex. A, § 2.) The "Windermere System" is defined broadly by the Coachella Valley Franchise Agreement as "the standards, methods, procedures, techniques, specifications and programs developed by WSC for the establishment, operation and promotion of independently owned real estate brokerage offices" (see Ex. A, Recital A);

 

b. "[ A] variety of services [ ... ] designed to complement the real estate brokerage business activities of [B&D Fine Homes] and to enhance its profitability" (see Ex. A, § 1); and

 

c. An agreement to take legal action "consistent with good business judgment to prevent infringement of the Trademark or unfair competition against [B&D Fine Homes]." (See Ex. A, § 4.)

 

            23. In addition to the initial fee and license fees identified above, Bennion, Deville, and B&D Fine Homes were also required to pay certain other fees to WSC outlined in the "Affiliate Fee Schedule" attached to the Coachella Valley Franchise Agreement. (See Ex. A, Affiliate Fee Schedule.) These fees included (i) a "Technology Fee" of "$10 per month per licensed agent and agent assistant," (ii) an "Administrative Fee" of "$25 per agent per month," and (iii) a "Windermere Foundation Fee" of "$7.50 per transaction side for each closed transaction." (Id.)

 

            24. The Technology Fee was promised to be a fee for "basic" technology services provided by WSC and required by its franchisees and their agents to post and manage their real property listings and to otherwise carry out their real estate businesses. In truth, the technology services provided by WSC were underwhelming at best, and more recently had become antiquated and irrelevant. The technology made available by WSC had became outdated, unstable, and not a viable option for the needs of the Southern California region. Notwithstanding WSC's failure to provide these technology services, it has substantially increased these fees and threatened franchisees with termination for refusing to pay for this unstable, antiquated technology.

 

            25. The Coachella Valley Franchise Agreement was also for an indefinite term, terminable by either party subject to no less than six months written notice of their intent to terminate the agreement. (See Ex. A, § 6.)

 

            26. Subject to the terms above, B&D Fine Homes opened its first Windermere franchised business under the Coachella Valley Franchise Agreement in Palms Springs, CA.

 

            27. As explained in detail below, Plaintiffs would ultimately open 14 Windermere franchised businesses under the Coachella Valley Franchise Agreement. Each new franchised business would be reflected in an addendum to the Coachella Valley Franchise Agreement signed by all parties to the agreement. (See Ex. A, § 2.)

 

C.   Bennion And Deville Become Windermere Area Representatives For The State Of California

 

            28. On or around May 1, 2004, Bennion and Deville, on behalf of their newly formed entity Plaintiff Windermere Services Southern California, Inc. ("Windermere SoCal"), on the one hand, and WSC, on the other hand, entered into a "Windermere Real Estate Services Company Area Representation Agreement for the State of California" (the "Area Representation Agreement"). A true and correct copy of the Area Representation Agreement is attached hereto as Exhibit B.

 

            29. Under the Area Representation Agreement, Windermere SoCal — serving as WSC's "Area Representative" - was granted the non-exclusive right throughout the State of California to (i) offer franchises to real estate brokerage businesses enabling them to use the Windermere "Trademark”¹ and "Windermere System,”² and (ii) "to administer and provide support and auxiliary services" to Windermere franchisees in the state. (See Ex. B, Recital A, §§ l.5, 2.)

 

            30. Windermere SoCal was also tasked with collecting certain fees from the franchisees in its Region, including, but not limited to, the license fees, administrative fees, Advertising Fund contributions, Windermere Foundation fees, technology fees, "and other amounts due under the license agreements in the Region, and to remit to WSC its share of such fees." (Ex. B, §§ 3,11-13.) ³ Although Windermere SoCal was responsible for collecting these fees from the franchisees, it was not a guarantor of any of the fees to WSC. In fact, the Area Representation Agreement expressly provided that Windermere SoCal "will not be responsible for payment of uncollectable fees." (See Ex. B, Exhibit A, § 3.)

 

            31. In exchange for Windermere SoCal' s agreement to provide the Area Representative services identified above, WSC was contractually obligated to provide, among other things, the following support and services:

 

a. "[P]rovide servicing support in connection with the marketing, promotion and administration of the Trademark and Windermere System" (Ex. B, § 3);

______________________________________

 

¹ The term "Trademark" is defined by the Area Representation Agreement to mean various Windermere trade names, trademarks, service marks, and other symbols. (See Ex. B, § 1.6.)

 

² The term "Windermere System" is defined as "the standards, methods, procedures, techniques, specifications and programs developed by WSC for the establishment, operation and promotion of independently owned real estate brokerage offices [ ... expressly including] the Windermere foundation, Windermere Personal Marketing Programs, Premier Properties Program, Windermere Retirement Plan for Real Estate Salespersons and Windermere salesperson educational formats and outlines." (Ex. B, § l.7.)

 

³ Technology fees were "intended to support the operation and development of WSC's technology systems." (See Ex. B., § 13.)

 

 

b. "[P]romptly and diligently commence and pursue the preparation and filing of all Franchise registration statements, disclosure statements, or applications required under the laws of the state of California and/or the United States of America" (Ex. B., § 7); and

 

c. "[B]e responsible for any registration filing fee and for all legal expenses incurred in the revision and registration of all required disclosure documents." (Ex. B, § 7.)

 

            32. Notwithstanding these ongoing contractual obligations, WSC has recently failed to (a) provide the necessary marketing materials needed for the Southern California region, (b) participate financially in the marketing, promotion, or administration of the Windermere trademark or brand in Southern California, and (c) timely make available required franchise disclosure materials required by Windermere SoCal to offer Windermere franchises for sale — including WSC's utter failure to make available a 2015 franchise disclosure document notwithstanding numerous promises by Mr. Teather and other WSC personnel that the documents would be provided "immediately." In fact, as of the filing of this Complaint, WSC still had not registered the required franchise disclosure documents with the California Department of Business Oversight for the 2015 year. These filings are typically due in April. WSC's failure to timely register the franchise disclosure documents has precluded Windermere SoCal from being able to offer and sell franchises pursuant to the Area Representation Agreement.

 

            33. Further, WSC and Windermere SoCal also agreed to share "all initiation and licensing fees equally for all future Windermere offices" in California. (See Ex. B, §§ 3, 9, Exhibit A, § 3.) In other words, the initial franchise fees and ongoing licensing fees were to be split 50-50 between WSC and Windermere SoCal pursuant to the terms of the Area Representation Agreement. Windermere SoCal' s inability to sell franchises as a result of WSC's failures to comply with California's franchise registration laws has harmed Windermere SoCal's ability to earn initiation and licensing fees.

 

            34. Similar to that of the Coachella Valley Franchise Agreement, the Area Representation Agreement was for an indefinite term, terminable by either party, without cause, "upon one hundred eighty (180) days written notice to the other party." (See Ex. B., § 4.l (b).) Or, in the event of a "material breach," the agreement was terminable upon ninety days written notice to the other party with an opportunity to cure. (Ex. B, § 4.1 (c).) In the event the material breach was not cured within the ninety day period, the Area Representation Agreement could then be terminated "for cause." (Id.)

 

            35. In the event the agreement is terminated without cause, the terminating party is required to make termination payments to the terminated party in an "amount equal to the fair market value of the Terminated Party's interest in the Agreement." (See Ex. B., § 4.2.) The "fair market value" is to be determined in accordance with the terms of sections 4.2 and 4.3 of the Area Representation Agreement. Notably, no termination payment was required to be made if the Area Representation Agreement was terminated for cause. (See Ex. B., § 4.2.)

 

            36. During its time as the Area Representative for WSC, Windermere SoCal sold more franchises to large franchise owners than any other Area Representative in the Windermere system.

 

D.   Bennion And Deville Expand Their Windermere Businesses

 

            37. With the signing of the Area Representation Agreement, Bennion and Deville, through their company Windermere SoCal, were now entitled to 50% of all initiation and licensing fees owed to WSC under the Coachella Valley Franchise Agreement.

 

            38. This symbiotic relationship between the Area Representation Agreement and the Coachella Valley Franchise Agreement effectively granted Bennion and Deville a 50% reduction in all initial franchise fees and ongoing licensing fees for all franchise businesses they would acquire during the life of the Area Representation Agreement. (See Ex. B [Area Representation Agreement], §§ 3, 9, Exhibit A, § 3.) The economic benefit derived by Bennion and Deville' operation of Windermere SoCal and B&D Fine Homes as a single integrated enterprise, and the underlying economic benefit that flowed from serving as both the Area Representative and franchisee, were significant material considerations of Bennion and Deville when then agreed to expand their Windermere franchising operations. Without the Area Representation Agreement, Bennion and Deville would not have engaged in their subsequent expansion of the Windermere brand in Southern California.

 

            39. Starting in early 2004, and in anticipation of the parties' entry into the Area Representation Agreement, the parties began executing addenda to the Coachella Valley Franchise Agreement allowing for the rapid expansion of Bennion and Deville's Windermere franchised businesses. In total, Bennion and Deville, on behalf of B&D Fine Home and Windermere SoCal, executed 13 different addenda to the Coachella Valley Franchise Agreement (hereafter, the "Coachella Valley Addenda"). True and correct copies of the Coachella Valley Addenda are attached hereto as Exhibit C.

 

            40. The Coachella Valley Addenda granted Bennion and Deville the right to open and operate Windermere franchised businesses in the following Southern California locations:

 

a. Desert Hot Springs, CA;

 

b. Rancho Mirage, CA;

 

c. La Quinta, CA;

 

d. Indian Wells, CA;⁴

 

e. Palm Springs, CA;

 

f. Palm Desert, CA;

 

g. Indian Wells, CA #2;⁵

 

h. Rancho Mirage, CA #2:

 

______________________________________

 

⁴ This franchised business was subsequently moved to Rancho Mirage, California. (See Ex. C [Addendum dated April 1, 2009].)

⁵ This franchised business was also subsequently moved to Rancho Mirage, California. (See Ex. C [Addendum dated April 1, 2009].)

 

i. Rancho Mirage, CA #3;

 

j. Palm Desert, CA #2;

 

k. La Quinta, CA #2;

 

I. Indio, CA; and

 

m. Cathedral City, CA;

 

(See Ex. C.)

 

 

            41. Further, the Coachella Valley Addenda incorporated Windermere SoCal — the Area Representative — as a party to the Coachella Valley Franchise Agreement. (See Ex. C.) This significant alteration of the parties under the Coachella Valley Franchise Agreement cemented the symbiotic relationship between Bennion and Deville's status as Area Representative and franchisee.

 

            42. As is reflected below, WSC has recently taken action to terminate the Area Representation Agreement, and with it, the 50% franchise fee discount that was central to Bennion and Deville's agreement to open and operate more than a dozen Windermere franchised businesses. Due to the integrated nature of the Area Representative and franchisee relationships, Plaintiffs contend that the termination of the Area Representation Agreement serves as a de facto termination of the franchise agreements as well..

 

 

E.   Bennion and Deville Enter Into A New Windermere Franchise Agreement

 

            43. In or around March 29, 2011, Bennion and Deville, through Windermere SoCal and their newly formed entity Plaintiff Bennion & Deville Fine Homes SoCal, Inc. ("B&D SoCal"), entered into a new Windermere Real Estate Franchise License Agreement (the "SoCal Franchise Agreement") with WSC. A true and correct copy of the SoCal Franchise Agreement is attached hereto as Exhibit D.

 

            44. Similar to that of the Coachella Valley Franchise Agreement, the SoCal Franchise Agreement granted B&D SoCal "the revocable and non-exclusive right to use the Windermere Trademark and Windermere System in the conduct of real estate brokerage services "in certain specified locations.⁶ (Ex. D, §§l, 2.)

 

            45. The SoCal Franchise Agreement also obligated WSC to provide some nebulous form of "guidance to Licensee with respect to the Windermere System [ ...,] furnished in the form of written materials distributed physically or electronically, including through the Windermere Online Resource Center (WOC) intranet website, consultations by telephone or in person, or by other means of communication." (Ex. D, § 3.) In truth, WSC provided little to no "guidance" and instead left Bennion and Deville to provide all of the services to B&D SoCal and to all of the other Windermere franchised businesses in Southern California.

 

            46. Also, WSC represented that it would take action, "in its discretion and consistent with good business judgment to prevent infringement of the Trademark or unfair competition against Windermere licensees." (Ex. D, § 6(e).) Again, as reflected below, WSC failed to comply with this term of the SoCal Franchise Agreement.

 

            47. On the other hand, the SoCal Franchise Agreement obligated B&D SoCal to pay to WSC and Windermere SoCal: (i) a monthly "Ongoing License Fee," (ii) a "Technology Fee" of"$25 per month per licensed agent and agent assistant for basic service," and (iii) a "Windermere Foundation Suggested Donation" of "$10.00 per transaction side for each closed transaction."⁷ (Ex. D, § 7, Appendix l.)

 

__________________________________________

 

⁶ Again, the term "Trademark" is defined to mean various Windermere trade names, trademarks, service marks, and other symbols. (See Ex. D, Recital A.) The term "Windermere System" is defined as "the standards, methods, procedures, techniques, specifications and programs developed by WSC for the establishment, operation and promotion of independently owned real estate brokerage offices [ ... ]." (Ex. D, Recital A.)

⁷ Concurrent with their execution of the SoCal Franchise Agreement, Bennion and Deville also executed a personal guaranty. (Ex. D, Appendix 2.) This personal guaranty was later released upon the parties' written agreement to modify the terms of the franchise agreements.

 

            48. The SoCal Franchise Agreement can be terminated by either party, without cause, upon written notice "no less than 180 days, and no more than 366 days, prior to the expiration date specified in the notice," or by WSC, with cause, and subject to the specific provisions of Section 8 of the SoCal Franchise Agreement. (Ex. D, § 8(a).)

 

            49. Under the terms of the SoCal Franchise Agreement, Bennion and Deville opened and/or acquired Windermere franchised businesses in several cities throughout San Diego County. (Ex. D, "Office Announcement.") WSC encouraged Bennion and Deville's aggressive acquisition of new franchised business in San Diego, resulting in investment by Bennion and Deville of over $4,000,000 into the San Diego franchises.

 

F.   Parties Enter Into Agreement Modifying Franchise Agreements

 

            50. On or about December 18, 2012, WSC, Windermere SoCal, B&D Fine Homes, and B&D SoCal entered into a document titled "Agreement Modifying Windermere Real Estate Franchise License Agreements" (hereafter, the "Modification Agreement"). A true and correct copy of the Modification Agreement is attached as Exhibit E.

 

            51. The Modification Agreement was intended to, and did, modify several material terms of the Coachella Valley Franchise Agreement and SoCal Franchise Agreement in light of the damage to Plaintiffs' businesses caused the anti-marketing campaign against Windermere and its franchisees engaged in by Gary Kruger and the Windermere Watch websites. (See Ex. E, Recitals.)

 

            52. In light of this, WSC expressly agreed to, among other things, "make commercially reasonable efforts to actively pursue counter-marketing, and other methods seeking to curtail the anti-marketing activities undertaking by Gary Kruger, his Associates, Windermere Watch and/or the agents of the foregoing persons." (Ex. E, § 3(A).)

 

            53. The Modification Agreement also modified several terms of the Coachella Valley Franchise Agreement and SoCal Franchise Agreement, limiting the obligations of Plaintiffs under these agreements. Specifically, the parties modified the franchise agreements as follows:

 

a. All past due franchise fees and Technology Fees owed by Plaintiffs under the franchise agreements were waived and forgiven (Ex. E, § 3(B));

 

b. Plaintiffs were granted a temporary reduction in ongoing franchise fees for a period of eight months, applied retroactively (Ex. E, § 3(C));

 

c. A limitation and cap of $25 per agent per month were place on the Technology Fees owed by Plaintiffs (Ex. E, § 3(D));⁸ and

 

d. The personal guarantees provided by Bennion and Deville in connection with their execution of the SoCal Franchise Agreement were extinguished and released (Ex. E, § 3( G)).

 

            54. Further, in lieu of the provisions allowing for the termination of the agreements by either party following six month written notice, the term of each franchise agreement was modified to extend for five years from the date of the Modification Agreement. (Ex. E, §3(E).) Further, the Modification Agreement provided that the five year term "shall automatically expire" if WSC, among other things, commits "a material, uncured breach of [the Modification Agreement]." (Ex. E, §3(E).)

 

            55. The Modification Agreement also contains a confidentiality provision that the parties considered material to their agreement (the "Confidentiality Provision"). (Ex. E, § 15.) The Confidentiality Provision provides that:

 

The terms of the Agreement include information of a proprietary and/or confidential nature. The Parties expressly understand and agree that it shall constitute a breach of the Agreement to disclose the terms of the same except to the Parties' attorneys and/or accountants or as may be required under a Court Order, subpoena and/or pursuant to an action to enforce the terms of the Agreement.

 

__________________________________

 

⁸

(Id.)

 

            56. As explained below, WSC has ignored its few obligations under the Modification Agreement and failed to make commercially reasonable efforts to actively pursue counter-marketing of the Windermere Watch websites, and, as the parties' relationships have deteriorated, has begun disclosing information about Plaintiffs to third parties that is protected by the Confidentiality provision.

 

G.   WSC's Treatment Of The Southern California Region Has Caused Significant Harm To Plaintiffs

 

            57. Sometime in 2014, Michael Teather, WSC's Senior Vice President of Client Services, implemented a strategy designed to systematically push Plaintiffs and other franchisees out of the Windermere system in order to resell the territories to new franchisees and to collect new initial franchise fees. This franchise model is known in the franchise industry as the "churn and burn" model.

 

            58. Consistent with this new strategy, Teather directed Plaintiffs to "bring on" as many franchisees as possible, and if/when they failed, resell the territory to a new franchisee. Both Bennion and Deville expressed their disgust with Teather's new strategy and made clear that this was no longer the Windermere they had joined over a decade earlier.

 

            59. In light of Plaintiffs' displeasure with the churn and burn strategy, Teather and others at WSC began creatively devising a plan to terminate Plaintiffs' Area Representation Agreement, and began surreptitiously meeting with other franchisees in the Southern California region undermining Plaintiffs' role and status as Area Representative. This included representations by Teather that he was now in charge of the region and would be taking the Services Division away from Plaintiffs.

 

            60. WSC pressured Windermere SoCal to relinquish its rights under the ARA, falsely claiming that B&D Fine Homes and B&D SoCal could earn greater profits by just operating Windermere franchised offices without Windermere SoCal continuing to serve as the Windermere area representative for Southern California.

 

            61. WSC also began engaging in a practice of directly and indirectly recruiting Plaintiffs' employees and sales agents. For example, WSC invited several of Plaintiffs' employees and sales agents to a relocation event scheduled in San Diego without notifying either Bennion or Deville of the event. Following this event, multiple sales agents terminated their employment with Plaintiffs.

 

            62. WSC also solicited Plaintiffs' IT personnel in an effort to coerce these individuals to join WSC's operations in Seattle. Teather himself approached and offered a job to Plaintiffs' head of its technology department.

 

            63. WSC then disclosed Plaintiffs' proprietary information to other franchisees in its system in an attempt to improperly recruit B&D Fine Homes and B&D SoCal associates and other employees to join WSC and other Windermere offices.

 

            64. Teather also began authorizing the sale of new franchised businesses in San Diego County without mentioning these sales to Bennion or Deville. After learning of the sales, Bennion and Deville learned that these were very unattractive locations making it more difficult for the franchisee to succeed. This, of course, was Teather's plan. In addition to the surreptitious sales, Bennion and Deville also objected to several new franchisees and/or franchise locations that were brought to their attention. Again, Teather authorized the franchised businesses regardless.

 

            65. WSC's conduct demonstrated it had no interest in maintaining long-term relationships with Plaintiffs and their franchisees. Instead, it was only concerned with collecting up front fees from new franchisees.

 

            66. WSC has undermined and ignored Plaintiffs at every turn. There have been significant periods of time where WSC would refuse and/or fail to respond to Plaintiffs' requests and the requests of the franchisees in the Southern California region.

 

            67. WSC's "churn and burn" franchise system is not only a deplorable model but has resulted in these numerous breaches of WSC's contractual obligations, as set forth in further detail below

 

H.   WSC Has Failed To Provide The Support Required Under All Of The Agreements

 

            68. Under each of Plaintiffs' Agreements, WSC has the obligation to provide them with the support services integral to a franchisor-franchisee relationship. (See Ex. A, § 1, Recital A; Ex. B, § 3; Ex. D, § 3.) WSC has failed to do so.

 

            69. WSC assured Plaintiffs that it had trained staff that would be able to assist and advise Plaintiffs and the franchisees within California in all aspects of the franchised business. In truth, WSC knew (and continues to know) very little about the California market, including marketing — and has provided Plaintiffs and the other franchisees in California with little or no support.

 

            70. WSC not only failed to keep up to date with effective marketing materials and systems for the Southern California region, including the creation, distribution and ongoing maintenance of local and regional marketing and advertising materials critical for any franchise system to be successful in a competitive marketplace, but WSC also intentionally interfered with Plaintiffs' relationships with advertisers. WSC exerted significant pressure on certain advertisers to discontinue Plaintiffs' marketing campaigns and otherwise terminate their relationships with Plaintiffs.

 

I.   WSC Breached The Technology Fees Clause Central To All Agreements

 

            71. Windermere franchisees, including those of B&D Fine Homes and B&D SoCal, are required to pay certain technology fees. These are among the fees which Windermere SoCal collects. (See Ex. B., §§ 11-13.) The technology fees were "intended to support the operation and development of WSC's technology systems". (See Ex. B, § 13.)

 

            72. WSC's antiquated, incomplete and obsolete technology systems suffer from so many deficiencies that the system is rendered unusable. Its deficiencies include that the system's tools do not cover MLS systems in Southern California. Which as to be expected, is a major issue for a Southern California based real estate company.

 

            73. Despite the shortcomings of WSC's technology system made available to the Southern California region, Plaintiffs continue to pay their monthly, per agent fees. While Plaintiffs' technology fee is capped at $25 per agent per month, WSC has continued to aggressively increase the fees paid by the other franchised businesses in the region. By early 2015, this fee had been significantly increased to $50 per agent, per month for the Southern California franchisees, a fee that was (and continues to be) disproportionately out of line with any benefits received by the franchisees and similar technology available in the marketplace. This amount was a far cry from the $10 fee charged by WSC just a few years back.

 

            74. WSC's escalating "technology fees" did not result in any improvement to the instability, operational deficiencies, and unreliability of the Windermere technology services. On information and belief, these technology fees bear no relationship to the amounts spent on Windermere's technology system.

 

            75. The failure of WSC to provide the agreed upon technology system breaches the Coachella Valley Franchise Agreement, Area Representation Agreement and SoCal Franchise Agreement. (See Ex A, §§ 1, 5, Affiliate Fee Schedule, Ex., B, § 13, Ex. D, §§ 3,7(c).)

 

            76. In light of this fee, franchisees in the region are paying between $16,000 and $25,000 per month for this essentially useless technology. This excessive fee has caused a wave of franchisees to leave the system, resulting in harm to both the Windermere brand in the region, but also to Plaintiffs' ongoing revenue as the Area Representative. This has not only caused the rescission of franchise agreements but has damaged Windermere SoCal as it acts as a significant deterrent to the recruitment of new franchisees.

 

            77. For instance, a franchise ran by Richard King was rescinded in significant part because of the "technology fee of $75 per licensee." A true and correct copy of an email from King to Deville regarding the rescission dated May 6, 2015 is attached hereto as Exhibit F. Mr. King noted that he was receiving nothing for this technology fees and that it made it "quite expensive to be affiliated with Windermere."

 

            78. B&D Fine Homes and B&D SoCal have been damaged in that they have paid tens of thousands in technology fees with no corresponding benefit. Windermere SoCal has been damaged through the loss of franchisees (and their attendant license revenue).

 

            79. WSC's inferior technology services and inflated technology fees caused Plaintiffs to incur substantial costs in developing and supporting their own technology systems. This has required Plaintiffs to subsidize an expensive infrastructure in order to provide the franchisees in their region with support that WSC has contractually agreed to provide. This infrastructure includes:

 

a. Plaintiffs had to construct windermeresocal.com and associated tools in order provide its agents an industry standard technology service, rather than use WSC's deficient and incomplete windermere.com offering;

 

b. Plaintiffs had to maintain a separate email server;

 

c. Plaintiffs had to maintain separate RETS (Real Estate Transaction Standard) to give brokers, agents and third parties access to listing and transaction data; and

 

d. Plaintiffs had to maintain separate syndicate options pathways in order to provide a higher standard of accuracy and reactivity.

 

            80. B&D Fine Homes and B&D SoCal have been damaged in that they have had to incur hundreds of thousands of dollars in expenses to maintain a technology platform to support the franchisees and their agents.

 

J.   WSC Breached The Area Representation Agreement By Failing To Maintain A Continuous Franchise Registration In California

 

            81. The right to offer Windermere franchises to prospective franchisees was central to Windermere SoCal's role as an Area Representative for WSC. The Area Representation Agreement granted Windermere SoCal the right to offer the franchise opportunity to real estate brokerage businesses. (See Ex. B, Recital A, §§ l.5, 2.) Windermere SoCal would then receive 50% of the initial franchise fees and 50% of the ongoing royalties that would flow from any new franchised businesses in its region.

 

            82. Plaintiffs are informed and believe that on several occasions, WSC failed to properly and timely renew its California franchise registration, thereby negating Windermere SoCal's ability to offer Windermere franchises for sale. This failure by WSC not only negatively impacted Windermere SoCal's profitability, but it also had the effect of suppressing the value of the Area Representative business upon termination.

 

            83. Instead of properly registering a franchise disclosure document for the Southern California region, WSC would demand that Windermere SoCal provide prospective franchisees with the Northern California disclosure documents — identifying incorrect fees. A true and accurate copy of an email from WSC's General Counsel to Deville, directing Deville to use the Northern California disclosure document "for now," is attached hereto as Exhibit G.

 

            84. By negating Windermere SoCal's ability to offer Windermere franchises for sale, WSC has deprived Windermere SoCal of the benefits of the Area Representative Agreement.

 

K.   WSC Breached The Termination Provision Of The Area Representation Agreement

 

            85. In light of the parties' ongoing dispute, on January 28, 2015, Paul S. Drayna, the General Counsel for WSC, sent a short, one paragraph letter to Deville announcing that WSC was "exercising its right to terminate [the] Area Representation Agreement dated May 1, 2004, pursuant to the l80-day notice provision of Paragraph 4.l." A true and accurate copy of the January 28, 2015 letter is attached hereto as Exhibit H. According to the letter, Windermere SoCal's "rights and responsibilities as Area Representative will terminate on Tuesday, July 28, 2015." (Id.)

 

            86. By exercising its rights under Paragraph 4.1 of the Area Representation Agreement, WSC was terminating the agreement without cause, and therefore triggering Section 4.2 requiring WSC to make termination payments to Windermere SoCal in an "amount equal to the fair market value of the Terminated Party's interest in the Agreement." (See Ex. B, § 4.2.)

 

            87. The January 28, 2015 letter did not purport to terminate or otherwise change the status of any of the franchise agreements between Plaintiffs and WSC.

 

            88. In stark contrast to WSC January 28, 2015 letter seeking to terminate the Area Representation Agreement without cause, on February 26, 2015, WSC served Plaintiffs with a second termination letter, this time announcing WSC's intent to terminate "with cause." A true and accurate copy of the February 26,2015 letter is attached as Exhibit 1.

 

            89. According to this second letter, WSC now claimed to have cause to terminate the agreement in light of Windermere SoCal' s alleged "material breach" of sections 3, 4 and 10 of the Area Representation Agreement for purportedly "failing to collect and/or remit license and technology fees from licensees." (Ex. 1.) The second letter also provided Windermere SoCal 90 days to cure these alleged breaches. (Jd.)

 

            90. WSC's attempt to terminate the Area Representation Agreement for "cause" is improper. Under the Area Representation Agreement, Windermere SoCal was only tasked with collecting certain franchise fees from the franchisees in its territory; it is not the guarantor to WSC of any of the unpaid/uncollectable fees. (Ex. B, § § 3, 11-13, Exhibit A, § 3 [Windermere SoCal "will not be responsible for payment of uncollectable fees."]) Because Windermere SoCal has not withheld from WSC any of the franchise fees that it has collected, WSC's stated breaches of the Area Representation Agreement are not actionable. Thus, no cause existed for WSC to terminate the Area Representation Agreement.

 

            91. WSC has breached Section 4.2 of the Area Representation Agreement by failing to pay Windermere SoCal the required termination fee. (See Ex. B, § 4.2.)

 

L.   WSC Breached The Modification Agreement By Failing To Make Commercially Reasonable Efforts To Curtail The Windermere Watch

 

            92. Windermere has been the target of anti-marketing campaign initiated by Gary Kruger. Kruger and his associates initiated a web based campaign, at both www.windermerewatch.com and www.windermerewatch2.com, targeting Windermere and its franchised businesses.

 

            93. The Windermere Watch anti-marketing campaign has had a very significant and monetarily damaging effect on Plaintiffs. As Plaintiffs expanded the Windermere brand in Southern California they had to push against the headwind that is Windermere Watch. Prior to Plaintiffs' involvement, Windermere had a very minimal presence in California.

 

            94. In deciding on picking a real estate broker, consumers often would research Windermere to obtain background information on it. The Windermere Watch website prominently appears in website search engines (such as Google). Its effect then is to immediately damage a franchisee's broker's opportunity to obtain clients which in turn financially damages the franchisee and the Area Representative.

 

            95. In the Modification Agreement, WSC enticed Plaintiffs to remain with Windermere by agreeing to make "commercially reasonable efforts to actively pursue counter-marketing, and other methods seeking to curtail the anti-marketing activities undertaken by Gary Kruger, his Associates, Windermere Watch and/or the agents of the foregoing persons." (Ex. E, § 3(A).) The Modification Agreement specifically suggested litigation as one type of counter marketing. (Id.)

 

            96. WSC also should have engaged and devoted significant resources in search engine optimization to target and diminish the Windermere Watch site content's appearance in internet search engines. On information and belief, WSC has failed to engage in any such campaign and has failed to devote resources to curtail the Windermere Watch.

 

            97. Despite their obligation under the Modification Agreement, and repeated requests by Plaintiffs that it take action, WSC has failed to take any material efforts to combat the Windermere Watch.

 

            98. WSC's failure to act has forced Plaintiffs to incur significant time and expense employing their own counter-marketing campaign to combat the damage that the Windermere Watch has caused to the Southern California franchisees. Plaintiffs have incurred in excess of $125,000 in additional expenses attempting to mitigate the negative impact of the Windermere Watch website activities.

 

            99. Because WSC failed to make commercially reasonable efforts to pursue counter marketing of Windermere Watch as required by the Modification Agreement, WSC has effectively breached its obligations under that agreement.

 

M.   After Plaintiffs Explore Selling The Business Back To Windermere, WSC Exploits The Attempted Transaction By Breaching The Confidentiality Provision

 

            100. After WSC had committed extensive contractual breaches and shown that it had a cavalier attitude toward its' legal obligations, Plaintiffs naturally looked to options for ending the relationship. Plaintiffs eventually explored selling the business, or parts thereof, back to Windermere and WSC.

 

            101. As part of these negotiations, Plaintiffs entered into a confidentiality agreement with WSC's President John Jacobi and had Jacobi and his associates sign the agreement (hereafter, the "Confidentiality Agreement"). Jacobi acted on behalf and in concert with WSC in signing the Confidentiality Agreement and exploring the sale. A true and correct copy of the Confidentiality Agreement signed by various representatives of WSC is attached hereto as Exhibit 1.

 

            102. As part of the parties' negotiations, Plaintiffs shared the financial information necessary to value its business. Plaintiffs only shared such information for purposes of reaching a deal to sell the business or parts thereof.

 

            103. After the parties were ultimately unable to come to an agreement, WSC took the confidential and proprietary information and brandished it as weapon to use in its campaign against Plaintiffs. This includes informing Plaintiffs' employees and third parties that Plaintiffs are selling their business and using this and the information gained in the negotiations as leverage to attempt to get agents and employees to leave Plaintiffs businesses.

 

            104. WSC's conduct is in violation of sections 1, 2 and 3 of the Confidentiality Agreement. The Confidentiality Agreement expressly forbids the disclosure of any information obtained in the negotiations. (See Ex. J, § 1 [The Information ... will not be used by Jacobi or any of the Jacobi affiliates, other than in connection with Jacobi's evaluation of the transaction"], § 2 ["Jacobi may share the Information only with his accountant Kelly MacDonald, and not with any other of the Jacobi Affiliates or other third parties"]; § 3 ["Jacoby [sic] agrees that prior to disclosing any of the Information to any person ... Jacobi will cause such person to sign a confirmation, agreeing to be bound by the terms of the Confidentiality Agreement"].)

 

N.   WSC Also Violated The Confidentiality Provision In the Modification Agreement

 

            105. As part of the Plaintiffs' agreement to continue their relationships with WSC notwithstanding all of the problems confronting the WSC franchise system, the parties entered into the Modification Agreement which significantly modified (and reduced) the Plaintiffs' obligations under the franchise agreements. During the extensive negotiations leading up to the execution of the Modification Agreement, Plaintiffs provided WSC with sensitive, proprietary financial and other information, the contents of which are expressly protected by the Confidentiality Provision in the Modification Agreement.

 

            106. Plaintiffs are now informed and believe that WSC has disclosed to other franchisees in its system Plaintiffs' proprietary information provided to WSC as part of the negotiations surrounding the Modification Agreement and, to some extent, incorporated in the terms of the Modification Agreement.

 

            107. WSC's activities not only violate the express terms of the Confidentiality Provision, but they undermine the purpose of the negotiations giving rise to the Modification Agreement. (See Ex. E., § 15.) WSC's disclosure of the Plaintiffs' confidential and proprietary information has significantly harmed Plaintiffs' businesses.

 

O.   WSC Has Unlawfully Interfered With Plaintiffs' Franchise And Employment Relationships

 

            108. As part of its efforts to replace Plaintiffs and generate more fees, WSC has interfered with both B&D Fine Homes and B&D SoCal' s franchises as well as undermined Windermere SoCal' s role as Area Representative. WSC has implemented a strategy of attempting to poach Plaintiffs' employees through improper practices as well as replace Plaintiffs by inserting new franchisees in the region.

 

            109. WSC has directly and indirectly recruited Plaintiffs' employees and sales agents to join WSC or other franchisees. This has resulted in multiple sales agents and support staff terminating their employment with Plaintiffs.

 

            110. WSC has damaged Plaintiffs' existing relationships with franchisees (and prospective franchisees) in Southern California region by announcing, without Plaintiffs' knowledge, that Windermere SoCal was relinquishing its "servicing" rights under the ARA, when in fact Windermere SoCal has not expressed any such intention or plan.

 

            111. WSC supported and assisted a Windermere franchise to relocate into the same Northern San Diego County market, in which there was already a B&D SoCal franchise office already operating. WSC then pressured B&D SoCal to "give" its office over to this franchisee without any remuneration.

 

            112. WSC has authorized and approved the opening of various Windermere franchised offices within Windermere SoCal's territory without approval of Windermere SoCal.

 

FIRST CLAIM FOR RELIEF

Breach of Contract - Coachella Valley Franchise Agreement

(By B&D Fine Homes and Windermere SoCal against WSC)

 

            113. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            114. As alleged above, B&D Fine Homes entered into the Coachella Valley Franchise Agreement with WSC on August 1, 2001. This agreement was later amended to include Windermere SoCal as a party.

 

            115. Plaintiffs performed all obligations required of them under the Coachella Valley Franchise Agreement, unless otherwise excused by WSC's breach.

 

            116. WSC breached the Coachella Valley Franchise Agreement by failing to comply with the following requirements:

 

a. Section 1, for failing to provide the promised "services" to enhance Plaintiffs' "profitability;

 

b. Section 4, for failing to take necessary action (legal or otherwise) to prevent infringement of the Windermere trademark or the related unfair competition faced by Plaintiffs in the Southern California region as a result of the Windermere Watch websites;

 

c. Recital A, for failing to provide Plaintiffs with a viable "Windermere System" as defined in the agreement; and

 

d. Affiliate Fee Schedule Attachment, for failing to provide adequate technology systems in return for technology fees.

 

            117. As a result of WSC's breaches of the Coachella Valley Franchise Agreement, Plaintiffs suffered actual damages in an amount to be proven at trial, but far in excess of the jurisdictional minimums of this Court.

 

            118. Plaintiffs are also entitled to recover "reasonable attorneys' fees" under the Coachella Valley Franchise Agreement. (See Ex. A, § 11.)

 

SECOND CLAIM FOR RELIEF

Breach of Contract — Area Representation Agreement

(By Windermere SoCal against WSC)

 

            119. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            120. As alleged above, on May 1,2004, Windermere SoCal entered into the Area Representation Agreement with WSC.

 

            121. Windermere SoCal performed all obligations required of it under the Area Representation Agreement, unless otherwise excused by WSC' s breach.

 

            122. WSC breached the Area Representation Agreement by failing to comply with the following requirements:

 

a. Section 2, for failing to provide Windermere SoCal with the uninterrupted right to offer Windermere franchised businesses in Southern California;

 

b. Section 2, for failing to provide a viable "Windermere System" as defined in the agreement;

 

c. Section 4.2, for failing to pay Windermere SoCal the termination fee — i.e. the fair market value of its interest in the Area Representation Agreement - following termination without cause;

 

d. Section 7, for failing to promptly and diligently commence and pursue the preparation and filing of all franchise registration filings required under California law and/or the United States of America; and

 

e. Section 13, for failing to provide a technology system to support the operation and development of the franchise system in Southern California, and for unilaterally increasing the technology fees to amounts that on information and belief bear no relationship to the amounts actually spent on Windermere's technology system.

 

            123. As a result of WSC's breaches of the Area Representation Agreement, Windermere SoCal has suffered (and will continue to suffer) actual damages in an amount to be proven at trial, but far in excess of the jurisdictional minimums of this Court.

 

            124. Windermere SoCal is also entitled to recover "reasonable attorneys' fees" under the Coachella Valley Franchise Agreement. (See Ex. B, § 21.)

 

THIRD CLAIM FOR RELIEF

Breach of Contract - SoCal Franchise Agreement

(By B&D SoCal, Bennion, Deville, and Windermere SoCal against WSC)

 

            125. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            126. As alleged above, on March 29, 2011, B&D SoCal, Windermere SoCal, Bennion, and Deville entered into the SoCal Franchise Agreement with WSC.

 

            127. Plaintiffs performed all obligations required of them under the SoCal Franchise Agreement, unless otherwise excused by the conduct of WSC.

 

            128. WSC breached the SoCal Franchise Agreement by failing to comply with the following requirements:

 

a. Section 3, for failing to provide the promised "guidance" to Plaintiffs with respect to the "Windermere System";

 

b. Section 6, for failing to take necessary action (legal or otherwise) to prevent infringement of the Windermere trademark or the related unfair competition faced by Plaintiffs in the Southern California region as a result of the Windermere Watch websites;

 

c. Recital A, for failing to provide Plaintiffs with a viable "Windermere System" as defined in the agreement; and

 

d. Affiliate Fee Schedule Attachment, for failing to provide adequate technology systems in return for technology fees.

 

            129. As a result of WSC's breaches of the SoCal Franchise Agreement, Plaintiffs suffered actual damages in an amount to be proven at trial, but far in excess of the jurisdictional minimums of this Court.

 

            130. Plaintiffs are also entitled to recover "reasonable attorneys' fees" under the SoCal Franchise Agreement. (See Ex. D, § 13.)

 

FOURTH CLAIM FOR RELIEF

Breach of Contract - Modification Agreement

(By all Plaintiffs against WSC)

 

            131. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            132. As alleged above, on December 18,2012, Plaintiffs and WSC entered into the Modification Agreement.

 

            133. Plaintiffs performed all obligations required of them under the Modification Agreement, unless otherwise excused by the conduct of WSC.

 

            134. WSC breached the Modification Agreement by failing to comply with the following requirements:

 

a. Section 3(A), for failing to make commercially reasonable efforts to curtail Windermere Watch and related attacks on the Windermere brand in Southern California; and

 

b. Section 15, for violating the confidentiality provision by disclosing to other franchisees in its system Plaintiffs' confidential, proprietary information.

 

            135. As a result ofWSC's breaches of the Modification Agreement, Plaintiffs suffered actual damages in an amount to be proven at trial, but far in excess of the jurisdictional minimums of this Court.

 

            136. Plaintiffs are also entitled to recover "reasonable attorneys' fees and costs" under the Modification Agreement. (See Ex. E, § 7.)

 

FOURTH CLAIM FOR RELIEF

[sic; claim is actually #5 in order]

Breach of Contract — Confidentiality Agreement

(By all Plaintiffs against WSC)

 

            137. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            138. As alleged above, Plaintiffs entered into the Confidentiality Agreement on April 22, 2015.

 

            139. Plaintiffs performed all obligations required of them under the Confidentiality Agreement, unless otherwise excused by the conduct of WSC.

 

            140. WSC breached Section 1 through 3 of the Confidentiality Agreement by revealing confidential and proprietary information obtained in the negotiations.

 

            141. As a result of WSC's breaches of the Confidentiality Agreement, Plaintiffs suffered actual damages in an amount to be proven at trial, but far in excess of the jurisdictional minimums of this Court.

 

SIXTH CLAIM FOR RELIEF

Breach of Implied Covenant of Good Faith and Fair Dealing

(By all Plaintiffs against WSC)

 

            142. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of their Complaint as though fully set forth herein.

 

            143. As alleged above, B&D Fine Homes entered into the Coachella Valley Franchise Agreement on August 1, 2001, Windermere SoCal entered into the Area Representation Agreement on May 1, 2004 and B&D SoCal entered into the SoCal Franchise Agreement on March 29, 2011. Plaintiffs entered into the Modification Agreement on December 18, 2012 and Confidentiality Agreement on April 22, 2015.

 

            144. Incorporated into the Coachella Valley Franchise Agreement, Area Representation Agreement, SoCal Franchise Agreement, Modification Agreement and Confidentiality Agreement is an implied covenant of good faith and fair dealing.

 

            145. Plaintiffs performed all obligations required of them under the Coachella Valley Franchise Agreement, Area Representation Agreement, SoCal Franchise Agreement, Modification Agreement and Confidentiality Agreement.

 

            146. WSC breached the implied covenant of good faith and fair dealing by acting in a manner so as to deprive Plaintiffs of the benefits of their agreements. This included

 

a. Failing to provide a viable Windermere System in the Southern California region. To the extent WSC provided services or assistance it was worthless;

 

b. Failing to make commercially reasonable efforts to curtail the Windermere Watch;

 

c. Marketing franchisees in Windermere SoCal' s territory without consultation;

 

d. Granting Windermere branch offices to third parties in markets served by Windermere SoCal;

 

e. Soliciting Windermere SoCal' s participation in offers and sales of franchises in violation of the franchise laws;

 

f. Improperly recruiting B&D Fine Homes and B&D SoCal's sales associates and other employees to join WSC and other Windermere offices;

 

g. Disclosing to other franchisees in its system Plaintiffs' proprietary information;

 

h. Failing to provide a modern and up to date technology system platform;

 

i. Increasing the technology fees to amounts that on information and belief bear no relationship to the amounts spent on Windermere's technology system; and

 

j. Failing to act in good faith and conduct its business such that Plaintiffs received the benefits of being part of a franchise system.

 

            147. As a result of WSC's breach of the implied covenant of good faith and fair dealing, Plaintiffs have suffered damages in an amount to be proven at trial.

 

SEVENTH CLAIM FOR RELIEF

Tortious Interference with Contractual Relations

(By all Plaintiffs against WSC)

 

            148. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of the Complaint as though fully set forth therein.

 

            149. Windermere SoCal has valid, existing agreements with franchisees throughout its region concerning Windermere real estate brokerages.

 

            150. WSC had knowledge of the aforementioned agreement and knew of its value to Windermere SoCal.

 

            151. WSC intentionally disrupted the performance of the aforementioned agreement by:

 

a. Marketing franchisees in Windermere SoCal's territory without consultation;

 

b. Granting Windermere branch offices to third parties in markets served by Windermere SoCal; and

 

c. Soliciting Windermere SoCal's participation in offers and sales of franchises in violation of the franchise laws.

 

            152. WSC's conduct has prevented performance of the Area Representation Agreement by reducing Windermere SoCal' s ability to maintain franchisees in the region.

 

            153. B&D Fine Homes and B&D SoCal have valid, existing agreements with their agents in each of their locations.

 

            154. WSC had knowledge of the aforementioned agreements and knew of their value to B&D Fine Homes and B&D SoCal.

 

            155. After WSC gave notice to terminate the Area Representation Agreement and received notice of the termination of the Coachella Valley Franchise Agreement and SoCal Franchise Agreement, WSC set out to disrupt B&D Fine Homes and B&D SoCal' s agreements with their agents.

 

            156. WSC intentionally disrupted the performance of the aforementioned agreement by improperly recruiting B&D Fine Homes and B&D SoCal's sales associates and other employees to join WSC and other Windermere offices.

 

            157. WSC's conduct has caused B&D Fine Homes and B&D SoCal to lose employees thus preventing the performance of the employment agreements.

 

            158. As a direct, proximate and foreseeable result, Plaintiffs have been damaged in an amount to be proven at trial. WSC' s conduct was a substantial factor in causing this harm.

 

            159. WSC's conduct was malicious, fraudulent and oppressive and done with a conscious disregard for Plaintiffs' contractual rights. As such, Plaintiffs are entitled to exemplary damages in an amount to be proven at trial.

 

EIGHTH CLAIM OF RELIEF

Tortious Interference with Prospective Economic Advantage

(By all Plaintiffs against WSC)

 

            160. Plaintiffs repeat, reallege and incorporate by reference the preceding paragraphs of the Complaint as though fully set forth therein.

 

            161. Windermere SoCal's Area Representation Agreement allowed it to prospect franchisees throughout its region to add them as Windermere real estate brokerages. WSC knew of these prospective relationships.

 

            162. WSC intentionally disrupted Windermere SoCal's ability to solicit and enroll new franchisees by:

 

a. Marketing franchisees in Windermere SoCal' s territory without consultation;

 

b. Granting Windermere branch offices to third parties in markets served by Windermere SoCal; and

 

c. Soliciting Windermere SoCal' s participation in offers and sales of franchises in violation of the franchise laws.

 

            163. WSC' s conduct has prevented Windermere SoCal from being able to recruit additional franchisees in the region.

 

            164. B&D Fine Homes and B&D SoCal continually have attempted to expand their franchises by adding stores and real estate agents. WSC knew of these prospective relationships.

 

            165. WSC intentionally disrupted the potential acquisition of additional stores and agent by improperly recruiting sales associates and other employees in the region to join WSC and other Windermere offices.

 

            166. WSC's conduct has caused B&D Fine Homes and B&D SoCal to lose out on the acquisition of potential stores and employees.

 

            167. As a direct, proximate and foreseeable result, Plaintiffs have been damaged in an amount to be proven at trial. WSC' s conduct was a substantial factor in causing this harm.

 

            168. WSC's conduct was malicious, fraudulent and oppressive and done with a conscious disregard for Plaintiffs' contractual rights. As such, the Plaintiffs are entitled to exemplary damages in an amount to be proven at trial.

 

            WHEREFORE, Plaintiffs pray for relief against WSC as follows:

 

            1. On the First through Sixth Causes of Action:

 

a. For compensatory damages in amounts to be proven at trial;

 

b. For a judicial determination and declaration that WSC did not have cause to terminate the Area Representation Agreement, as provided for in the agreement.

 

            2. On the Seventh and Eighth Causes of Action:

 

a. For compensatory damages in amounts to be proven at trial;

 

b. For punitive damages in amounts to be proven at trial.

 

c. For a preliminary and permanent injunction enjoining WSC from improperly recruiting B&D Fine Homes and B&D SoCal's sales associates and other employees to join WSC and other Windermere offices.

 

            3. For reasonable costs and attorneys' fees incurred in this action pursuant to Section 11 of the Coachella Valley Franchise Agreement, Section 21 of the Area Representation Agreement; Section 13 of the SoCal Franchise Agreement; and Section 7 of the Modification Agreement; and

 

            4. For such other and further relief as the Court may deem just and proper.

 

 

DATED: September 17,   2015                             MULCAHY LLP

 

                                                                        By: /s/ James M. Mulcahy

                                                                        James M. Mulcahy

                                                                        Kevin A. Adams

                                                                        Attorneys for Plaintiffs

                                                                        BENNION & DEVILLE FINE HOMES,

                                                                        INC., BENNION & DEVILLE FINE

                                                                        HOMES SOCAL, INC., WINDERMERE

                                                                        SERVICES SOUTHERN CALIFORNIA, INC.

 

 

JURY DEMAND

 

            Pursuant to Federal Rule of Civil Procedure 3 8(b), Plaintiffs demand a jury trial on all issues triable to a jury.

 

 

DATED: September 17,   2015                             MULCAHY LLP

 

                                                                        By: /s/ James M. Mulcahy

                                                                        James M. Mulcahy

                                                                        Kevin A. Adams

                                                                        Attorneys for Plaintiffs

                                                                        BENNION & DEVILLE FINE HOMES,

                                                                        INC., BENNION & DEVILLE FINE

                                                                        HOMES SOCAL, INC., WINDERMERE

                                                                        SERVICES SOUTHERN CALIFORNIA, INC.

 

 

Windermere Coachella Valley Leaskou Partners QUITS WINDERMERE after just 11 months:  "Their branding just wasn't enough for Southern California," Leaskou said.

For immediate release

Leaskou Partners and Windermere Real Estate Unite in Coachella Valley

Largest regional real estate company in Western U.S. welcomes newest franchisee to form Windermere Real Estate Leaskou Partners

Seattle – Nov. 18, 2015 – Leaskou Partners, Inc., an independent real estate brokerage headquartered in Palm Springs, Calif., is joining Windermere Real Estate, furthering the company’s rapid, yet scalable, growth in the Coachella Valley. In addition to its Palm Springs location, which will transition to Windermere on December 1, Windermere Real Estate Leaskou Partners also plans to open an office in Rancho Mirage by year end, and two additional Palm Springs locations in the coming months.

The partnership will further expand the Windermere brand in the Coachella Valley which started with the opening of a Windermere office in Palm Desert last October by owners Brian Gooding and Rich Johnson. Another new Windermere franchise in La Quinta is scheduled to be announced in January.

Benjamin Leaskou (left) founded Leaskou Partners in Palm Springs in 2013, combining “The Art of Real Estate” with first-class customer service in a boutique brokerage environment. The formula worked, and he and his team have continually doubled sales year-over-year, resulting in more than $700 million in sales during the past five years.

“When you consider Windermere’s stellar brand and ability to provide out-of-state client referrals, combined with Leaskou Partners’ proven client-centric style and solid reputation in the Coachella Valley, joining forces seemed inevitable,” said Leaskou. “This partnership will enable us to grow our team of seasoned real estate professionals and expand our footprint in the Valley.”

Leaskou said he will be adding real estate agents to his current team, all of whom are seasoned professionals with five to 10 plus years of experience representing buyers and sellers in the Coachella Valley and other Southern California markets.

“Benjamin is one of those real estate professionals who not only understands how to market and sell properties, but also how to build long-term relationships through exceptional customer experience,” said President of Windermere Real Estate, OB Jacobi. “He and his team are consummate professionals who understand the importance of giving back to their community, which is at the core of everything we do. We are thrilled to welcome Leaskou Partners to the Windermere family.”

Leaskou's career in real estate started eight years ago when he started working as a transaction coordinator at Windermere Real Estate. His interest in the industry led him to obtain a real estate license, and shortly thereafter he became a top one percent Realtor in Palm Springs.

After three years selling, Leaskou bought into a small boutique firm, Greater Palm Springs Realty, and later opened Leaskou Partners, Inc. Very community focused, Leaskou volunteers and contributes to numerous organizations. He is an annual contributor to the Palm Springs Art Museum, Desert Aids Project and the Aids Assistance Program, and is a member of the Old Las Palmas Neighborhood Organization, O'Donnell Golf Club and The Empire Polo Club. He is part of the leadership team at the Palm Springs Regional Association of Realtors, where he served as the MLS Committee Chairman in 2008, 2012 and is currently serving as a Board of Director, and was elected treasurer for 2016.

Windermere Real Estate?Leaskou Partners will be adding to its team. Experienced real estate agents who are interesting in joining Windermere can visit http://leaskoupartners.com/contact.php or call 760.799.4290.

 

 

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