Free Response in Opposition to Motion - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Don P. Williams (AZ State Bar No. 002978) LAW OFFICE OF DON P. WILLIAMS P. O. Box 5308 Goodyear, AZ 85338 Phone: 623.297.4211 Fax: 1.623.321.8026 Email: [email protected] Attorney for Defendant(s) Daryush/Jennifer Motlagh and Integrity Assurance, Inc.

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Century 21 Real Estate Corporation, a Delaware corporation, Plaintiff, vs. Daryush B. Motlagh and Jane Doe Motlagh, husband and wife; Integrity Assurance, Inc. an Arizona Corporation, Defendant Case No: CIV 03 2353-PHX-DGC DEFENDANTS' RESPONSE IN OPPOSITION TO CENTURY 21 REAL ESTATECORP'S: (1) RENEWED MOTION FOR SUMMARY JUDGMENT ON ITS BREACH OF CONTRACT AND UNJUST ENRICHMENT CLAIMS; AND (2) MOTION FOR SUMMARY JUDGMENT ON COUNTERCLAIMS Hon. David G. Campbell [Oral Argument Requested] Defendants Daryush and Jennifer Motlagh, individually, and their wholly-owned

19

corporation Integrity Assurance, Inc., an Arizona corporation, move the Court to deny
20 21 22 23 24 25 26 27 28

Plaintiff's Motion for Summary Judgment On Contract and Unjust Enrichment Claims, for the reasons that, with regard to each Claim, there are disputed material facts, and Plaintiff has failed to show that it is entitled to judgment as a matter of law; and, as to defendant Integrity Assurance, Inc,. plaintiff has failed to join an a person in whose absence complete relief cannot be accorded among those already parties; and, the person claims an interest relating to the subject matter of the action. I. Status of Chapter 11 Bankruptcy Case of Integrity Assurance Inc. Defendant herein Integrity Assurance Inc., an Arizona corporation, filed a Chapter 11 Bankruptcy Case on December 27th, 2001. That case is still being administered. Integrity was a debtor in possession until January 24, 2006, when the
1 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 1 of 17

1 2 3 4 5 6 7

bankruptcy court granted the motion of CREC and appointed a case trustee. Since then the trustee and his attorney have conducted a thorough investigation of the DIP's operations, books and records, but have taken no further action, other than to issue a letter to the effect that any actions take by Motlagh, as manager of the DIP, pertaining to the operation of the business that were contrary to the requirements and limitations of the Bankruptcy Code were done out of ignorance or lack of understanding of the Bankruptcy Code and not with the intent to deceive or defraud creditors. From the beginning of this litigation, attorney Don P. Williams has been acting, at

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

the behest of Motlagh, as counsel for Integrity, as well as for Daryush and Jennifer Motlagh. Since the takeover of Integrity by the trustee, Williams has not been given specific written authority from the trustee to continue representing Integrity, and no other attorney has sought to substitute itself as Integrity's attorney, leaving in doubt the authority of Williams to act for and in behalf of Integrity, and effectively leaving Integrity without an attorney, a circumstance prohibited by federal statutes and rules. It now appears that since CREC seeks a money judgment against Integrity, which necessarily implicates the assets of Integrity, which are property of the bankruptcy estate, which is now under the control of the trustee, that the court-appointed trustee is a necessary party under Rule 19(a), F.R.C.P., as to any claims being asserted against Integrity Assurance, Inc. MEMORANDUM OF POINTS AND AUTHORITIES A grant of summary judgment is appropriate only where the moving party has demonstrated [construing the evidence in the light most favorable to the nonmoving party] that there is no genuine issue of material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Once the moving party

23 24 25 26 27 28

demonstrates the absence of a genuine issue of material fact, the nonmoving party that bears the ultimate burden at trial must show that there is evidence creating a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 ­ 25 (1986). Flowers v. United States Army, No. 04-16153 (9th Cir. 05/03/2006). Nonmovants' Disputes of Material Facts I. Breach of Contract.

2 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 2 of 17

1 2 3 4 5 6 7

Motlagh/Integrity disputes the claim of CREC that Motlagh/Integrity owed contract royalty fees to CREC for activities occurring after February 2002. CREC served written notice of termination of the Franchise Agreement on Motlagh and thereafter refused and failed to perform any obligation it may have had under the adhesive franchise contract, and in addition, prevented and prohibited Motlagh from making any payments to CREC through its internet-based CREST EDG reporting system, which it had previously required Motlagh to install in Motlagh's computer system, which required a substantial investment in new equipment by Motlagh..

8 9 10 11 12 13 14 15 16 17

For all practical purposes related to the ability of Motlagh to function as a CREC franchise, CREC had surreptitiously and incrementally abandoned the franchise agreement from 1999 through 2001 by: 1) Intentionally or negligently removing Motlagh's franchise information from its 1-800 client inquiry system, to the effect that an inquirer seeking information about a CENTURY 21 brokerage in Goodyear would be told that there was no office in the Goodyear area; 2) Intentionally or negligently removing Motlagh's franchise information from CREC's home warranty provider affiliate AON, to the effect that Motlagh's clients were denied warranties and suffered returned checks from AON with the notation that CENTURY 21 Assurance Realty was not a known CREC franchise;

18 19 20 21 22 23 24 25 26 27

3. Intentionally or negligently scrambling and then removing Motlagh's franchise information from its directory of C21 franchises, thereby depriving Motlagh and his agents of broker-to-broker referral opportunities; 4. Intentionally or negligently failing to notify Motlagh and his agents of "client promotion opportunities" such as tickets to Arizona Diamondbacks baseball games and other events; 5.Intentionally or negligently removing Motlagh's franchise information from its supply ordering system so that Motlagh could not access proper C21 letterhead stationery and other trademarked items for use in the business; 6.Intentionally or negligently mailing important notices and items to an incorrect address for over three years.

28

3 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 3 of 17

1 2 3 4 5 6 7

For the foregoing reasons and others, as will be more fully set forth below, CREC is equitably estopped from asserting the existence of a franchise agreement contract postpetition, and especially after delivering its letter of franchise termination in February, 2002. II. Unjust Enrichment. 1) Nonmovants assert as a matter of fact that post petition [December 27th, 2001] and particularly after it was served with CREC's Notice of Termination of Franchise Agreement in February, 2002, (1) it received no benefit from its display of C21

8 9 10 11 12 13 14 15 16 17

trademarks and logos, and (2) neither Motlagh nor Integrity were "enriched" as a consequence of displaying C21 trademarks or logos. 2) It is undisputed that the CREC termination letter of February, 2002 violated the automatic stay of the Bankruptcy Code, and could not operate to relieve CREC of its contract obligations. 3) Nonmovant Motlagh asserts that as a matter of fact, from February, 2002 through July, 2003, he harbored a good faith belief that (1) in his best business judgment his business would be damaged if he lost his C21 affiliation, and (2) he could negotiate a fair settlement with CREC and retain the franchise. 4) Nonmovant Motlagh asserts that as a matter of fact, after a hearing in the Bankruptcy Court in July, 2003 at which he was present, in which counsel for CREC, in

18 19 20 21 22 23 24 25 26 27

response to a query from the bench concerning CREC's intentions if Integrity/Motlagh cured its contract arrearages, stated that CREC would still terminate the franchise agreement if the stay were lifted, Motlagh abandoned all hope that he could rehabilitate himself with CREC, and thereafter, while waiting for an official, lawful notice of termination, continued to display his existing C21 signs, trademarks and logos with the intent of negotiating a closure settlement to recover some of his investment and cost incurred in purchasing the items in conformance with CREC requirements. 5) Between August 2003, when the stay was lifted, and December 2003, when Motlagh/Integrity changed its business dress to Brand 1 Realty, CREC refused to discuss any kind of settlement with Motlagh that would include even a partial reimbursement of his investment in the C21 franchise or franchise-mandated products.

28

4 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 4 of 17

1 2 3 4 5 6 7

6) With regard to its SOF No. 2, it is inaccurate to state that, "... his corporation, Integrity, operated the franchise." In this case, the Corporation is Daryush Motlagh and Daryush Motlagh is the Corporation." Motlagh is the necessary Licensed Real Estate Broker, and for the most part there are no other employees of the Corporation. Motlagh operated his real estate brokerage in the name of Integrity Assurance Inc., for federal and state tax purposes. However, in pleadings filed in various Bankruptcy Court proceedings, CREC has denied that it ever gave consent to an assignment of the Franchise Agreement from Edwards/Motlagh to Integrity, and claims that Motlagh remained the franchise

8 9 10 11 12 13 14 15 16 17

owner. [In fact, at a hearing in July, 2003 regarding CREC's motion to lift the stay and Integrity's motion to assume the contract, CREC's counsel brought in [under subpoena] an employee of the Arizona Department of Real Estate whose purpose there was apparently to testify that the document that Motlagh believed showed the assignment and consent, had been altered by whiteout]. The issue of assignment has never been litigated between the parties, and Motlagh has conceded for purposes of litigation that his assignment was ineffective due to CREC's lack of consent. 7) With the possible exception of Numbers 52 through 71, CREC's Statement of Facts are irrelevant to its motion for summary judgment claims for post-petition breach of contract and unjust enrichment damages. Nonmovant has direct and subtle disagreements with the "statements of fact" set forth in Numbers 52 through 71, as will be more fully

18 19 20 21 22 23 24 25 26 27

described below. 8) Defendant disputes Plaintiff's SOF No. 58. Motlagh did initially file a strong written objection to Plaintiff's Motion, but subsequently conceded, by non-appearance at the hearing, the Motion in the Chapter 7 case, electing to act on his belief that ownership of the Franchise Agreement was in his Corporation by contesting the Motion for Termination filed by Century 21 Corporation in that case. 9) Defendants dispute Plaintiff's SOF Nos.60 - 64 as stated because they are misleading. Having obtained relief from the automatic stay, Century 21 Corporation had a contractual obligation [despite having itself abandoned performance] to terminate the Agreement in accordance with the terms of the Agreement. This it did not do until November, 2003; in the interim, Defendant continued with its permissive use of Century

28

21 trademarks because (1) it paid for such use; and (2) it was intended to elicit settlement
5 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 5 of 17

1 2 3 4 5 6 7

negotiations with Century 21 Corporation, which continued to refuse to negotiate with him. 10) Defendants dispute the gross revenue figures stated by CREC as the basis for its royalty and fees damage claim. Said number was cherry-picked from the Business and Industry Monthly Operating Reports filed by debtor Integrity Assurance Inc., and does not relate to the Franchise Agreement requirements of Paragraph 8 of that Agreement; further, it does not take into account those revenues realized from property management that are exempt from royalty fees.

8 9 10 11 12 13 14 15 16 17

11) Defendants dispute Plaintiff's SOF No. 69 as being unproven and unaudited. LEGAL ANALYSIS I. CREC's Post-Petition Breach of Contract Claim. By its written Notice of Termination dated February 2006 CREC abandoned its involvement with Motlagh's franchise. Thereafter, it fully excised C21 Assurance Realty from its systems, and provided no further support. According to the CREC "system", there did not exist a Century 21 real estate office in Goodyear, Arizona after mid-to-late 1999. CREC has failed to explain how, as a matter of law, it is entitled to collect damages for breach of a contract that it abandoned. By Franchise Agreement Number 6272 CREC sold to Edmonds and Motlagh a non-exclusive right to use the CENTURY 21 System and certain CENTURY 21 Marks.

18 19 20 21 22 23 24 25 26 27

See, Franchise Agreement, para. 1 at page 1. CREC defines its "system" to include, but is not limited to, "... common use and promotion of certain CENTURY 21 Marks, copyrights, trade secrets, centralized advertising programs, recruiting programs, referral and sales and management training programs." There was no "system" available to Motlagh/Integrity after Februeary 2002; therefore, there was no consideration given for the royalty and advertising fees demanded by CREC as its breach of contract damages. Consideration is a legal concept that describes something of value given in exchange for a performance or a promise of performance. The presence of consideration distinguishes contracts from gifts. Consideration can be a promise to do something there is no legal obligation to do, or a promise to not do something there is a legal right to do. Promises to exchange money, goods, or services are forms of consideration. All parties in

28

an agreement must give consideration in order to create a contract, but courts typically do
6 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 6 of 17

1 2 3 4 5 6 7

not make a determination about the adequacy of the consideration unless there is evidence of some type of wrongdoing by the party benefiting most from the contract. A challenge to the adequacy of consideration is a fact question. US Life Title, 152 Ariz. at 356, 732 P. 2d at 586 (App. 1986); Dunlap v. Fort Mohave Farms Inc., 89 Ariz. at 393, 363 P. 2d at 198. It is obvious from a cursory review of the Franchise Agreement that it is the Mother of all adhesion contracts. It is so weighted in favor of Century 21 Corporation that there is scarcely an articulated obligation on its part. Section 6 of the Franchise Agreement [Services and Obligations to Franchisee]

8

lists in seven vague and ambiguous paragraphs certain "services" to be "imparted" by
9

Franchisor, usually at additional cost to the Franchisee. In truth, however, Century 21
10

Corporation stopped supporting Defendant's franchise as early as 1999, and after serving
11

its unlawful and invalid Notice of Termination in February 2002, it totally withdrew any
12

support or help to Defendant's franchise, which constituted a de facto abandonment or
13

repudiation of the Franchise Agreement. From January, 2002 through November, 2003,
14

and indeed continuing to the present time, Integrity Assurance, Inc. has been in Chapter
15

11 bankruptcy, and as such has been required by law to file with the Bankruptcy Court
16

each month Monthly Operating Reports which has been cited by Plaintiff as the source of
17

its claim for unpaid royalty damages. At any time between January 2002 and November
18

2003, Plaintiff could have (1) filed an action in Bankruptcy Court to lift the automatic
19

stay; (2) filed an action in Bankruptcy Court to collect royalties; (3) negotiated a
20

termination settlement with the case trustee or with the debtor; (4) negotiated an
21

agreement to allow the debtor to keep the franchise, subject to payment of past and future
22

royalties; or (5) obtain an order lifting the stay and immediately file for injunctive and/or
23

legal relief to cause debtor to de-identify its Century 21 image. Plaintiff did none of these
24

things in such manner as to create a valid termination of the Franchise Agreement, and
25

CREC's failure to take any of the foregoing actions invites the application of the
26

"mitigation of damages" doctrine to moderate any award that the Court may find CREC
27

to be entitled. The trial court's computation of damages is a factual finding. Marsu v.
28

Walt Disney Co., 185 F.3d 932, 938 (9th Cir. 1999).
7 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 7 of 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

It is not disputed that Motlagh, notwithstanding the termination letter of February 2002 continued to display his $30,000.00 [more or less] Century 21 Assurance Realty internally-lighted exterior building sign [required in Section 11, (A)(ii) of the Franchise Agreement, at page 15], and that before and after said termination date he expended significant sums of money to purchase CENTURY 21 logo-designed stationery, business cards, display signs, yard signs and other items used in connection with the real estate business, and that he continued to use said items after February 2002. What is disputed is the "benefit" he derived from such items, stated another way, who actually did benefit from his display of these items? II. CREC's Post-Petition Unjust Enrichment Claim. Having suffered Motlagh/Integrity to continue using its trade dress for nearly two years after filing bankruptcy, while refusing to acknowledge the existence of Motlagh's Century 21 Assurance Realty franchise, and obtaining benefits from Defendant's use of the Century 21 trademark and trade dress by diverting any referral calls that should have gone to Defendants' Goodyear office to another Century 21 franchise in Avondale and receiving royalties from that franchise, Plaintiff cannot now claim as a matter of uncontested fact that Defendants have been unjustly enriched and that Plaintiff has suffered a loss. At the very least CREC's dilatory failure to asset its "rights" and terminate Motlagh's contract invites the fact-based defense of laches to its equity-based claim. In National Amusements Inc. v. New Jersey Turnpike Authority, 619 A. 2d 262, 261 N. J. Super. 468 (1990), the court explained that, "Unjust enrichment is not an independent theory of liability, but is the basis for a claim of quasi-contractual liability. The duty which forms the foundation of a quasi-contractual obligation rests on the equitable principle that a person shall not be allowed to enrich himself at the expense of another. Callano v. Oakwood Park Homes Corp., 91 N.J. Super. 105, 108, 219 A. 2d 332 (App. Div. 1966). To recover on a theory of quasi-contract, plaintiff must prove that the defendants were "enriched, ... received a benefit, and that

8 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 8 of 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

retention of the benefit without payment therefor would be unjust. Id. at 109, 219 A. 2d 332. As a further explanation of the application of unjust enrichment in New Jersey law, see Caputo v. Nice-Pak Products, Inc., 300 N.J. Super. 498, 693 A. 2d 494 (N.J.Super.App.Div. 1997), wherein the court stated: "Recovery for unjust enrichment requires that plaintiff "show both that defendant received a benefit and that retention of that benefit without payment would be unjust." VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 554, 641 A.2d 519 (1994). Plaintiff must prove "that it expected remuneration from the defendant at the time it performed or conferred a benefit on defendant and that the failure of remuneration enriched defendant beyond its contractual rights." Ibid. Because unjust enrichment is an equitable remedy resorted to only when there was no express contract providing for remuneration, a plaintiff may recover on one or other theory, but not both. Van Orman v. American Ins. Co., 680 F. 2d 301, 311 (3rd Cir. 1982) (applying New Jersey law); Shapiro V. Solomon, 42 N.J.Super. 377, 385, 126 A.2d 654 (App. Div. 1956)." Under New Jersey law, unjust enrichment "...involves a two-part test: plaintiff must show both that defendant received a benefit, and that the retention of that benefit without payment would be unjust [cite omitted] Russell-Stanley Corp. v. Plant Industries Inc., 595 A.2d 534 [N.J. Super.Ch.Div.1991]. To recover quantum meruit damages for unjust enrichment under present circumstances, a claimant must prove (1) that he is entitled to restitution, i.e., that the other party was "unjustly enriched at the expense" of the claimant; (2) that he rendered services which benefited the other party; and (3) that he conferred this benefit under circumstances which would render the other party's retention of the value without payment inequitable. Restatement of Restitution §§1, 40. Plaintiff asserts, without an offer of proof, that Integrity/Motlagh earned revenue by holding itself out as a Century 21 real estate office and using Century 21's trademarks, including its store front signage, signs posted on properties for sale or lease, letters, and
9 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 9 of 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

in the way it answered its phone. However, Motlagh refutes this claim, at least in part, with testimony that any potential new business opportunities that may have been generated by such signage would have been, and were, diverted by Century 21 Corporation's world-wide phone system, to the Century 21 Metro Alliance franchise. In the real world of residential real estate brokering, the buyers and sellers seldom have need to visit the office of the broker or agent who is handling their transaction. If a broker-franchisee gains any real advantage from his franchise affiliation, it is that the franchisor can sufficiently saturate the market with its identification so that a person seeking to sell or buy a house will, consciously or subconsciously, call up the franchisor's name above all others, and seek a franchised broker in the area of interest. In Motlagh's case, from mid-1999 until December, 2003, any potential client seeking a Century 21 franchised broker in Goodyear, Arizona, who called the CENTURY 21 customer referral system would have his call picked up in the office of Century 21 Metro Alliance in Avondale, Arizona, or some other Century 21 office. Anyone who inquired about the existence of a Century 21 office in Goodyear would be told that there was no Century 21 office in Goodyear. To the extent that any of these "diverted callers" signed contracts with Metro Alliance or some other Century 21 brokerage, and a sale was consummated, then CREC would presumably receive its royalty fee from that broker, and did not suffer any "impoverishment" by virtue of Motlagh/Integrity's display of the Century 21 name. As will be discussed more fully below, it was Motlagh/Integrity who was "impoverished" and CREC who was unfairly enriched by such display of the Century 21 signage. III. CREC's SUMMARY JUDGMENT MOTION RE COUNTERCLAIMS A. TORTIOUS INTERFERENCE WITH PROSPECTIVE ADVANTAGE. CREC asks for summary judgment on this claim on the grounds that the claim must be asserted "against third persons who are not parties to the contractual or economic relationship." That is a correct statement of New Jersey law, but it misses the point of the Counterclaim allegation. Although paragraph 77 of the Counterclaim was ineptly drafted, it was the intent to focus on the economic relationships of the broker [Motlagh] and his
10 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 10 of 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

sales persons. A real estate brokerage depends for success and growth on the reputation of its broker and his relationship with his agents. In Arizona, each sales person, after having graduated from a recognized real estate school, takes an exam given by the State of Arizona, and is issued a sales person's license, which is actually held by a broker. The Arizona Department of Real Estate delivers the original license to the broker, not to the agent. If the broker is a CREC franchisee, he is required to immediately inform CREC of the new agents' association. It is axiomatic that the success of the franchise is directly dependent upon the broker's ability to recruit and retain agents. It is Motlagh's direct testimony that, on a number of occasions, immediately after reporting the signing of a new agent to CREC, the agent would, by oral communication or simply by not reporting to the office for work, renege on his/her promise to work for Motlagh, and would instead go to work for Century 21 Metro Alliance at its Avondale office. All of these agents coincidentally went to work for the same broker, CENTURY 21 Metro Alliance. One or more of these agents told Motlagh that he/she had been contacted by Dale Olmer of CREC, who informed the agent that Motlagh was in financial trouble and that CREC was going to terminate his franchise. Other agents were contacted by managers or agents of Metro, who told them the same thing. In those cases, it is a fair conclusion that Dale Olmer, after receiving the new agent affiliation from Motlagh, passed that information [most likely] to Paul Greves, Metro's Managing Broker, or to Charlie McLean,Metro's owner/broker, who then contacted the new agent and solicited them to Metro. It is these broker-agent relationships that Motlagh accuses CREC of interfering with to the effect of depriving CENTURY 21 Assurance Realty of the agents necessary to grow its business and meet the performance standards of the Franchise Agreement. In Van Natta Mechanical Corp. v. Di Staulo, 277 N.J.Super. 175, 649 A.2d 399 (N.J.Super.App Div. 1994), the court said: "There is no question that New Jersey law protects both contracts and prospective business relationships from tortious interference. The plaintiff in Printing Mart11 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 11 of 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Morristown v. Sharp Electronic Corp., supra, was a printer who alleged intentional interference with is prospective economic relations concerning a printing bid submitted to Sharp. The Court noted that New Jersey law protects a party's interest in reasonable expectations of economic advantage and may find actionable interference even where there is not enforceable contract. 116 N.J. at 750. A complaint based on tortious interference must first show some protectable right which "need not equate with that found in an enforceable contract," so long as there are "allegations of fact giving rise to some 'reasonable expectation of economic advantage.'" Id. at 751, (quoting Harris v. Perl, 41 N.J. 455, 462, 197 A.2d 359 (1964)). Next, the complaint must allege that the defendant's actions were intentional and malicious, but "malice is defined to mean that the harm was inflicted intentionally and without justification or excuse." Ibid. Third, a plaintiff must show that the interference caused the loss of a prospective gain in that there "was a reasonable probability that the victim of the interference would have received the anticipated economic benefits." Ibid. Lastly, there must be proof that the injury caused the plaintiff damage. Id. at 752. "Fundamental to the cause of action, however, is a requirement that the claim be directed against defendants who are not parties to the relationship. Ibid. One cannot interfere with one's own economic relationship, since in such an instance the matter is governed by principles of contract law. Id. at 753. ..." See, also, Mandel v. UBS/Painewebber, Inc., 860 A.2d 945, 373 N.J.Super. 55 (N.J.Super.App.Div. 2004); Weil v. Express Container Corporation, 360 N.J.Super 599, 824 A.2d 174 (N.J.Super.App.Div. 2004). In the instance case, and construing the available evidence in the light most favorable to the non-moving party, there are significant disputes of material facts, albeit no smoking guns have turned up, that could by reasonable inference implicate CREC's employees and agents in a scheme to deprive CENTURY 21 Assurance Realty of the necessary quantity and quality of agents to be competitive in the local market. Motlagh asserts, based upon information told to him by departing agents in "exit interviews", that
12 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 12 of 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

some were contacted directly by Dale Olmer, and some by Paul Greves and were given negative information about Motlagh's financial condition and/or about CREC's intention to terminate Motlagh's franchise. The nature of the information was terminally damaging to the fledgling relationships between Motlagh and the agents, and could only have come from CREC. Motlagh had reasonably expected that a growing number of agents would lead to an increased number of transactions handled through his office, and increased commission revenue. Without doubt, the surreptitious contacts of agent made by, or initiated by Olmer and/or others wrongfully interfered with the economic relationships sought to be established by Motlagh, and caused the loss of agents, which in turn necessarily reduced the number of possible transactions the company could handle, which in turn necessarily resulted in a loss of revenue to the company and an impairment of the ability of the franchisee to meet the minimum standards of sales volume established by the franchise agreement. CREC, being the franchisor of both CENTURY 21 Assurance Realty and CENTURY 21 Metro Alliance had a duty to be fair and impartial toward each; it breached that duty by choosing sides and providing a competitive advantage to Metro. CREC's motion for summary judgment on this count should be denied, and the issues tried to the court. B. IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING. The allegations making up the gist of this claim have been discussed at length above and in Wilson v. Amerada Hess Corp., 168 N.J. 236, 773 A.2d 1121 (N.J. 2001). New Jersey recognizes and imposes the implied covenant of good faith and fair dealing in all contracts. In Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center Associates, 864 A.2d 387, 182 N.J. 210 (N.J. 2005), the Supreme Court of New Jersey expounded at some length on the application of the covenant to contract situations. "Good faith is a concept that defies precise definition. The Uniform Commercial Code, as codified in New Jersey, defines good faith as '"honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." N.J.S.A. 12A:2-103(1)(b). Good faith conduct is conduct that does not "violate community
13 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 13 of 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

standards of decency, fairness or reasonableness.'" Wilson, supra, 168 N.J. at 245 (quoting Restatement (Second) of contracts, supra, § 205 comment a). "'Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party."' Ibid. (quoting Restatement (Second) of Contracts, supra, § 205 comment a). The covenant of good faith and fair dealing calls for parties to a contract to refrain from doing "anything which will have the effect of destroying or injuring the right of the other party to receive" the benefits of the contract. Palisades Props., Inc. v. Brunetti, 44 N.J. 117, 130 (1965) (internal quotations omitted); see also Wade v. Kessler Institute, 172 N.J. 327, 340 (2002) (same). "Proof of "bad motive or intention" is vital to an action for breach of the covenant. Wilson, supra, 168 N.J. at 251. "The party claiming a breach of the covenant of good faith and fair dealing "must provide evidence sufficient to support a conclusion that the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties." Williston, supra, § 63:22, at 513-14 (footnotes omitted); see also Wilson, supra, 168 N.J. at 251; Sons of Thunder, supra, 148 N.J. at 420. As a general rule, "[s]ubterfuges and evasions" in the performance of a contract violate the covenant of good faith and fair dealing "even though the actor believes his conduct to be justified." Restatement (Second) of Contracts, supra, § 205 comment d. C. "We cannot catalogue the myriad forms of conduct that may constitute a violation of the covenant of good faith and fair dealing. Each case is fact sensitive. This Court, however, has addressed the covenant in a number of different settings (cites omitted) ... [and] [A[lthough those cases rest on facts different from those presented here, they yield a few salient principles relevant to our analysis. A defendant may be liable for a breach of the covenant of good faith and fair dealing even if it does not "violat[e] an express term of a contract." Sons of Thunder, supra, 148 N.J. at 423. A plaintiff may be entitled to
14 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 14 of 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

relief under the covenant if its reasonable expectations are destroyed when a defendant acts with ill motives and without any legitimate purpose. Wilson, supra, 168 N.J. at 251. Moreover, a plaintiff may get relief if it relies to its detriment on a defendant's intentional misleading assertions. Bak-A-Lum, supra, 69 N.J. at 129-30." (emphasis supplied). The Affidavit of Daryush B. Motlagh, annexed to Respondent's Statement of Facts, sets forth the particulars of misconduct by commission and omission alleged to have been perpetrated by CREC, its employees and agents, which taken together, served to deprive Motlagh/Integrity of the reasonably expected benefits of the Franchise Agreement adhesive contract. CREC's sole expectation from the contract is to receive money from the franchisee. The franchisee's expectation is that its affiliation with CREC, its national and international recognition, and its real estate sales expertise will result in broker-tobroker and consumer direct inquiry referrals from the CREC system that will provide sufficient business opportunities to allow the business to grow and prosper. Due to the intentional or negligent acts and omissions of CREC, Motlagh/Integrity realized few, and eventually no, referrals from the system; his royalty payments were misapplied without his knowledge to the effect that Motlagh was paying not only royalties on sales transactions, but also minimum monthly payments and interest and penalties, the totality of which kept him constantly in arrears and subjected to "discipline" from the franchisor. When Motlagh attempted to get an explanation for the application of the monies that he sent to CREC, he was stonewalled. CREC refused to explain its accounting process, and insisted on drawing even more blood from him while providing less and fewer services between mid-1999 and February, 2002. Motlagh's office was denied the opportunity to participate in Century 21 promotions that included such thing as tickets to Arizona Diamondback home baseball tickets; it was denied the opportunity to participate in the Cendant/CREC AON home warranty sales program; his office and his agents were often embarrassed by CREC's denial to Motlagh's clients or potential clients of CENTURY 21 Assurance Realty's franchise affiliation with CREC; and such other conduct relating to or

15 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 15 of 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

arising from the failure by CREC to properly incorporate Motlagh's franchise into its "system." C. UNJUST ENRICHMENT. From the onset of his franchise affiliation with CREC, Motlagh/Integrity were required to expend substantial sums of money on CREC-mandated signs and paraphernalia that bore the CENTURY 21 logo displayed to mandated specifications. These included an interior-lighted exterior building sign, yard signs, letterhead stationery, business cards, etc. In addition, Motlagh had to maintain a place of business that met or exceeded CREC requirements. The trademarked signs and materials were supposed to create a certain gravitas in the real estate world, to entice potential buyers and sellers of real estate to contact, and do business with, the CENTURY 21 franchisee, who would earn a commission and pay a percentage (6%) to CREC. However, from approximately mid to late 1999 through December 2003, no person seeking a Century 21 office in Goodyear, Arizona or its environs (Motlagh's location and area of expertise) would be connected to or referred to CENTURY 21 Assurance Realty through the CREC broker or consumer referral systems; any inquirer seeking a Century 21 office in Goodyear would be told none existed, and would instead be directed to CENTURY 21 Metro Alliance in the neighboring town of Avondale, or to another office even further away. The gist of the unjust enrichment claim is that CREC required Motlagh/Integrity to expend substantial sums of money for advertising materials that eventually benefited only other franchisees and CREC. Motlagh was impoverished by his expenditures, while CREC was enriched by the royalty fees it collected from franchisees who obtained business opportunities derived from Motlagh's advertising materials, especially his exterior building sign, and telephone directory and print media advertisements proffering the CENTURY 21 name.

16 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 16 of 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 dpw 15 16 17 18 19 20 21 22 23 24 25 26 27 28

DATED this 7TH day of August, 2006. LAW OFFICE OF DON P. WILLIAMS By: /s/ Don P. Williams Don P. Williams Copy of the foregoing mailed this 8th day of August, 2006, to: Hon. David G. Campbell United States District Court Sandra Day O'Connor U.S. Courthouse, Suite 623 401 W. Washington St., SPC 62 Phoenix, AZ 85003-2158 Kevin J. Bonner Fennemore Craig, P.C. 3003 N. Central Ave., Suite 2600 Phoenix, AZ 85012-2913

CERTIFICATE OF SERVICE I certify that on July 7th, 2006, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Kevin J. Bonner Fennemore Craig, P.C Attorney for Century 21 Corporation I certify that on July 8th, 2006, I served the attached document by U.S. Mail on the following: Kevin J. Bonner Fennemore Craig, P.C 3003 N. Central Ave., Suite 2600 Phoenix, AZ 85012-2913 /s/ Don P. Williams Don P. Williams Attorney for Daryush/Jennifer Motlagh
17 Resp Renwd MotSumm Jdgmnt

Case 2:03-cv-02353-DGC

Document 79

Filed 08/07/2006

Page 17 of 17