Century 21 Real Estate Corp. has agreed to pay $17.5 million in cash and provide up to $45.2 million in benefits to past and present affiliates to settle a class-action lawsuit alleging that the franchisor and its parent company misappropriated franchise fees paid by brokers.
The lawsuit, filed in 2002, alleged that after acquiring Century 21 in 1995, the franchisor’s parent company, Cendant Corp., took charge of a $40 million-a-year national advertising fund and diverted some of the money to promote the brands of other franchisors under the company’s umbrella, including Coldwell Banker and ERA.
Cendant’s successor, Realogy Corp., said the claims were unfounded. But the franchisor was dealt a legal setback in 2010 when a New Jersey Superior Court judge granted the case class-action status. After the case was certified, attorneys for the plaintiffs said at least 1,000 brokerages were affected, and that damages "may total in the hundreds of millions of dollars."
On Jan. 24, Realogy entered into a memorandum of understanding on the principal terms of a proposed settlement. The court hearing the case, Cooper v. Cendant, granted preliminary approval of the settlement on Feb. 22, pending the outcome of a June 4 fairness hearing.
In a statement, a Century 21 spokesman said the parties in the case "did not admit, and the court did not find, any liability or fault."
"After 10 years of litigation, the parties agreed to a settlement of the claims to avoid the risk, burden, expense and distraction of continued litigation and to finally resolve the matter," said Century 21 spokesman Matt Gentile in an email.
An attorney for the plaintiffs, Steve Grygiel of Red Bank, N.J.-based Keefe Bartels LLC, provided an identical statement. Three other attorneys for the plaintiffs did not respond to requests for comment.
In its annual report to investors, Realogy said insurance carriers will pay part of the settlement, and that Realogy had set aside reserves to pay for the rest that are reflected in the company’s 2011 results.
Current and former Century 21 brokers who were affiliated with the franchise from Aug. 1, 1995 through April 17, 2002 and whose franchise agreement contained a clause stipulating that legal disputes be resolved in New Jersey are eligible to file claims, which must be received by Sept. 7.
Brokerages that do not want to participate in the settlement have until May 7 to mail a written request to be excluded.
Claims forms, a copy of the settlement and other documents are available at a website operated by the claims administrator, RealtorFranchiseSettlement.com.
If the terms of the settlement become final, Realogy will pay up to $3 million in claims to eligible brokerages based on their past royalty payments. Current franchisees will receive $250 for every $10,000 in royalty fees they paid during the class period. Former franchisees will be paid $300 for every $10,000 paid during the period. Any money not paid out in claims will be placed in the Century 21 national advertising fund.
Century 21 will provide audited annual financial statements showing the fund’s annual income expenses through 2014, and a governing group comprised of franchisees "shall at least one time per year have the opportunity to communicate with the chief executive officer of the Realogy Franchise Group" in a town hall format at an annual meeting.
The settlement also provides non-cash benefits including waivers and modifications of certain fees and payments of incentive fees.
Century 21 will waive contractual monthly minimum royalty fees for current affiliates for a period of five years, for example, and provide $500 in tuition credit for training for up to four people per year for two years.
Former affiliates will have the opportunity to reenter the Century 21 franchise System without having to pay an initial franchise fee, and Realogy will waive the initial franchise fee if current affiliates open a new branch locations through 2015.