Century 21 Real Estate v. Meraj Intern. Inv. Corp.

• Decision Date: 08 January 2003
• Docket Number: No. 01-1330.,01-1330.
• Parties: CENTURY 21 REAL ESTATE CORPORATION, Plaintiff-Counter-Defendant-Appellant, v. MERAJ INTERNATIONAL INVESTMENT CORP d/b/a Realty Professionals of America, and Armond Azharian, Counterclaim-Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1271

315 F.3d 1271

CENTURY 21 REAL ESTATE CORPORATION, Plaintiff-Counter-Defendant-Appellant, v. MERAJ INTERNATIONAL INVESTMENT CORP d/b/a Realty Professionals of America, and Armond Azharian, Counterclaim-Defendants-Appellees.

No. 01-1330.

United States Court of Appeals, Tenth Circuit.

January 8, 2003.

John F. Dienelt, Washington, DC (Sean R. Gallagher and Madeline S. Cohen of Hogan & Hartson L.L.P., Denver, CO, with him on the briefs), for Plaintiff-Counter-Defendant-Appellant.

Thomas P. Johnson, of Davis, Graham & Stubbs LLP, Denver, CO (Kenzo S. Kawanabe of Davis, Graham & Stubbs, LLP Denver, CO, and M. Kathleen Turano, Arvada, CO, with him on the brief), for Counterclaim-Defendants-Appellees.

Before KELLY, McKAY, and HARTZ, Circuit Judges.

HARTZ, Circuit Judge.

Meraj International Investment Corporation ("Meraj"), doing business as Realty Professionals of America, operated two real estate offices under franchise agreements with Century 21 Real Estate Corporation. After a dispute arose regarding the amount of franchise fees owed and the continued use of the Century 21 name by one of the real estate offices, Century 21 sued Meraj for breach of contract and trademark infringement. Meraj counterclaimed for breach of contract. After a jury trial, Century 21 was denied relief and Meraj obtained a verdict for $700,000 on its breach-of-contract counterclaim. Century 21 appeals, challenging three of the district court's rulings: (1) its interpretation of the franchise agreements to give Meraj a total credit of $40,000 (rather than $20,000) against royalty fees owed to Century 21; (2) its entry of judgment against Century 21 on its trademark infringement claims at the close of Century 21's case; and (3) its denial of Century 21's motion for remittitur. We have jurisdiction under 28 U.S.C. § 1291. We affirm.

I. Background

In 1990 Century 21 and Meraj entered into two agreements that permitted Meraj's real estate sales offices (Office # 301 and Office # 370) to use Century 21's trademarks in exchange for monthly royalty payments and advertising fees. In 1996 both agreements were renewed for a term ending in November 2005. As part of the renewals, attached to each agreement was an addendum granting Meraj a $20,000 credit. The credit agreement provided that each month Meraj could pay half the royalties due and deduct the other half from its credit.

Meraj began paying only one half of the monthly royalties in March 1996. In July of the same year, Century 21 conducted an audit of Meraj's two franchises for the period October 1994 through March 1996. The audit revealed a deficiency of $7,115.68 for Office # 370, and $3,531.44 for Office # 301. Century 21 notified Armond Azharian, Meraj's principal, that it would deduct the entire deficiency, $10,647.12, from Meraj's "$20,000 service fee credit." Aplt's App. at 102. The next month, August 1996, Meraj made its last half payment and began paying in full.

During December 1997 and January 1998, Century 21 conducted a second audit. It indicated that Office # 301 owed $1,964.86 and Office # 370 owed $6,675.91. The audit report did not mention the service fee credit. In August 1998 Century 21 sent Azharian notice of its intent to terminate Office # 370. The letter stated that the franchise owed $14,331.22 to Century 21. The amount reflected both the audit deficiency and additional fees that had since been assessed. One month later Century 21 sent a follow-up letter, asserting a final deficiency of $13,571.46 and terminating the franchise effective September 10. (The franchise for Office # 301 was apparently terminated at the same time.)

Azharian then wrote a series of letters to Century 21 in which he offered to pay delinquent amounts but requested a third audit as a condition of payment. In those letters Azharian complained that certain payments had not been correctly credited to his account. He said that he was uncertain whether his franchise had actually been terminated, that he was relying on Century 21's representations that the problem could be resolved, and that because he was operating under the assumption that the agreement had not in fact been terminated, he would continue to pay franchise fees.

In the months following the termination letter, Meraj's Office # 370 used the Century 21 trademarks in its advertising, on its external and internal signage, and on its yard signs. Also, it continued to answer the phone using the Century 21 name. Meraj paid royalty fees to Century 21 through July 28, 1999. In October Meraj sold the business.

Century 21 filed suit on November 4, 1999, claiming Meraj had breached the franchise agreement for Office # 370 when it failed to make all payments due under the agreement, and had infringed Century 21's trademark when it continued to use Century 21's marks after its franchise had been terminated. The complaint also sought relief from Azharian on his personal guarantee of the monetary obligations under the franchise agreement. The complaint did not address the activities of, or payments due with respect to, Office # 301. Meraj counterclaimed for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Colorado Consumer Protection Act (CCPA). Both Meraj and Azharian counterclaimed for commercial defamation.

At trial the district court entered judgment in favor of Meraj on the trademark claims at the close of Century 21's case. After the close of all evidence, Meraj and Azharian withdrew their defamation claims and the court granted judgment in favor of Century 21 on Meraj's CCPA claim and its claim for breach of the covenant of good faith and fair dealing. The jury rejected Century 21's breach-of-contract claim and the claim against Azharian on his guarantee. It returned a verdict for $700,000 on Meraj's breach-of-contract claim against Century 21.

II. The Franchise Fee Credit

The parties dispute the amount of the royalty fee credit provided by the addenda to the 1996 franchise renewals. On appeal Century 21 challenges the district court's first-day-of-trial grant of partial summary judgment adopting Meraj's interpretation of the addenda.

When the two franchise agreements were renewed in 1996, the following addendum was attached to each agreement:

Franchisor and Franchisee hereby agree that Franchisee will be afforded a credit against royalty fees payable to Franchisor under Paragraph 8A of the Agreement in the aggregate amount of Twenty Thousand Dollars ($20,000). This credit will be applied to royalties which accrue after the Commencement Date on a monthly basis at the rate of fifty percent (50%) until the full credit amount is applied. Accordingly, Franchisee shall be required to pay to Franchisor only 50% of the first Forty Thousand Dollars ($40,000) of royalties accrued under the Agreement after the Commencement Date. Thereafter all royalty payments will return to the full amount provided for under the Agreement.

Aplt's App. at 101.

Central to this case is whether the two addenda together granted Meraj only one $20,000 credit, to be shared by the two franchises, or whether each franchise was to receive its own $20,000 credit. If Office # 370 itself was entitled to a full $20,000 credit, then Meraj may not have defaulted in paying royalty fees to Century 21 and termination of the franchise was likely improper. If, on the other hand, a single credit was allocated for the use of both franchises, then Office # 370 was in default.

The meaning of the addendum first came before the district court when Century 21 filed a motion in limine six days before trial. The motion asked the court to exclude Azharian's proposed testimony on the parties' intentions with respect to the franchise fee credit. Century 21 argued that the contract language was unambiguous and that an integration clause in the franchise agreement precluded extrinsic evidence of the contract's meaning. The only supporting evidence provided by Century 21 was a copy of the integration clause and a copy of the addendum.

Three days later, the Friday before the Monday trial date, Meraj filed a pleading that both responded to Century 21's motion and sought a partial summary judgment that each addendum created a separate credit. Thus, Meraj argued, it was entitled to two $20,000 credits, one for each franchise. In support of that argument, Meraj produced evidence that Century 21 maintained each franchise agreement in a separate file and that Century 21's representative had signed each addendum separately. It also produced excerpts from the deposition testimony of Eric Schmaltzbach, a Vice President of Cendant Corporation, Century 21's parent corporation. Century 21 had designated Schmaltzbach under Federal Rule of Civil Procedure 30(b)(6) as the person who would testify about the $20,000 credit. In his deposition Schmaltzbach indicated that the phrase "the Agreement," as used in the addenda (granting a "credit against royalty fees payable to Franchisor under Paragraph 8A of the Agreement"), referred only to the franchise agreement to which the individual addendum was attached.

On the morning of trial the district court ruled "that each addendum applied to each franchise agreement." Century 21 challenges the district court's ruling on both procedural and substantive grounds. It contends that the court improperly granted Meraj's summary judgment motion without giving Century 21 ten days to respond, and it argues that the court misconstrued the addendum.

A. The Ten-Day Rule

Federal Rule of Civil Procedure 56(c) states that a motion for summary judgment "shall be served at least 10 days before the time fixed for the hearing." Century 21 claims that the district court violated this provision by ruling on Meraj's motion for partial summary judgment three days after it was filed. It argues that if it had been provided the time to which it was entitled, it could have produced evidence establishing the...