The Franchise Memorandum

After a two-day bench trial, a federal court in New Jersey found franchisees breached real estate franchise agreements and awarded the franchisor over $7 million in damages. Coldwell Banker Real Estate, LLC. v. Bellmarc Group LLC, 2021 WL 4129492 (D.N.J. September 9, 2021). In 2013, Bellmarc, a group of real estate franchisees, entered into franchise agreements with Coldwell Banker. Under those agreements, Bellmarc was required to: (1) report all transactions to Coldwell Banker; (2) maintain accurate financial statements and records to periodically provide to Coldwell Banker; and (3) pay Coldwell Banker royalty fees and marketing fees. Beginning in their first month of operations, Bellmarc was late remitting payments to Coldwell Banker, and remained delinquent with payments for much of the next year and a half. Ultimately, in December 2014, Coldwell Banker terminated the franchise agreements for monetary default and filed suit for breach of contract.

At trial, Bellmarc was found to have breached the franchise agreements by failing to pay royalty payments, failing to repay promissory notes to Coldwell Banker, and failing to convey to Coldwell Banker collateral required under a security agreement. The court awarded damages with 18% interest, per the terms of the franchise agreements, based on unpaid royalty and marketing fees, liquated damages based on the monthly average amount of fees owed multiplied by 36 months, and unpaid promissory notes. The court also awarded Coldwell Banker an accounting of all unreported transactions, and $50,000 for Bellmarc’s trademark infringement following termination, for a total award of $7,593,262.80, plus reasonable attorneys’ fees and costs.