A New Jersey state court judge awarded summary judgment on all counts in favor of a national real estate franchisor on claims for breach of contract and violation of the Lanham Act. Defendants took the unusual position that they did not owe royalties because they purportedly did not collect commissions on nearly 100 real estate transactions conducted by their clients. However, after considerable and contentious discovery, defendants admitted that they discarded the files that would have shed light on this issue, which sharply contradicted industry practice. The court found this to be a case of "classic spoliation" since defendants destroyed the clearly relevant files when they knew the franchisor was seeking to recover the royalties for the underlying transactions. The court determined it was free to fashion an equitable remedy and ruled that defendants were unable to prove their claim without the documents they destroyed.
The court also ruled in the franchisor's favor on claims under the Lanham Act since defendants continued to use the franchisor's trademarks despite the termination of the franchise agreement and two court orders. Of significance here, the court accepted Gordon & Rees’s calculation of damages based upon the average royalties the franchisee had received before termination, and rejected the need for an expert, as defendants argued.
With the attorneys' fees to be assessed, the total judgment will exceed $1,000,000.