Court Docs: Rouda's Company Did Not Disclose $1.85 Million Award to Fired Cancer Victim 

Franchisee said it wouldn't have renewed if it had known; judge rejected argument 

Harley Rouda
Harley Rouda / Harley Rouda for Congress
October 10, 2018

A franchisee of Democratic congressional candidate Harley Rouda's former real estate company accused the firm of failing to disclose that a jury in 2008 had sided with a 57-year-old cancer patient who sued the company for wrongful termination and awarded her $1.85 million.

That jury award included $200,000 against Rouda's wife, Kaira Rouda, for her alleged role in the wrongful termination. Rouda is challenging Rep. Dana Rohrabacher (R., Calif.) in next month's midterm election.

The real estate company, Real Living Real Estate, at first appealed the jury decision before the two sides withdrew their suits, suggesting the case was settled out of court.

Additionally, Rouda's company was accused of failing to disclose to franchisees three other separate legal cases against the company involving court judgements or settlements totaling more than an estimated $4.5 million.

The franchisee, Chicago Agent Partners, said Real Living Real Estate violated Illinois franchise disclosure law by failing to disclose the litigation when the company was considering renewing its franchise in 2010.

"The petitioner failed, in March 2010, to disclose multiple lawsuits that the petitioner was involved in, which, individually and collectively, were clearly 'material' under the prevailing legal standard, which is that, if the franchisees had known of these lawsuits, they would not have renewed tier franchises," an attorney for Chicago Agent Partners argued before an Illinois court in 2013.

Chicago Agent Partners was being sued by Real Living Real Estate at the time for failing to pay its franchise fees amid the real-estate market downturn of the late 2000s. Chicago Agent Partners argued that Real Living had failed to live up to its end of the franchise bargain and never provided promised marketing and high-tech solutions.

A judge ended up ruling against Chicago Agent Partners and forced it to pay an arbitration award. The judge's ruling side-stepped whether Rouda's company broke state franchise disclosure laws by failing to disclose the legal action against it.

Robert Smith, a partner at Wiley Rein LLP who chairs the firm's franchise group, said he generally advises his clients to err on the side of disclosing litigation even when it's not "crystal clear that if falls within the required disclosure" time period and requirements.

Whether a failure to disclosure the litigation would merit legal action or not, Smith said, would depend on whether the company engaged in "fraud" by failing to disclose it, something he said is not clear in this case because there is no way for him to assess what impact the expensive litigation had on Real Living's bottom line at the time.

To provide an educated legal opinion, Smith said one of the facts he would have to know is the company's total earnings and holdings at the time of the alleged failed disclosure.

"Under Illinois law the test really comes down to whether it is something that a reasonably prudent investor would have considered material to his decision to purchase a franchise," Smith said.

Tripti Kasal, a well-known real-estate company executive in Chicago and one of the four partners that made up Chicago Agent Partners, recalls that both companies had fallen on hard times during the housing crisis and her company wasn't always able to pay its franchise fees.

She also said Rouda and his wife, Kaira, made business promises to them that never materialized.

"In the real estate industry when you are a franchise there are certain marketing support that is offered, the ability to create marketing materials. They never lived up to them," she said. "They said we have a lead generation department—we will send leads your way. We never received a single lead. They said they were 'technologically forward,' and their technology crashed several times—for a few days at a time. Email would go out for two to three days at a time."

Kasal also said the Roudas promised they would open 20 to 30 offices in the Chicago market, and "the most they opened were four or five," she said. "We just felt like it was all lies."

Rouda's campaign did not respond to multiple Washington Free Beacon requests for comment. Rouda is in a close battle with Rohrabacher for control of the district, one of seven Republican-held districts in the California that Democrats are hoping to flip in November to regain the majority.

Rouda has told other news outlets that he was not involved in the decision to fire the cancer victim and that she was let go for a legitimate business reason, as "part of an overall downsizing effort" at the start of the recession. He also stressed that he was dismissed from the case in 2008.

"Not only was I dismissed, but it was a directed verdict" from the judge, he told Politico.

A directed verdict is an order from a presiding judge in a jury to return a particular verdict because no reasonable jury could reach decision to the contrary.

During the Democratic primary a political action group supporting one of Rouda's opponents ran an advertisement accusing Rouda of engaging in age discrimination in the firing of the cancer victim.

"When this cancer sufferer needed help, [Harley] Rouda said workers like her were a 'death spiral' to his 'bottom line,'" the ad stated, referencing the woman's 2006 lawsuit against Real Living. While Rouda served as CEO, Real Living faced a second age-discrimination lawsuit that was settled out of court.

In the lawsuit involving the cancer victim, the former employee had accused Rouda of saying in a 2005 meeting that the company had too many older employees and that its insurance costs were dragging the company into a "death spiral."

Rouda denies making the statement, arguing that an insurance company representative had made the comment while encouraging younger people to sign up for the plans in order to balance out the costs.

The GOP-backed Congressional Leadership Fund, which is close to Speaker Paul Ryan (D., Wis.), released its own TV ad in September about the cancer victim's lawsuit. The ad said Rouda, a millionaire, was "so heartless" that he "fired a female employee after she received cancer treatment because her health care cost too much."

"After losing a lawsuit, Rouda's business was ordered to pay the woman nearly two million dollars," the ad continued. "Discrimination. Wrongful termination. Shady Harley Rouda mistreated his workers … and put himself first."

Published under: 2018 Election