Obsolescence Issue : Century 21 Sues Digital in Computer Sale

Irvine-based Century 21 Real Estate Corp. has filed a $14-million lawsuit accusing giant Digital Equipment Corp. of selling hundreds of computers to Century 21 and its brokers without disclosing that the machines would soon become obsolete.

The suit, filed in Orange County Superior Court, alleges that DEC engaged in fraud by misleading Century 21 about the future of DEC’s product line and its ability to tie more than 6,000 real estate offices into a national computer network.

At the same time it was encouraging Century 21 to buy more DEC “Pro” model computers, the suit alleges, the Massachusetts computer maker was secretly planning to replace the machines with a new, incompatible product line patterned after IBM’s personal computers.

DEC spokesman Jeffry Gibson says the company would not comment on Century 21’s allegations before it files a response to the suit in mid-August. Other DEC officials did not return phone calls.

“We have received a copy of the complaint and are evaluating the legal issues,” Gibson says. “We believe their allegations are without merit, and we’ll defend ourselves vigorously.”

The suit pits the largest real estate organization in America against the nation’s second-largest computer maker. In addition to monetary damages, Century 21 maintains that it is trying to restore its reputation in the eyes of its local affiliates.

“Century 21 was the focal point for the sales, but by and large the machines were purchased by its franchisees,” says Michael Hornak, an attorney representing Century 21. “Many, if not all, of those machines had to be replaced.”

John Moravek, a Century 21 staff attorney, declines to comment on the case.

According to the suit, Century 21 decided in 1982 to encourage its local affiliates to automate their operations by tying into a national computer network to handle accounting, record keeping, communications and other administrative functions.

The lawsuit states that DEC sales executives, including Thomas M. Wall in DEC’s Costa Mesa offices, convinced Century 21 that its franchisees should buy computers made by a single manufacturer. A secretary said Wall would not comment on the suit.

In December, 1982, the companies signed a contract under which DEC agreed to supply Century 21 with DEC Pro 325 and Pro 350 personal computers at prices ranging from about $6,000 to $12,000 per machine. There were several contract renewals, including an August, 1985, extension that could remain in force until August, 1987, at Century 21’s option.

DEC’s Pro model computers were proprietary products that were not compatible with the personal computers introduced in 1981 by industry leader International Business Machines.

By late 1985, Century 21 and its franchisees had bought about 500 DEC computers and were planning to further expand the network among the company’s 6,200 U.S. affiliates.

According to the lawsuit, DEC stated publicly that Century 21 and DEC were “business partners” in what DEC characterized as a five-year computerization plan.

In December, 1985, DEC announced that it was abandoning its Pro 325 and 350 proprietary computers and introducing a new line of IBM-compatible machines, the suit alleges.

The company notified Century 21 that no additional Pro 325 or 350 machines were available for buy and that DEC would no longer support or upgrade the operating system software that controlled the computers’ basic functions.

With its national computer system only partially in place, Century 21 alleges, it found itself stuck with 500 obsolete DEC computers that would be incompatible with any other machines it might buy.

The lawsuit alleges that DEC’s sales personnel had continued to encourage Century 21 to buy the Pro model machines for at least a year after DEC had begun an intensive program to design its new line of IBM-compatible machines.

It accuses DEC of intentionally concealing that DEC had an estimated 170 people working on the IBM-compatible program as early as January, 1985, and that the company was planning throughout the year to junk its Pro 325 and 350 machines.

Instead, Century 21 alleges that DEC made “repeated representations about continued viability and support for the Pro 325 and Pro 350.”

As a result of DEC’s action, Century 21 says, it has spent $2.5 million to replace the DEC machines with IBM-compatible computers manufactured by Honeywell and an additional $1.2 million on related expenses. In addition to the $3.7 million, Century 21 is seeking $10 million in punitive damages.

Century 21 is a subsidiary of Metropolitan Life Insurance Co. of New York.