BUDGET RENT A CAR SYSTEM, INC. v. K&T, INC.

Filing 83

LETTER OPINION. Signed by Judge William J. Martini on 9/23/08. (gh, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
M A R T I N L U T H E R K I N G JR . FE D E R A L B L D G . & U . S . C O U R T H O U S E 5 0 W A L N U T ST R E E T , P. O . B O X 419 N E W A R K , N J 07101-0419

[phone] WILLIAM J. MARTINI JUDGE

L E T T E R OPINION S e p te m b e r 23, 2008 D a y Pitney, LLP D en n is R. LaFiura P a u l J. Halasz P .O . Box 1945 M o rris to w n , NJ 07932-0950 (A tto r n e y s for Plaintiff Budget Rent A Car System, Inc.) N o w e ll Amoroso Klein Bierman, P.A. W illia m Bierman T h o m a s C. Martin 1 5 5 Polifly Road H a c k en s a c k , NJ 07601 W in d e r & Haslam, P.C. D o n a ld J. Winder Jo h n W. Holt S u ite 4000 1 7 5 West 200 South P .O . Box 2668 S a lt Lake City, Utah 84110-2668 (A tto r n e y s for Defendant K&T, Inc.) R e: B u d g e t Rent A Car System, Inc. v. K&T, Inc. C iv il Action No. 2:05-CV-3655 (WJM) (RJH)

D e a r Counsel: T h is matter comes before the Court on Defendant K&T, Inc.'s ("K&T") three s e p a ra te motions for partial Summary Judgment. Plaintiff Budget Rent A Car System,

In c . ("Budget") cross-motions for partial Summary Judgment and makes an additional m o tio n to hold Defendant in Contempt. The parties request that the Court rule on three iss u e s involving the rights and obligations of the parties under their license agreements a n d a supplemental agreement governing payment of travel agent commissions: (1) w h e th e r Budget infringed on K&T's exclusive franchise; (2) whether Budget ille g itim a te ly charged K&T for commissions paid to "pseduo" travel agents; and (3) w h e th e r Budget sent K&T a valid notice of default prior to terminating their agreements. For the reasons stated below, the Court finds that Budget did not infringe on K&T's e x c lu s iv e franchise. Defendant K&T's motion for Summary Judgment regarding B u d g e t 's infringement of K&T's exclusive franchise is DENIED and Plaintiff Budget's c r o s s- m o t io n for Summary Judgment with regards to the same issue is GRANTED. The C o u rt reserves its right to rule on the remaining issues at this time. B A C K G R O U N D AND PROCEDURAL HISTORY T h e following is a brief summary of the relevant factual and procedural history. In 2 0 0 2 , Cendant Car Rental Group, Inc., now known as Avis Budget Car Rental, LLC, a c q u ire d Budget in bankruptcy. (Certification of Paul L. Gallagher ("Gallagher Cert."), at ¶ 9). Budget franchises car rental locations under the "Budget" trademark and trade n a m e . (Certification of Paul J. Halasz ("Halasz Cert."), at Ex. A, ¶ 3-4). Avis Budget C a r Rental, LLC also owns Avis Car Rental Group, LLC ("Avis"), which licenses car re n ta l locations under the "Avis" brand. (Id. at ¶¶ 6-7). All of these entities are currently o w n e d by Avis Budget Group, Inc. formerly known as Cendant Corporation. (Id. at ¶ 3). K & T has been an independent Budget franchisee since 1977 with locations in U ta h , Idaho, and Wyoming. The parties entered into a Prime License Agreement ( " L i c e n s e Agreement") on September 15, 1977 for the Utah locations. Over the years, K & T entered into various other agreements with Budget, including amendments to the L ice n se Agreement, a Reservation System Agreement, as well as sub-license agreements fo r its locations in Idaho and Wyoming. (Halasz Cert., at Ex. A, ¶¶ 6-8, C, D, and K). O n July 21, 2005, Budget terminated its Prime License Agreement, as amended, a n d Reservation System Agreement with K&T due to arrears. (Halasz Cert., at Ex. H). K&T admittedly failed to pay Budget for reservation fees and Travel Agent Referral P r o g ra m ("TARP") fees, including "pseudo" travel agent referral fees from Orbitz, E x p ed ia, and other internet travel sites. (Halasz Cert., at Ex. K). F o llo w in g the termination letter, Budget and K&T filed separate suits on July 21, 2 0 0 5 and July 22, 2005 respectively. Budget filed here in New Jersey while K&T filed in U ta h state court. The Utah state court issued an injunction precluding Budget from 2

im p lem e n tin g the termination and requiring that Budget restore K&T's access to its rese rva tio n system. (Complaint; Halasz Cert., at Ex. A, ¶¶ 31, 39-40). The state court a c tio n was subsequently removed to Utah District Court, (id. at Ex. A, ¶ 41), which c o n tin u e d the injunction with the following provisos: (1) K&T must pay all amounts due to Budget during the pendency of the action; and (2) if any amounts due are subject to a g o o d faith dispute K&T had the option of depositing the funds into Court. (Id. at Ex. I). The case was ultimately transferred and consolidated here. K & T adhered to the terms of the injunction through the end of 2005 by depositing f u n d s into Court. (Id. at Ex. O). In October 2007, Budget brought an Order to Show C a u se to modify the injunction. On October 11, 2007, the Court ordered K&T to deposit th e full amount of arrearage into Court within 62 days of the Order and to decide within 1 5 days of the Order whether it would participate in the "pseudo" TARP program. K&T s u b m itte d the full amount of arrearage and decided to participate in the "pseudo" TARP p ro g ra m . K&T alleges that its exclusive right to conduct a "BRAC business" under the L ic e n se Agreement is violated by virtue of the presence of Avis-branded car rental lo c a tio n s in K&T's territory. The pertinent sections of the License Agreement pertaining to "BRAC business" are as follows. The Preamble states: B U D G E T , under its trade names . . . and registered trade and service marks . . . has developed and supervises a system for conducting the business of re n tin g vehicles without drivers, commonly known as the BUDGET RENT A C A R SYSTEM and hereinafter referred to as the "SYSTEM." *** L IC E N S E E desires to be exclusively licensed by BUDGET to use the S Y S T E M and conduct a BUDGET RENT A CAR and BUDGET RENT A T R U C K business (hereinafter referred to as "BRAC business") under B U D G E T 's trademarks and trade names, in accordance with the provisions of th is [License] Agreement and the Operating Manual within the geographical te rrito ry and for the term hereinafter defined. ( H a la s z Cert., at Ex. C, pg. 1). Section 1.01 states: S u b je c t to the provisions hereof and the continuing faithful performance by L IC E N S E E of its obligations hereunder BUDGET grants to LICENSEE the e x c lu s iv e right and license to conduct a BRAC business within the territory for 3

th e term hereinafter defined under BUDGET's trademarks and trade names a n d in accordance with its standard operating procedures incorporated in the O p e ra tin g Manual. (Id .) Moreover, § 1.03(b) states: T h e term "exclusive" means that BUDGET shall not during the term of this [ L ic e n se ] Agreement grant a license to operate a BRAC business within the L ic e n se d Territory to any other person. *** T h e term "BRAC business" refers exclusively to the business of renting a u to m o b ile s and trucks (herein collectively referred to as "vehicles") without d riv e rs and does not include or refer to the rental of any other vehicle or p ro d u c t or to any other business or commercial activity. (Id . at Ex. C, pg. 2). In addition, § 7.01 provides that in exchange for fees paid to Budget, K & T obtains "the right to become the exclusive BUDGET licensee in the Licensed T e rrito ry . . . ." (Id. at Ex. C, pg. 2). Both parties agree that under § 14.06, Illinois law g o v e rn s the interpretation of the License Agreement. (Id. at Ex. C, pg. 15). D IS C U S S IO N A. Standard of Review

S u m m a ry judgment is appropriate when "the pleadings, depositions, answers to interrog ato ries, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a ju d g m e n t as a matter of law." Fed.R.Civ.P. 56(c). The mere existence of some alleged f a ctu a l dispute between the parties will not defeat an otherwise properly supported motion f o r summary judgment; rather, only disputes over facts that might affect the outcome of the lawsuit, under the governing substantive law, will preclude the entry of summary ju d g m e n t. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). At the su m m a ry judgment stage, this Court must view all evidence and consider all reasonable in f e re n c e s in a light most favorable to the non-moving party. Marzano v. Computer S c ie n c e Corp., 91 F.3d 497, 501 (3d Cir. 1996). B. Exclusivity

W h e re a contract is unambiguous, it is appropriate for a court to determine its m e a n in g as a matter of law at the summary judgment stage. See LaJeune v. Bliss-Salem, 4

8 5 F.3d 1069, 1073 (3d Cir. 1996). Illinois courts consistently hold that words used in c o n tra c ts must be given their plain and ordinary meaning. See, e.g., City of Chicago v. C o m c a st Cable Holding, LLC, 375 Ill.App.3d 595, 600-01, 872 N.E.2d 368, 373-74 (Ill. A p p . Ct. 2007). Clear and unambiguous contract terms control the rights of the parties. Golden Rule Insurance Co. v. Schwartz, 203 Ill.2d 456,465, 786 N.E.2d 1010, 1016 (Ill. 2 0 0 3 ). When construing the language of a contract, a court must give effect to the intent th e parties possessed at the time they entered into the agreement. See First Bank & Trust C o . v. Village of Orland Hills, 338 Ill.App.3d 35, 40, 787 N.E.2d 300, 304 (Ill. App. Ct. 2 0 0 3 ). A court must interpret the agreement as a whole, giving meaning and effect to e v e ry provision when possible while not interpreting the agreement in a way that would n u llif y provisions or render them meaningless. See Coles-Moultrie Electric Cooperative v . City of Sullivan, 304 Ill.App.3d 153, 159, 709 N.E.2d 249, 253 (Ill. App. Ct. 1999). T h e License Agreement's Preamble defines "BRAC business" as the business of re n tin g vehicles under the "Budget" brand and system. Although under Illinois law p re lim in a ry recitals are generally not binding in themselves, see Regnery v. Meyers, 287 Ill.A p p .3 d 354, 360, 679 N.E.2d 74, 78 (Ill. App. Ct. 1997), such recitals are binding if re f e rr e d to in the operative portion of the agreement, see First Bank, 338 Ill.App.3d at 45, 7 8 7 N.E.2d at 310. The Preamble defines "BRAC business" when stating that " L I C E N S E E desires to be exclusively licensed by BUDGET to use the SYSTEM and c o n d u c t a BUDGET RENT A CAR and BUDGET RENT A TRUCK business (h e re in a f te r referred to as "BRAC business") under BUDGET's trademarks and trade n a m e s . . . ." (Halasz Cert., at Ex. C, pg. 1). The parties expressly agreed to this d e f in itio n under § 14.01(b), which states that "[t]he preamble recitals are incorporated a n d made a part of this Agreement." (Id. at Ex. C, pg. 15). O th e r sections reinforce the intent of the parties to have K&T exclusively operate a " B R A C business" under the "Budget" brand and system. Section 1.01 incorporates the P re a m b le' s definition of "BRAC business" when stating that "BUDGET grants to L IC E N S E E the exclusive right and license to conduct a BRAC business within the te rr ito ry for the term hereinafter defined under BUDGET's trademarks and trade names . . . ." (Id.. at Ex. C, pg. 1). Section 7.01 expressly notes that K&T obtained, "the right to b e c o m e the exclusive BUDGET licensee in the Licensed Territory" in return for fees. (Id. at Ex. C, pg. 4). W h e n read in the context of the whole agreement, § 1.03 does not expand K&T's e x c lu siv ity rights, but rather narrows the definition of "BRAC business" to automobile a n d truck rentals. Section 1.03 limits a "BRAC business" to the exclusive "business of re n tin g automobiles and trucks (herein collectively referred to as "vehicles") without d riv e rs and does not include or refer to the rental of any other vehicle or product or to any 5

o th e r business or commercial activity." (Id. at Ex. C, pg. 2). If K&T ran a business under th e "Budget" brand, then it could only be the "business of renting automobiles and trucks w ith o u t drivers." In return, Budget agreed not establish another "BRAC business" in K & T 's territory. K&T also has failed to establish that Budget and Avis operate as one corporate e n t ity. K&T's allegations of overlapping board members, sharing keys for business sp a c e , and the use of parent's letterhead on business correspondences are insufficient to p ie rc e the corporate veil of a parent. See Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F .3 d 130, 135 (2d Cir. 1997) (finding that a failure to observe corporate formalities, the u se of shared office space and letterhead, and a lack of capital in the subsidiary were in s u f f ic ie n t to show domination as a matter of law). Moreover, nothing in the License A g ree m en t suggests that the parties intended the License Agreement to extend to future c o rp o ra te parents or affiliates. The License Agreement repeatedly states that Budget e n te re d into the contract with K&T and does not mention "Avis," refer to any future car re n ta l brands, or contain a non-compete agreement on the part of Budget or entities a f f ilia ted with Budget. C O N C L U SIO N F o r the foregoing reasons, Defendant K&T's motion for Summary Judgment with re g a rd s to the issue of whether Budget infringed on K&T's exclusive franchise is D E N I E D and Plaintiff Budget's cross-motion for Summary Judgment regarding the same is s u e is GRANTED. The Court reserves its right to rule on the remaining issues at this tim e . An appropriate Order accompanies this Letter Opinion.

s/W illiam J. Martini William J. Martini, U.S.D.J.

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