UNITED STATES DISTRICT COURT
DISTRICT OF ALASKA
ALASKA RENT-A-CAR, INC., an
Alaska corporation,
Plaintiff,
vs.
CENDANT CORPORATION, AVIS
RENT A CAR SYSTEM, INC., AVIS
GROUP HOLDINGS, INC., CENDANT
CAR RENTAL GROUP, INC., AVIS
CAR RENTAL GROUP, INC., and
BUDGET RENT A CAR SYSTEM, INC.,
Defendants.
No. 3:03-cv-00029-TMB
MEMORANDUM DECISION
AND ORDER
[Re: Motions at Docket Nos. 164, 170,
172,178, 180, 182, and 183]
I. THE LAWSUIT
Alaska Rent-A-Car, Inc. ("RAC"), an Avis licensee, has sued Cendant
Corporation ("Cendant"), the parent of RAC's licensor and it affiliated entities. The
lawsuit is based upon the acquisition by Cendant of Budget Rent A Car and its
continued operation by Cendant, either directly or through a subsidiary, in competition
with RAC. RAC alleges that the acquisition and operation of Budget violates certain
agreements to which RAC is a party and otherwise violates the law. RAC asserts
twelve cause of action: (1) Breach of the License Agreement; (2) Breach of an Agency
Settlement; (3) Breach of the covenant of good faith and fair dealing; (4) Breach of the
covenant not to hinder or prevent performance; (5) Piercing the corporate veil; (6)
Violation of the Alaska Unfair Trade Practices Act; (7) Violation of the Alaska Uniform
Trade Secrets Act; (8) Permanent injunctive relief; (9) Breach of a Master License and
Motor Operating agreements as a third-party beneficiary; (10) Anti-Trust violations
under both Federal and Alaska law; (11) Fraud; and (12) Interference with prospective
economic advantage.
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 1 of 51
2
II. MOTIONS PRESENTED
Pending before the court are seven summary judgment motions: six filed by RAC
and one by Defendants.
At Docket No. 164 Plaintiff moved for summary judgment on Counts I (breach of
a License Agreement) and II (breach of a settlement agreement) of the complaint; at
Docket No. 215 Defendants opposed the motion, to which Plaintiff replied at Docket No.
279.
At Docket No. 170 Plaintiff moved for summary judgment on Count X (Sherman
and Alaska Anti-Trust) of the complaint; at Docket No. 212 Defendants opposed the
motion, to which Plaintiff replied at Docket No. 268.
At Docket No. 172 Plaintiff moved for summary judgment on Count III (breach of
the covenant of good faith and fair dealing) of the complaint; at Docket No. 215
Defendants opposed the motion, to which Plaintiff replied at Docket No. 279.
At Docket No. 178 Plaintiff moved for injunctive relief prohibiting defendant
Cendant from spinning off its subsidiaries and Defendants from: (1) marketing Avis and
Budget as being associated; (2) providing business cards bearing both the Avis and
Budget logos; (3) providing marketing literature possessing both Avis and Budget logos;
and (4) communicating in any way that Avis and Budget are affiliated or associated with
each other; at Docket No. 213 Defendants opposed the motion, to which Plaintiff replied
at Docket No. 280.
At Docket No. 182 Plaintiff moved for summary judgment on Count VI (Alaska
Unfair Trade Practices Act) of the complaint; at Docket No. 216 Defendants opposed
the motion, to which Plaintiff replied at Docket No. 265.
At Docket No. 183 Plaintiff moved for injunctive relief prohibiting Defendants from
engaging in conduct that Plaintiff asserts violates the law or is in breach of the contract
and a declaration that it is entitled to receive all rental referrals in Alaska; at Docket No.
214 Defendants opposed the motion, to which Plaintiff replied at Docket No. 267.
At Docket No. 180 Defendants moved for summary judgment on all counts of the
complaint; at Docket No. 199 Plaintiff opposed the motion, to which Defendants replied
at Docket No. 249.
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 2 of 51
1/
In January 2006 ARACS became a Delaware LLC.
2/
In January 2006 AGH became a Delaware LLC.
3/
In January 2006 CCRG became a Delaware LLC and in April 2006 changed its name
to Avis Budget Car Rental, LLC. For continuity, the Court will continue to refer to it as "CCRG."
4/
Although shown in the record as subsidiary of Cendant Finance Holding Corporation
(not a party to this lawsuit), it appears that Defendants acknowledge that CCRG is a subsidiary
of Cendant.
5/
In January 2006 ACRG became a Delaware LLC.
3
The Court heard oral argument on March 7, 2007, and now renders its decision
on the pending motions.
III. DEFENDANTS
Defendants and their respective affiliations are as follows. Cendant Corporation
("Cendant") (f/k/a HFS, Inc.) is a publicly held Delaware corporation. Avis Rent A Car
System, Inc. ("ARACS") is Delaware corporation wholly owned by Avis Group Holdings,
Inc.
1/
Avis Group Holdings, Inc. ("AGH") (f/k/a Avis Rent A Car, Inc.) is a Delaware
corporation wholly owned by Avis Car Holdings, LLC.
2/
Cendant Car Rental Group, Inc.
("CCRG") is a Delaware corporation wholly owned by Cendant Finance Holding
Corporation,
3/
also a Delaware corporation.
4/
Avis Car Rental Group, Inc. ("ACRG")
(f/k/a Cendant Car Rental, Inc. and HFS Car Rental, Inc.) is a Delaware corporation
wholly owned by CCRG.
5/
Budget Rent A Car System ("BRAC") (f/k/a Cherokee
Acquisition Corp.) is a Delaware corporation wholly owned by CCRG.
IV. BACKGROUND
Since February 1, 1965, RAC has been the holder of the Avis franchise for
specified locations within the State of Alaska under a License Agreement with Avis, Inc.
In 1973 ARACS attempted to open an Avis car rental location in Valdez, Alaska
prompting RAC to sue to prevent the opening. In January 1976 the suit was settled and
the parties executed an Amendatory Agreement to the 1965 License Agreement
expanding the locations in the state where RAC was granted a license.
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 3 of 51
6/
ARACS was the successor by assignment to the original licensor, Avis, Inc. It appears
from the record that in or prior to July 1997 the franchise business and "system" were
transferred to HFS Car Rental, Inc. (now Avis Car Rental Group, Inc.).
7/
The parties to that agreement, other than the Licensees, were HFS Car Rental, Inc.
(now Avis Car Rental Group, Inc.), Avis Rent A Car, Inc. (now Avis Group Holdings, Inc.), Avis
Rent A Car System, Inc., and HFS, Inc. (now Cendant).
8/
The Court notes that both parties have failed to properly authenticate many of the
documents submitted in support of or opposition to the motions at bar. However, neither party
has filed an objection to the use of any document and, in most cases, both parties rely on the
same document. Consequently, the Court will treat the lack of proper authentication as waived.
See Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 155051 (9th
Cir.1990); Townsend v. Columbia Operations, 667 F.2d 844, 849 (9th Cir.1982).
9/
As provided by Cendant filings.
4
In 1995 ARACS acquired the assets and business of Agency Rent A Car, Inc.
("Agency") and attempted to operate the Agency car rental business.
6/
Avis licensees
from ten states (but not including RAC) sued on grounds that the licensor's acquisition
and operation of the Agency car rental business violated their exclusive license
agreements. In 1997, after consolidation with two other lawsuits and transfer to the
U.S. District Court for the Eastern District of New York, the parties settled the Agency
litigation and resolved the dispute over the scope of the licenses.
7/
On February 18,
1998, RAC was invited to join the Agency Settlement, to which RAC signified its joinder
on July 24, 2001. This lawsuit involves all three agreements.
In November 2002 Cendant, through Cherokee Acquisition Corp. (now BRAC),
acquired Budget Rent A Car. This lawsuit arises out of that acquisition and the
operation of Budget.
V. FACTS
8/
A. G
ENERAL
D
ESCRIPTION OF
B
USINESS
A
CTIVITIES
.
9/
Cendant. Cendant is a multi-national corporation with numerous subsidiaries
whose operations encompass real estate services, hospitality services, time-share
resorts, travel distribution services, and car rentals. In 2005 the operations of Cendant
and its subsidiaries generated consolidated net revenues of $18.236 billion and net
income in the amount of $1.341 billion. As of December 31, 2005, Cendant and its
subsidiaries had assets valued at $34.104 billion, including $835 million cash on hand.
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 4 of 51
5
Avis. In 2001 Cendant acquired all the outstanding shares of Avis that it did not
own at the time, making Avis a subsidiary of CCRG. Avis and its related subsidiaries
provide business and leisure customers with a wide range of services at more than
2,000 locations in the United States, Canada, Australia, New Zealand and the Latin
American/Caribbean region. Avis also has a license agreement with Avis Europe
Holdings Ltd., an independent third party owning or franchising an additional 3,000 Avis
locations in Europe, Africa, the Middle East and Asia.
Avis owns or leases property at more than 850 locations in the United States,
employing more than 5,700 employees. Avis makes more than 16 million vehicle rental
transactions annually. In 2005 Avis generated revenues of approximately $3.2 billion, of
which approximately 85% ($2.7 billion) were generated in the United States. As of
December 31, 2005, Avis had assets of more than $10 billion.
In addition to real property lease agreements and marketing agreements, Avis is
a party to a variety of other contracts with third parties. Avis holds required meetings
and prepares minutes, and maintains its own financial records.
Budget. Budget operates directly or by franchise over 1,800 of the approximately
2,600 car rental locations that are part of the Budget system. Budget operates
approximately 700 Budget car rental locations in the United States, Canada, Puerto
Rico, Australia and New Zealand and franchises the Budget System to independent
business owners who operate approximately 1,100 locations throughout the United
States, Canada, Latin America, the Caribbean and the Asia Pacific region.
Budget owns or leases property at more than 600 locations, and employs more
than 9,400 employees in the United States covering car and truck rentals. Budget
makes more than 7.7 million vehicle rental transactions annually. In 2005, Budget
generated revenues of approximately $1.6 billion, of which approximately 90% ($1.4
billion) were derived from U.S. operations. Budget also operates a truck rental business
utilizing a fleet of approximately 32,100 trucks rented through a network of
approximately 2,700 company owned and commissioned dealer locations throughout
the continental United States. In 2005, Budget's truck rental business generated total
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 5 of 51
10/
Avis Cost Sharing Agreement, ¶ 4 (Docket 167-59 at 3).
6
vehicle rental revenue of approximately $546 million. As of December 31, 2005, Budget
had assets of more than $1.7 billion.
In addition to real property lease agreements and marketing agreements, Budget
is a party to a variety of other contracts with third parties that are typical for corporations
engaged in the type of business it conducts. Budget holds required meetings and
prepares minutes, and maintains its own financial records.
CCRG. CCRG was incorporated April 29, 1996. As of December 31, 2005,
CCRG had assets of more than $3 billion, independent of the assets of Avis and
Budget. In April 2006, CCRG issued $1 billion of senior unsecured notes. CCRG has
more than 11,000 employees in the United States. CCRG holds required meetings and
prepares minutes, and maintains its own financial records.
B. C
ONTRACTUAL
R
ELATIONSHIPS
.
Cendant and CCRG provide certain services to ARACS and BRAC in
accordance with contractual agreements. Cendant and CCRG have entered into a
"Cost Sharing Services Agreement" with ARACS. Under the Agreement, Cendant and
CCRG are engaged to provide certain services to ARACS and the terms of payment by
ARACS for those services are defined. The Agreement provides that: "The Services
described herein are intended to meet the management support and administrative
need of Avis. Avis' business will at all times be subject to Avis' own policies and
practices as such policies and practices may be developed and implemented by Avis
from time to time."
10/
Cendant and CCRG contractually warrant the quality of the
services provided. The Agreement specifically provides that Cendant and CCRG are
independent contractors in the provision of the services, and defines the limitations of
liability and indemnification obligations of the respective parties.
The Agreement defines in detail the scope of the management support and
administrative services provided. The Accounting Services and Computer Support
provided include the maintenance of accounts and a general ledger system. It also
includes accounts receivable and accounts payable services, including the processing
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 6 of 51
11/
Comparison of the two agreements reveals that they are substantially similar in nature
and scope.
7
and posting of receipts and the making of payments. Payroll Services provided by
Cendant include payroll processing services by printing payroll checks and distributing
such checks as directed by Avis. Finance and Treasury services include cash
management, operational funding, bank account establishment and management,
international exchange management, and inter-company interest expense and bank fee
allocations.
Cendant and CCRG have different obligations with respect to services relating to
commercial sales, pricing, revenue management and marketing and promotions. The
Agreement provides that CCRG will establish its overall strategies for commercial sales,
pricing, marketing and promotions, and will provide certain sales, revenue, and
management technical support services. Cendant is not obligated to provide any of
these services, except that Cendant agrees to provide marketing services in connection
with special events that Avis conducts or in which Cendant participates. The agreement
sets forth ARACS' obligation to pay or reimburse Cendant or CCRG, as applicable, for
the services provided and the method for determining direct costs to be paid by ARACS.
Cendant has entered into a similar Cost Sharing Services Agreement with CCRG
and BRAC.
11/
C. F
INANCE AND
M
ANAGEMENT
.
The financing and leasing of the vehicles that comprise the fleet of vehicles
rented from Avis' corporate locations and Budget's corporate locations is governed by a
series of agreements. AESOP Leasing, another Cendant subsidiary, owns the fleet
vehicles and leases them to CCRG. CCRG in turn subleases vehicles to Avis and
Budget. The amount owed to CCRG by Avis and Budget for the leasing of the fleet
vehicles is tracked separately and each pay a pro rata share for using the fleet vehicles.
Cendant uses a centralized system for handling financial transactions divided into
two parts: treasury, which handles banking, i.e., the transfer of funds between Cendant
and its subsidiaries; and accounting, which records the transactions among Cendant
and it subsidiaries or between subsidiaries. The treasury department for Cendant and
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 7 of 51
8
its subsidiaries is centralized at Cendant. The financial performance of all subsidiaries
is consolidated at the Cendant level. The Cendant treasurer is also the treasurer of
Budget and supervises the treasurer of Avis. The Cendant treasury department acts as
a bank for the entire Cendant organization. All cash from the operating accounts of
each of Cendant's United States subsidiaries is swept vertically up every day into a
single Cendant concentration account where the cash for the entire Cendant company
is held and invested in an overnight investment product. ARACS and BRAC each have
their own suite of operating accounts from which all cash is transferred at the end of the
day to a single bank account at Cendant, where it is commingled with the cash of all
Cendant subsidiaries.
ARACS and BRAC each have two separate accounts: collection accounts, in
which receipts are deposited; and disbursement accounts for accounts payable.
Controlled disbursement services are used for each of the subsidiaries' disbursement
accounts so that each day the account holds only the minimum amount of funds
necessary to pay checks clearing that day, with daily funding for the account coming on
an as-needed basis--first by transfer from a subsidiary's collection accounts, and then
as cash from Cendant in the amount necessary to settle the daily cash position of the
disbursement account. Cash is not moved from Cendant to the disbursement account
of any subsidiary until a check is due to clear the account. Any cash left in a
subsidiary's collection account after making the subsidiary's required disbursements is
transferred that night to Cendant.
CCRG apparently does not have any collection or disbursement accounts. It
appears that collections that may come in for CCRG are deposited in the main
concentration account for Cendant and any disbursements for CCRG also come from
that account.
The payroll for all the subsidiaries is prepared at Cendant, which pays all
employees out of a single payroll bank account funded by the Cendant concentration
account. The employees of each division receive checks with the logos of their various
business units, but the routing number at the bottom of each payroll check is a single
Cendant-controlled bank account.
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 8 of 51
12/
While there appears to be a significant amount of confusion regarding whom was
employed by who, and RAC tends to refer to "Avis" and "Avis parties" without identification of
the precise defendant, the evidence proffered by RAC shows that the investigation was
conducted by personnel of either CCRG or AGH, e.g., Duncan Cocroft, David Blaskey and
Joseph Kirrane, not ARACS personnel.
9
Transactions between Cendant and its subsidiaries or between subsidiaries are
accounted for by bookkeeping entries. For example, Cendant charges ARACS and
BRAC monthly for services Cendant provides to them that are recorded in a "trading
account." There is also an inter-company ledger account between ARACS and BRAC
to record expenses that may be paid by one company for the other, but there is no cash
settlement of that account. Similarly, CCRG allocates a share of its general corporate
overhead to ARACS and to BRAC depending on each subsidiaries' share of the
combined Avis/Budget revenue. These costs are reflected on inter-company accounts
as CCRG receivables from ARACS and CCRG receivables from BRAC. Cendant also
charges CCRG monthly for services it provides, which are recorded and the balance
accumulated on an inter-company account ledger.
The evidence clearly establishes that numerous individuals serve, or have
served, in multiple capacities as officers and directors of both Cendant and one or more
of the defendant subsidiaries, either simultaneously or by rotation through various
positions.
D. B
UDGET
A
CQUISITION
ARACS personnel participated in the due diligence investigation culminating in
the acquisition of Budget, including evaluation of the marketing department and
contracts with third-parties, and human resources and employee contracts. While RAC
argues that Avis personnel also participated in other aspects of the due diligence
investigation, e.g., evaluation of the Budget fleet, computer and information technology,
the evidence submitted in support of that argument does not support a finding that it
was done by ARACS personnel.
12/
RAC also argues that the assets of the "Avis parties" were used to secure the
financing for the Budget acquisition. Although it appears that initially ARACS
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 9 of 51
10
administered the Budget funds flow, there is no evidence that ARACS assets were used
in acquiring financing for the Budget acquisition.
E. O
PERATION OF
A
VIS AND
B
UDGET
Since acquiring Budget, CCRG jointly manages and operates both the Avis and
Budget brands. Numerous departments and operations have been, or are intended to
be, consolidated in CCRG, including: yield management, sales and marketing, price
setting analysis, fleet management, vehicle acquisition, revenue, business systems,
data storage, insurance and risk management, human resources, training,
finance/audit/accounting, vehicle repair and maintenance, and information technology.
As a practical matter, essentially the entire senior management team of ARACS was
transferred to CCRG, performing for CCRG the tasks they had performed for ARACS.
With few exceptions, the names, departments, titles and addresses in the 2004 CCRG
directory are identical to those in the 2002 Avis/Cendant directory. Budget's physical
facilities have also been substantially integrated with Avis' physical facilities, with the
aim of consolidating as many facilities as possible.
The CCRG consolidated sales force markets both Avis and Budget brands in an
effort to acquire corporate accounts. The primary goal of the CCRG business plan is to
obtain new business for both brands. Although shifting business from Avis to Budget or
Budget to Avis does not necessarily help CCRG meet its overall business plan, CCRG
will shift business from one to the other to meet client specific needs. The CCRG sales
force has failed or refused to bid Avis to corporate accounts that do business in Alaska
at least in part because these entities had an existing relationship with Budget.
Prior to the acquisition of Budget by Cendant, Avis and Budget competed for
corporate accounts. Since Budget was acquired by Cendant, Avis and Budget do not
directly compete in that neither attempts to take away a corporate account held by the
other by undercutting the price; CCRG policy is to offer an Avis price that is slightly
above an equal Budget position--two different brands offering the customer either a
value choice or a premium choice. In a sense Avis and Budget continue to compete,
albeit on different price levels, for the primary position on corporate accounts, of which
only one may be successful and the other would be excluded from getting that
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 10 of 51
11
business. Although CCRG considers Avis to be a "premium" brand and Budget a
"value" brand and prices Avis above Budget for similar vehicles, it has not conducted
any study or analysis of the additional costs associated for the "premium" service
provided by Avis. There are also instances in which CCRG will bid Avis at a price lower
than that offered by Budget in order to ensure that Avis gets the business instead of
Budget. On the local (Alaska) level, the Avis and Budget licensees continue to compete
for market share.
Although CCRG sets prices for corporately owned Avis and Budget locations,
licensees generally establish their own prices for rentals by the general public.
Corporate accounts negotiated by CCRG set guaranteed prices that may be charged at
participating locations for vehicles rented by account holders. Whether licensees match
these guaranteed prices is voluntary. While participating licensees are prohibited from
charging corporate accounts more than the negotiated contract price, they may charge
lower "general public" rates. Through the use of corporate accounts, CCRG is able to
control the rates charged by participating licensees to the extent of a corporate
agreement. Non-participating licensees may charge the corporate account holder
whatever price the licensee chooses, i.e., the rate offered to the general public, and
may negotiate directly with the corporate account holder. Participating Avis and Budget
licensees, on the other hand, may not negotiate separate "special city pricing" rates for
corporate accounts. Those must be approved by CCRG.
CCRG lumps media advertising money for both Avis and Budget together, and
shifts between brands based upon marketing needs and profitability. When it is
perceived that placement in a particular media outlet would benefit both brands, the
marketing department makes a "judgment call" to decide which brand gets the spot. In
marketing (including advertising) Avis and Budget CCRG's "two brand" strategy directs
its marketing focus for each brand, with Avis as the high cost, high service, premium or
luxury brand and Budget as the low cost, relatively low or skinny service, and low price
brand. Marketing targets different customer bases: Budget promotions focus on price or
value; for Avis the focus is on the non-price conscious, a loyalty tactic, e.g., frequent
renter awards. In this context, CCRG targets Hertz and National as competitors of Avis,
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13/
Plaintiff's Motion for Partial Summary Judgment on Counts I and II of the First
Amended Complaint [Breach of Contract], Exhibit 36 "Project Charter Back Office" (Docket
164-49).
14/
Although at Docket 284 the Court denied on procedural grounds the motion and
cross-motion raising this issue, it is still necessary to decide it in the context of the remaining
pending motions at bar.
12
and Dollar, Thrifty, and Alamo as competitors of Budget. Based upon market studies,
CCRG targets advertising efforts for Avis and Budget to those groups most likely to
utilize the particular brand.
Essentially the entire computer technology and systems previously utilized in the
Avis operation were adopted or adapted for use in connection with Budget operations,
including the "Wizard" System. CCRG has also adopted the previous Avis audit system
and Licensee Composite system for use in both the Avis and Budget operations.
Having a single back office system was meant to "save money through the
elimination of the current Budget system with the implementation of the more efficient
Avis back office system."
13/
Cendant expected to realize annual savings of $12.9 million
by integrating the IT systems of Avis and Budget.
Neither Avis nor Budget have any corporate owned locations in Alaska; all Avis
and Budget operations in Alaska are conducted by Avis or Budget licensees,
respectively. The "Wizard" system is a computer program utilized under a license
agreement with WizCom International, Inc. (also a Cendant Subsidiary). Although RAC
argues that RAC and the Budget Licensees in Alaska utilize a portion of the "Wizard"
system to store rental rates and to take, store and transmit reservations, neither use the
entire "Wizard" system.
VI. ISSUES PRESENTED
The motions raise several issues.
1.
The extent to which each of the defendants may be liable for the acts of the other
defendants (piercing of the corporate veils);
14/
2.
Whether the acquisition and continued operation of Budget breached the
contracts to which RAC was a party, either as to their express or implied terms;
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 12 of 51
15/
Conestoga Servs. Corp. v. Executive Risk Indem., Inc., 312 F.3d 974 (9th Cir.2002).
16/
Fields v. Legacy Health Systems, 413 F.3d 943, 950 (9th Cir.2005).
17/
S.D. Myers, Inc. v. City and County of San Francisco, 253 F.3d 461, 473 (9th
Cir.2001); Paulman v. Gateway Ventures Partners III L.P. (In re Filtercorp, Inc.), 163 F.3d 570,
578 (9th Cir.1998).
18/
See Peterson v. Ek, 93 P.3d 458, 464 (Alaska 2004) (adopting R
ESTATEMENT
(S
ECOND
)
C
ONFLICT OF
L
AWS
, § 187); Palmer G. Lewis Co., Inc. v. ARCO Chemical Co., 904
P.2d 1221, 1227 (Alaska 1995) (adopting R
ESTATEMENT
(S
ECOND
)
C
ONFLICT OF
L
AWS
, § 188).
13
3.
Whether the manner in which the Avis and Budget brands are marketed and
operated violates--
(a) the Alaska Unfair Trade Practices Act (AS § 45.50.471),
(b) the Alaska Uniform Trade Secrets Act (AS § 45.50.910), and
(c) the federal Sherman Act (15 U.S.C. § 1, et seq.) or its Alaska counterpart (AS
§ 45.50.562);
4.
Whether the Defendants, or any of them, made material misrepresentations that
induced RAC to enter into any agreement; and
5.
Whether the manner in which Avis and Budget are operated constitutes tortious
interference with RAC's prospective economic advantage with the car rental public.
VII. APPLICABLE LAW
Generally, a federal court exercising diversity jurisdiction applies the law of the
forum state,
15/
including its choice of law rules.
16/
When interpreting state law, this Court
is bound by the decisions of the state's highest court. In the absence of a decision by
the highest state court, this Court "must predict how the highest state court would
decide the issue using intermediate appellate court decisions, decisions from other
jurisdictions, statutes, treatises, and restatements as guidance."
17/
In deciding choice of
law questions, Alaska generally looks to the Restatement.
18/
VIII. STANDARD FOR SUMMARY JUDGMENT
Summary judgment is appropriate if, when viewing the evidence in the light most
favorable to the non-moving party, there are no genuine issues of material fact and the
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 13 of 51
19/
F
ED
.
R.
C
IV
. P. 56(c); Lopez v. Smith, 203 F.3d 1122, 1131 (9th Cir.2000) (en banc);
Taylor v. List, 880 F.2d 1040, 1044 (9th Cir.1989).
20/
F
ED
.
R.
C
IV
. P. 56(e)
21/
Id.; Henderson v. City of Simi Valley, 305 F.3d 1052, 1055-56 (9th Cir.2002).
22/
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 24849 (1986)
.
23/
Id. at 255.
24/
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
14
moving party is entitled to judgment in its favor as a matter of law.
19/
Support and
opposition to a motion for summary judgment is made by affidavit made on personal
knowledge of the affiant, depositions, and answers to interrogatories setting forth such
facts as may be admissible in evidence.
20/
In response to a properly supported motion
for summary judgment, the opposing party must set forth specific facts showing that
there is a genuine issue for trial.
21/
The issue of material fact required to be present to
entitle a party to proceed to trial is not required to be resolved conclusively in favor of
the party asserting its existence; all that is required is that sufficient evidence supporting
the claimed factual dispute be shown to require a trier of fact or judge to resolve the
parties' differing versions of the truth at trial. In order to show that a genuine issue of
material fact exists, a non-moving plaintiff must introduce probative evidence that
establishes the elements of the complaint.
22/
Moreover, "[c]redibility determinations, the
weighing of the evidence, and the drawing of legitimate inferences from the facts are
jury functions, not those of a judge, [when] he is ruling on a motion for summary
judgment."
23/
There is no genuine issue of fact if, on the record taken as a whole, a
rational trier of fact could not find in favor of the party opposing the motion.
24/
IX. DISCUSSION
A. P
IERCING THE
C
ORPORATE
V
EIL
.
The outcome of several issues depend upon the liability of each of the
defendants for the acts of one, or more, of the others. The facts concerning the
operations of the various defendants and their interrelationship are summarized above
in V.C.
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 14 of 51
25/
Although it purports to reserve the right to argue theories of agency, RAC specifically
eschews that argument at this point.
26/
Peterson v. Ek, supra; Palmer G. Lewis Co., Inc. v. ARCO Chemical Co., supra.
27/
See R
ESTATEMENT
(S
ECOND
)
C
ONFLICT OF
L
AWS
, § 187, cmt. f (1988).
15
RAC argues that, under the facts of this case, the Court should disregard the
corporate separateness of the defendants, effectively collapsing them into a single
enterprise. The parties disagree over whether the Court should apply Alaska, New
York, or Delaware law to the issue of piecing the corporate veil.
RAC's position on the issue of piercing the corporate veil is that Alaska law
should apply, and that Alaska law would apply the most significant contacts rule under
either contract or tort choice of law rules.
25/
The License Agreement specifically
provides that it is governed by New York law. The Amendatory Agreement likewise
contains a specific provision that it is governed by New York law. The Agency
Settlement does not contain a choice of law provision.
If the choice of law provisions in the License Agreement and the Amendatory
Agreement are effective, it is clear that they are governed by New York law.
26/
The
Court finds unpersuasive RAC's argument that, because no party to the agreement
presently has its principal office in New York, the New York choice of law should be
disregarded. At the time the agreements were entered into, Avis had its principal place
of business in New York. Accordingly, at the time the contract was made there was a
rational basis for the selection of New York law.
27/
There is no evidence in the record
that indicates that the parties intended to revoke or modify that agreement.
With respect to the Agency Settlement, there is no clear cut choice of law
provision. However, the agreement involves parties of at least 10 separate states with
only the licensor as the common denominator, which, because the venue of the case
was in the Eastern District of New York, presumably had its principal place of business
there. Thus, the Court finds it is logical to assume in the absence of contrary evidence
that the parties, had they considered the issue, would have chosen the law of New York
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 15 of 51
28/
As a multi-state agreement, to prevent the possibility of inconsistent interpretations
the law of a single state must be applied. New York is the only state having a common nexus to
the agreements of all the parties. It was the domicile of the licensor and the venue of the lawsuit
that the agreement settled.
29/
See R
ESTATEMENT
(S
ECOND
)
OF
C
ONFLICTS
,
§ 307 (1971) ("The local law of the state of
incorporation will be applied to determine the existence and extent of a shareholder's liability to
the corporation for assessments or contributions and to its creditors for corporate debts.");
F
LETCHER
C
YCLOPEDIA OF THE
L
AW OF
C
ORPORATIONS
, § 43.72.
30/
In Nerox Systems, Inc. v. M-B Contracting Co., Inc., 54 P.3d 791, 802 n.45 (Alaska
2002), the Court declined to address the issue as it had not been properly presented to the trial
court. Neither party has cited a case in which the Alaska Supreme Court reached the issue and
the Court's independent research has not revealed any such case.
31/
Murat v. F/V Shelikof Strait, 793 P.2d 69, 76 (Alaska 1990); Eagle Air, Inc. v. Corroon
& Black/Dawson & Co., Inc., 648 P.2d 1000, 1004 (Alaska 1982).
16
to govern the agreement or, alternatively, New York law would apply under the most
significant contacts test.
28/
Defendants argue that piercing the corporate veil, a matter of corporate structure
and governance, is governed by the law of the place of incorporation, in this case
Delaware.
The general rule, in determining the liability of shareholders for the corporate
acts, is that the law of the state of incorporation governs.
29/
Although the Alaska
Supreme Court has not specifically addressed the issue,
30/
its general application of the
Restatement leads the Court to conclude that, absent extraordinary circumstances, it
would follow the Restatement in this case.
But, whether the law of Alaska, Delaware, or New York is applied, the result,
under the facts of this case is the same and the Court need not reach the issue. While
RAC has made a substantial showing that Cendant controls its subsidiaries, at least
sufficient to create a triable issue of fact, RAC has failed to establish the one element
essential to pierce the corporate veil using the "alter ego" theory under either Alaska,
Delaware, or New York law, that the corporate structure: has been "used to defeat
public convenience, justify wrong, commit fraud or defend crime";
31/
"cause[d] fraud or
similar injustice [and] [e]ffectively, the corporation [is] a sham and exist[s] for no other
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 16 of 51
32/
Wallace ex rel. Cencom Cable Income Partners II, Inc., L.P. v. Wood, 752 A.2d 1175,
1184 (Del. Ch.1999); see also McKesson HBOC, Inc. v. New York State Common Retirement
Fund, Inc., 339 F.3d 1087, 1095 (9th Cir.2003) (citing and applying Wallace); S
TEPHEN
B.
P
RESSER
,
P
IERCING THE
C
ORPORATE
V
EIL
, § 2:8 (discussing Delaware law).
33/
TNS Holdings, Inc. v. MKI Sec. Corp., 703 N.E.2d 749, 751 (N.Y.1998); see also
S
TEPHEN
B.
P
RESSER
,
P
IERCING THE
C
ORPORATE
V
EIL
, § 2:36 (discussing federal court
interpretations of New York law).
34/
See Nerox Power Systems, Inc. v. M-B contracting Co., Inc., supra, 54 P.3d 802 n.
43, citing Uchitel Co. v. Telephone Co., 646 P.2d 229, 234 (Alaska 1982).
35/
Nerox, 54 P.3d at 801802 (internal quotation marks omitted).
17
purpose than as a vehicle for fraud";
32/
or "was the instrument of fraud or otherwise
resulted in wrongful or inequitable consequences · · · that it led to inequity, fraud or
malfeasance."
33/
There is simply no evidence that the various subsidiary corporations
were formed with the intent or the purpose of defeating public convenience or justifying
or commiting a wrong, including fraud, against anyone, let alone RAC.
Alaska does recognize, as an alternative to the "alter ego" theory, that the
corporate veil may be pierced and liability imposed on a parent corporation for the
obligations of a subsidiary on the basis of a "mere instrumentality" test.
34/
In that
situation, six factors are applied, not all of which must exist:
35/
"(1) whether the
shareholder owns all or most of the stock; (2) whether the shareholder subscribed to all
of the capital stock or caused the incorporation; (3) whether the corporation is grossly
undercapitalized; (4) whether the shareholder uses the property of the corporation for
his or her own benefit; (5) whether the directors of the corporation act independently of
the shareholder; and (6) whether the formal legal requirements of the corporation are
observed." As noted above, if this test applied, RAC has provided evidence sufficient
for a reasonable trier of fact to find that the parent corporations were liable for the
obligations of their subsidiaries. But even applying the Alaska "mere instrumentality"
approach does not reach the result sought by RAC. That approach would only permit
RAC to recover its damages from a parent corporation as a joint and several obligation.
Perhaps more importantly, neither Alaska, Delaware, nor New York have applied
the alter ego theory in the manner advocated by RAC, i.e., to collapse an entire
corporate family of parent and subsidiaries into a single enterprise. All three states
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 17 of 51
36/
Notwithstanding that RAC has eschewed the agency theory, the Court will, with
respect to each cause of action, independently evaluate whether sufficient evidence, viewed in
the light most favorable to RAC, exists to support a finding of agency.
37/
As noted above, the record indicates that in or prior to July 1997 ACRG acquired the
Avis franchise and system and is the current licensor.
38/
805 Third Ave. Co. v. M.W. Realty Associates., 448 N.E.2d 445, 451 (N.Y.1983).
39/
W.W.W. Associates, Inc. v. Giancontieri, 566 N.E.2d 939, 642 (N.Y.1990).
18
have pierced the corporate veil to make a parent corporation liable for the obligations of
its subsidiary. However, RAC has not cited a reported case in any of the three
jurisdictions in which the subsidiary was held liable for the obligation, let alone the acts,
of the parent or a sister corporation and independent research by the Court has not
revealed any such case. In order for liability for the acts to flow downstream (or "cross-
stream") as advocated by RAC, it will have to be under traditional agency principles, not
using the alter ego theory by piercing the corporate veil; a position RAC, although
purportedly reserving it, has specifically eschewed.
36/
B. B
REACH OF
C
ONTRACT
A
CTIONS
[C
OUNTS
I,
II,
III,
IV
AND
IX].
As noted above, there are three agreements that RAC contends have been
breached by the acquisition, management and operation of BRAC: the 1965 License
Agreement between RAC and Avis; the 1976 Amendatory Agreement between RAC
and ARACS; and the 1997 Agency Settlement between certain Avis licensees and
Cendant, ARACS, AGH, and ACRG. That RAC and ACRG are parties to and bound by
the License Agreement and the Amendatory Agreement is undisputed.
37/
However,
Defendants dispute that RAC is a signatory to the Agency Settlement. RAC also
contends that it's a third-party beneficiary to a Master License Agreement between
Wizard and ACRG as licensors and ARACS as licensee, which it alleges has been
breached through the purchase, operation and management of Budget.
Under New York law interpretation of a contract is a matter of law to be
determined by the court,
38/
including a determination of whether or not it is ambiguous.
39/
A contract is not ambiguous unless the agreement is reasonably susceptible to more
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 18 of 51
40/
Chimart Associates v. Paul, 489 N.E.2d 231, 233 (N.Y.1986).
41/
See South Road Associates, LLC v. Int'l. Bus. Mach. Corp. 826, N.E.2d 806, 809
(N.Y.2005).
42/
Laba v. Carey, 277 N.E.2d 641, 644 (N.Y.1971).
43/
Intercontinental Planning, Ltd. v. Daystrom, Inc., 248 N.E.2d 576, 580 (N.Y.1969).
44/
Hartford Acc. & Indemn. Co. v. Wesolowski, 305 N.E.2d 907, 909 (N.Y.1973).
19
than one interpretation on its face.
40/
The objective is to determine the parties'
intentions from the contract language as a whole;
41/
adjudicating the parties' rights
according to the contract's unambiguous provisions, giving words and phrases
employed their ordinary meaning.
42/
Extrinsic and parol evidence may not be used to
create an ambiguity.
43/
It is only if there is an ambiguity in the terminology used and
there is a determination that the intent of the parties depends upon the credibility of
extrinsic evidence or on a choice among reasonable inferences to be drawn from the
extrinsic evidence that determination is made by a jury.
44/
1. License Agreement and Amendatory Agreement [Count I].
RAC argues that in operating both Avis and Budget in the manner they are
operated, "Defendants" have violated RAC's License Agreement. However, the sole
defendant that is a party to the License Agreement and Amendatory Agreement is
ACRG. That agreement provides: "Licensor hereby grants to Licensee, subject to the
terms and conditions hereof, an exclusive License to use the System in the conduct of a
vehicle rental business for renting cars only."
The License Agreement defines "system" as:
Whereas, Licensor is the exclusive owner of, and has the right to use and
license others to use, a plan or system for conducting the business of
renting motor vehicles, without drivers, hereinafter called "vehicle rental
business", [sic] which plan or system consists, among other things, of
uniform methods of operation, accounting, advertising service and
publicity, courtesy and credit card service, kind and amount of insurance
protection, method of procuring insurance protection and equipment, style
and character of equipment, furnishings and appliances used in the
conduct of said business, methods of procuring business and referral of
business, and the right to use the name "Avis," "Avis System," "Avis Rent
A Car System," "Avis Rent A Truck System" and "Avis Truck Rental
Case 3:03-cv-00029-TMB Document 335 Filed 07/27/2007 Page 19 of 51
20
Service" all of which constitute a part of said system, which system is
generally know [sic] as Avis Rent A Car System and is sometimes referred
to hereinafter as the "System";
* * * *
The License Agreement reserves to the Licensor:
the right to change the System and to change or amend the methods,
rules and regulations of said system, upon giving notice thereof to
Licensee.
More specifically it provides:
5.
RIGHT OF LICENSOR TO CHANGE SYSTEM
Licensor expressly reserves the right to change when and as it
chooses, the system or any part thereof, including any forms, bulletins
procedures, or standard Rental Agreements and the System as so
changed or amended, from time to time, shall for all purposes be deemed
to be the system referred to in this Agreement. Any and all improvements
in said System developed by Licensee shall be and become the sole and
absolute property of Licensor, and Licensor may incorporate the same in
said System and shall have the sole and exclusive right to copyright,
register and/or patent such improvements in its own name, and Licensee
shall have no right to use such improvements, except as it may be
licensed to use the System here-under; provided, however, that in the
event of the termination of' this license, Licensee may continue to use any
form or improvement which Licensee has itself developed, but Licensee
must not thereby represent that it is in any manner a licensee of or
connected with Licensor or the System, and Licensor and other Licensees
of the System may continue to use such forms of improvement.
RAC covenanted:
3.12 Association With Other Systems.
Not to be or become associated, directly or indirectly or through any
corporat