Budget Rent A Car Exposes Long-Term Breaches of Contract

by ixt / Budget Highlights Key Excerpts From Court Judgment LISLE, I1l. (PROTEXT)

Following the Munich Regional Court of Appeal ruling on April 15, 1999, Sixt has sought to underplay the damages it is likely to pay Budget. According to Budget's German lawyer, Uwe von Saalfeld of Norr, Stiefenhofer & Lutz, "The reality is that Sixt GmbH & Co. Autovermietung KG will have to pay the Budget Rent a Car Corporation substantial damages resulting from Sixt breaches of contract. The detailed judgment of the Court of Appeal shows how seriously the judges viewed the grave breaches of contract. The Court of Appeal has confirmed the order of the previous court that Sixt has to provide a statement to be used for assessing damages due to Budget." The Court held that Budget Rent a Car International, Inc. had validly terminated its licence agreement with Sixt GmbH & Co. Autovermietung KG, effective at the latest in May 1997. Budget's termination was based on Sixt's violation of its obligations "through repeated, persistent conduct in breach of contract the Appellant (Sixt) gave the Respondent (Budget) reason to terminate the Franchise Agreement without prior notice in April 1997, for good cause, after the relationship of mutual trust had broken down irretrievably in the Spring of 1997 due to the number of grave breaches of contract." As a result, Sixt has been operating its car rental business under the Budget trademark without authority for the past two years and will be required to pay damages to Budget for such illegal conduct. In addition, the Court of Appeal ruled that "since the Appellant (Sixt) has used after 05/25/1997 and to date still uses the Budget trademark, without the authorisation required under Sec. 14 (2) (1) and (2) Trademark Act, the Respondent (Budget) is entitled to the claim to injunctive relief as asserted, according to Sec.14 (5) of the Trademark Act." The court also ruled that Sixt, in the years prior to the determination, did not promote the Budget system in Germany in the proper contractual way. Sixt also has to compensate Budget for this breach of contract. Additionally, Sixt will be responsible for Budget's legal costs and for lost profit damages resulting from Sixt's re-direction of reservations generated in Germany to non-Budget locations throughout Europe. The Court of Appeal ruled that "It is undisputed that since the late Autumn of 1996 the Appellant (Sixt) has transmitted outbound reservations solicited in Germany to its own subsidiary companies in European foreign countries, via the reservation centre." The recent statement of Sixt that Budget has to compensate Sixt for prior investments in the Budget brand in Germany has no legal basis at all. Sixt has raised this topic in a hearing before the Munich Regional Court and was told by the judge that even if the termination was not valid, he is not entitled to ask for compensation. Budget Rent a Car Corporation, a wholly owned subsidiary of Budget Group, Inc. (NYSE: BD), is one of the world's top three car and truck rental systems. The Budget system, which operates under the same name worldwide, has more than 3,200 airport and local market locations in over 120 countries and territories. Budget has nearly 1,200 corporate-owned and franchised locations throughout the Europe, Middle East and Africa region. Around the world, Budget differentiates itself in the industry through its "out of the ordinary" products and services. Detailed extracts from the Munich Regional Court of Appeal Judgment (All extracts appear in italics; words in brackets and underlining highlighted by Budget) The Court ruled that Sixt illegally transmitted outbound reservations to non-Budget franchisees/corporate operations: "By presenting corresponding supporting documents, the Respondent (Budget) has proved that after September 1996, reservations which had been placed by customers for foreign countries were not transmitted to the appropriate foreign Budget licensee or Budget branch, contrary to the obligation anchored in Clause 5.01 of the Agreement, but were continually transmitted to Sixt subsidiary companies in Switzerland and Austria. In other countries such as Portugal, Israel, Italy and Spain, outbound reservations were transmitted to the local company 'EuroDollar Car Rental,' a direct competitor of the Respondent (Budget) and of its Budget franchisees operating in these countries." The Court ruled that Sixt had exploited, contrary to good faith, all the benefits of being a part of the Budget rental system, yet disregarded the obligations he had to the system, by causing damage to the system through the engagement of competing activities: "In the present case the conduct of the Sixt companies, which has been objected to, is directed towards establishing and expanding a competing business by exploiting - contrary to good faith - the simultaneous incorporation into the Respondent's (Budget's) rental system. The Appellant (Sixt) has deployed all the advantages offered by the BRAC system, yet has disregarded the obligation that this entails to refrain from damaging the system through similar competing activities. It does not wish to accept the disadvantages that unavoidably arise from the incorporation into a franchise system such as the present one. There are no doubts that the Sixt companies profit from this selfish conduct at the expense of the Respondent (Budget)." The Court found that Budget was justified in its termination of the franchise agreement with Sixt. The Court stated that Sixt's actions were in severe breach of Budget's franchise agreement and, by ignoring Budget's objections and warnings, Budget could no longer be expected to uphold the franchise agreement with Sixt: "As a result of the conduct of the Sixt companies, which was in severe breach of the Agreement and contrary to good faith, and due to its reaction to the objections and warning notices issued by the Respondent (Budget), the basis of trust of the franchise relationship was destroyed so severely at the latest in mid-April 1997 that the Respondent (Budget) could no longer reasonably be expected to uphold the contract." Sixt deliberately continued and intensified its conduct, in breach of the contract: "In the present case one has to proceed on the assumption of infringement through gross negligence. At the latest when it started to transmit reservations placed in Germany to foreign subsidiaries or affiliated companies the Appellant (Sixt) was aware that it was breaching an essential point of the Budget Franchise Agreement and thus gave the Respondent (Budget) good cause to issue a notice of extraordinary termination. Despite numerous objections raised, setting of deadlines and issuance of notices of failure, the Appellant (Sixt) did not desist from such conduct, rather, it even intensified its conduct in breach of contract." The Court found that Sixt's refusal to allow inspection of accounting documents by Budget amounted to a breach of contract: "The Appellant's (Sixt) refusal to enable the Respondent (Budget) to inspect the accounting documents, as had been agreed, at least amounts to a breach of contract which undermines trust. The Respondent (Budget) has stated that there are reasonable doubts as to the correctness of the turnover figures communicated." The Court required that Sixt provide a statement in order to calculate damages due to Budget: "The claim to provision of information asserted by the Respondent (Budget) was correctly granted by the Landgericht (Regional Court). The claim to provision of information is necessary in order to prepare and enforce the Respondent's (Budget's) damage claim, since it is unable to obtain the information in a reasonable manner, as the Appellant (Sixt) may freely admit." Due to what it deemed illegal use of the Budget trademark, the Court required Sixt to cease and desist its use of the Budget trademark and would not grant Sixt an extended period of time to remove the trademark: "The court will not grant the Appellant (Sixt) its wish to allow extensive periods for conversion and using up, in the case of an order to cease and desist. In accordance with established case law, on principle this Court deems it intolerable to sanction an illegal situation to the detriment of the injured party, even on a temporary basis." The judgment continued, "Yet the exceptional grant of periods for using up, conversion or removal, does not come into question where the infringing party has acted with intent or with gross negligence. In this case the infringing party (Sixt) is not worthy of respite;" ots Original Text Service: Budget Rent A Car Internet: http://www.newsaktuell.de Contact: Kimberly Mulcahy of Budget Rent a Car Corp., 630-955-7672 (in the USA) Company News On-Call: http://www.prnewswire.com/comp/121583.html or fax, 800-758-5804, ext. 121583 (in the USA) Web site: http://www.drivebudget.com

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