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Budget Rent A Car System, Inc. v. Missoula Acceptance Co.

July 1, 2009

BUDGET RENT A CAR SYSTEM, INC., PLAINTIFF,
v.
MISSOULA ACCEPTANCE COMPANY, D/B/A BUDGET RENT A CAR OF MISSOULA AND BUDGET RENT A CAR OF BILLINGS; MARY I. RYGG, INC., D/B/A BUDGET RENT A CAR OF WHITEFISH/KALISPELL; SOUTHERN CROSS RENTAL, INC., D/B/A BUDGET RENT A CAR OF MCALLEN; LESLIE & LOIS CURRY, A SOLE PROPRIETORSHIP, D/B/A BUDGET RENT A CAR OF AMARILLO AND BUDGET RENT A CAR OF LUBBOCK; AND CURREY ENTERPRISES, INC., D/B/A BUDGET RENT A CAR OF ABILENE, DEFENDANTS.



The opinion of the court was delivered by: Katharine S. Hayden, U.S.D.J.

OPINION

Here the Court considers the objections of plaintiff Budget Rent A Car System, Inc. ("BRACS") to the December 12, 2008 Report and Recommendation of Magistrate Judge Patty Shwartz (D.E. 42) ("the Report and Recommendation") that this action be dismissed for lack of personal jurisdiction and lack of venue and that the motion to transfer be denied. For the reasons stated herein, the Court affirms the Report and Recommendation and adopts its reasoning as the Opinion of the Court.

I. Background

BRACS is the owner of a system for the rental of passenger vehicles under the Budget trademark. In the United States, BRACS operates vehicle rental locations and licenses third parties to operate rental locations under the Budget trademark and pursuant to the Budget system. Since 2002, BRACS corporate headquarters and principal place of business has been located at Parsippany, New Jersey. In this action, BRACS seeks a declaratory judgment against several of its subfranchisees. Defendants Missoula Acceptance Company ("Missoula"), doing business as Budget Rent A Car of Billings, and Budget Rent A Car of Missoula and Mary I. Rygg, Inc. ("Rygg"), doing business as Budget Rent A Car of Whitefish/Kalispell, are both corporations organized under the laws of Montana. Defendant Southern Cross Rental, Inc. ("Southern Cross"), which does business as Budget Rent A Car of McAllen is a corporation organized under the laws of Texas. Defendant Currey Enterprises, Inc. ("Currey Enterprises"), doing business as Budget Rent A Car of Abilene, is a corporation organized under the laws of Texas. Leslie and Lois Currey (the "Curreys"), operating a sole proprietorship, do business as Budget Rent A Car of Lubbock and Budget Rent A Car of Amarillo. In the 1960s, BRACS‟ predecessor-in-interest had entered into Master License Agreements with Los Compadres, a Montana subfranchisor, and Budget Rent A Car of the Southwest ("BRAC-SW"), a Texas subfranchisor. As set forth in the Report and Recommendation, the two subfranchisors subsequently entered into sublicense agreements with the various defendant subfranchisees in their respective states.

In November 2004, BRACS terminated the Master License Agreement with Los Compadres, and at approximately the same time notified Los Compadres‟ subfranchisees (Missoula and Rygg) of this termination. (Am. Compl. ¶¶ 32-33.) As alleged in the complaint, at that juncture BRACS "sought to determine whether it could reach a mutually acceptable agreement with Missoula . . . and Rygg pursuant to which" those companies "would become direct franchisees" of BRACS. (Am. Compl. ¶ 34.) For the interim, BRACS agreed that the subfranchisees "could continue to use the BRACS tradename, trademarks and system" as long as equivalent royalties were paid to BRACS as had been under their sublicense agreements. (Am. Compl. ¶ 34.)

On January 6, 2006, BRACS terminated the Master License Agreement with BRAC-SW, notifying the Texas subfranchisees, Southern Cross, Currey, and Currey Enterprises on January 11, 2006. (Am. Compl. ¶¶ 35-36.) As alleged by BRACS, after terminating the Master License Agreement with BRAC-SW, BRACS "sought to determine whether it could reach a mutually acceptable agreement with Southern Cross, Currey, and Currey Enterprises" through which they "would become direct franchisees of [BRACS]." (Am. Compl. ¶ 37.) Meanwhile, as was done with the former Los Compadres subfranchisees, the former BRAC-SW subfranchisees were able to continue to use BRACS system and trademarks so long as they paid the same royalties as under the sublicense agreement with BRAC-SW. (Am. Compl. ¶ 37.)

On June 2, 2008, BRACS filed an action for declaratory judgment against all defendants seeking a declaration that it had a right to terminate the sublicensing agreements, and that they had been effectively cancelled. (Compl., D.E. 1.) On August 4, 2008, BRACS amended its complaint to add an additional count for breach of contract against defendant Missoula for failure to pay fees under the agreement after the termination of the master licensing agreement with Los Compadres. Defendants thereafter moved to dismiss for lack of personal jurisdiction or improper venue, or in the alternative, moved to transfer venue. (D.E. 29.) Magistrate Judge Shwartz issued her Report and Recommendation on December 12, 2008 in the form of a lengthy oral opinion accompanied by an order. (D.E. 42.) BRACS was granted leave to object to the Report and Recommendation out-of-time, and filed its objections on January 9, 2009. (D.E. 44, 45.)

Pursuant to L. Civ. R. 72.1(c)(2), the Court "shall make a de novo determination of those portions [of the Report and Recommendation] to which objection is made and may accept, reject, or modify, in whole or in part, the findings or recommendations made by the Magistrate Judge." L. Civ. R. 72.1(c)(2). The local rule further provides that the Court "need not normally conduct a new hearing and may consider the record developed before the Magistrate Judge, making his or her own determination on the basis of that record." Id.

II. The December 12, 2008 Report and Recommendation

Magistrate Judge Shwartz‟s Report and Recommendation is comprised of her one-page order as well as the 38-page transcript of her oral report and recommendation. (D.E. 42; 12/12/2009 Oral Report & Recommendation Trans. ("R&R Trans.").) BRACS, which is based in New Jersey, asserts that general and specific personal jurisdiction existed over defendant subfranchisees based upon the defendants‟ contacts with BRACS at its New Jersey headquarters. Based on the dates on which the defendants became party to contracts linking them to BRACS, Judge Shwartz found that the defendants, subfranchisees of BRACS operating in Montana and Texas, had initiated their business relationships with BRACS-through their respective subfranchisors (Los Compadres and BRAC-SW)-over twenty years before BRACS moved to New Jersey in 2002. (R&R Trans. 5:2-24.)

Judge Shwartz found that personal jurisdiction over the Texas and Montana subfranchisees was lacking for several reasons. She determined that the movant defendants were incorporated in Texas and Montana and maintained their principal places of business in their respective states of incorporation. (R&R Trans. 17:15-18.) Further, she found that none of the movants conducted any business in New Jersey, maintained offices in New Jersey, or had any employees in New Jersey (R&R Trans. 17:21-25), and that neither the defendants nor their employees ever entered New Jersey for purposes of conducting business. (R&R Trans. 18:3-5.) As such, she determined that defendants‟ dealings with New Jersey-based yellow pages directory advertiser Wahlstrom did not amount to a New Jersey contact for purposes of general personal jurisdiction, as those advertisements were directed into defendants‟ respective local markets. (R&R Trans. 18:7-10.) No evidence was submitted to indicate that movants advertised or solicited New Jersey customers. (R&R Trans. 18:14-16.) Judge Shwartz concluded that defendants did not have the requisite "continuous and systematic" contacts supporting general personal jurisdiction. Judge Shwartz also found that no contacts with New Jersey arose from doing business with New Jersey residents visiting their respective states on business or pleasure; especially because movants made no effort to solicit this business within New Jersey. (R&R Trans. 18:20-23.)

Judge Shwartz rejected BRACS‟ arguments that defendants were properly haled into court in New Jersey because they benefited from BRACS‟ management of franchise operations from BRACS‟ New Jersey headquarters. (R&R Trans. 19:1-15.) She determined that defendants‟ participation in franchise sales programs, and defendants‟ faxing their participation forms to BRACS‟ headquarters in New Jersey did not amount to "continuous and systematic" contacts for purposes of establishing general personal jurisdiction. (R&R Trans. 19:1-15.) Her underlying reasons were that the forms were only sent to New Jersey because of BRACS‟ relocation to New Jersey and the forms instructed defendants to fax them back to BRACS‟ headquarters. (R&R Trans. 19:17-25.) She concluded that the effects of BRACS‟ unilateral move to New Jersey midstream in its relationship with defendants do not equate to "continuous and systematic" contacts. See, e.g., Nevins v. McKinley Capital Mgmt., Inc., 1999 U.S. App. LEXIS 25531, *4 (10th Cir. 1999) ("In this case, defendants had no contacts with New Mexico that led to the subject matter of this suit other than [plaintiff‟s] decision to relocate there. Defendants cannot be subjected to personal jurisdiction in New Mexico merely because of [plaintiff‟s] unilateral act.") Furthermore, following termination of the master license agreements in 2004 and 2006, according to its pleadings, BRACS reached out of New Jersey to directly continue a business relationship; not the other way around.

With respect to specific personal jurisdiction, Judge Shwartz applied the governing Third Circuit standard as set forth in Marten v. Godwin, 499 F.3d 290, 295 (3d Cir. 2007), and concluded that defendants did not purposely avail themselves of the privilege of conducting business in New Jersey and thus did not invoke the benefits and protections of New Jersey‟s laws. See Hanson v. Denckla, 357 U.S. 235, 253 (1958). This ruling was based on the facts that:

(1) defendants are corporations based in Texas and Montana with their principal places of business in their respective states of incorporation; (2) defendants do not maintain offices or employees in New Jersey; (3) defendants and their employees do not enter New Jersey for business purposes; (4) the contract from which the dispute arose was not entered into, negotiated, or signed in New Jersey; (5) defendants sent their franchise payments to BRACS in Virginia, not New Jersey; and (6) the plaintiff concedes that the participation forms defendant sent to the ...


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