On October 1, 2009, a jury awarded an Alaskan Avis licensee $16 million in damages in a breach-of-contract case against Avis Budget Group. The case was filed in 2003 with respect to former Cendant Corporation’s acquisition of Budget Rent A Car.
The case stems from Avis’ acquisition of Agency Rent A Car in 1995. Avis licensees from 10 states, including Robert C. Halcro, owner of Alaska Rent A Car and an Avis licensee for more than 50 years, sued on the grounds that the acquisition violated their exclusive license agreements.
In 1997, a settlement was reached and Halcro was invited to join the “Agency Settlement Agreement.” In essence, the Agency Settlement Agreement held that Avis had the right to buy another car rental company but was not allowed to combine the sales, marketing or operations of the two. The agreement was designed to protect licensees from direct competition that the acquisition would foster.
In 2002, Cendant Corporation, who now owned Avis, acquired the assets of Budget Rent A Car. Licensees were given assurances that the two companies would be run separately in accordance with the Agency agreement, said Andrew Halcro, Robert’s son, who has participated in the family business since 1980. Soon after, however, “We started hearing rumblings about how they [Avis] wanted to revisit some of the Agency settlement terms,” said Halcro.
(Andrew Halcro is also prominent in Alaskan politics. He was a member of the Alaska State House of Representatives from 1999-2003, ran for Governor in 2006 and will seek Alaska’s U.S. House of Representatives seat in 2010.)
Won’t Work in Alaska
Halcro attended a licensee meeting in January 2003. “The [Avis] CEO and the CFO were there, and they told us very clearly that it made sense to combine the sales and marketing and that it didn’t make sense to recreate another car rental company,” Halcro said.
The problem was, from some licensees’ perspectives, that Avis was about to inject life into a major competitor, a company that was in severe financial straits. “The SEC said that if someone didn’t buy Budget, they would have to liquidate,” said Halcro. “They were basically going to go away; they were going to disappear.” [PAGEBREAK]
With the Cendant acquisition, Avis licensees and Budget licensees would be butting heads in many markets. In areas such as Manchester, N.H. and Fargo, S.D., this was solved by Cendant buying out the Budget licensee and giving the territory to the Avis licensee in return for agreeing not to sue. This would not work in Alaska. “Our problem was we compete against very strong Budget licensees, so there is no way that the corporation can come in and buy our competitors,” Halcro said.
The Halcro family felt it had no choice but to file a lawsuit.
“You’ve taken an Avis system that my family has contributed to as a licensee for 50 years,” said Halcro. “And overnight you’ve given it to major competitor. You’ve given them a Web site; you’ve given them 20 to 30 years of sales experience with some of our sales VPs. This is a company [Budget] that was in a death spiral, and they’ve been resuscitated using our resources that we’ve been investing in for the last 50-plus years.”
In January 2003, the Halcro family filed a federal lawsuit in Alaska alleging that the acquisition of Budget violated all three of Alaska Rent A Car’s license agreements. The complaint asserted causes of action including fraud, antitrust violations, violation of trade secrets and breach of various contracts.
Not if, But How Much?
In November 2007, after an attempt at mediation and “years of discovery and delay,” according to Halcro, Alaska Rent A Car filed for re-judgment on eight separate motions. The judge resolved most claims in Cendant’s favor, with the exception of breach of contract, finding that Alaska Rent A Car is entitled to damages it actually incurred as a result of the breach of the Agency Settlement.
When the actual trial started on Sept. 22, 2009, it was strictly to determine damages.
“[The trial] was strictly about … how much we had been damaged, not only over the last five years since the purchase of Budget, but going forward. Things were never going to change for us; it was always going to impact our ability to grow,” Halcro said.
Avis Budget Group declined to comment for this article. However, in its third quarter 2009 earnings report, the company stated: “We believe the verdict is unsupported by the evidence and will seek to vacate or appeal the jury’s decision.”