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| Continental Franchise Review.. |
Legal Updates
Avis franchisee set for trial after seven-year battle with Cendant
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(Previous article: 50-year Avis franchisee continues battle, CFR April 2008)
A 50-year franchisee of Avis car rental is showing no signs of weakening in his seven-year legal battle with the multi-billion dollar conglomerate formerly known as Cendant Corporation, parent to Avis. The federal lawsuit filed in November 2002, in Anchorage, Alaska, by Robert C. Halcro, Alaska Rent-A-Car (ARAC), stems from Cendant’s acquisition and continued operation of Budget Rent A Car, which Halcro claims violated his franchise agreements. While the trial is now set for September 21, 2009, Cendant attorneys are waging new skirmishes to try to get expert testimony excluded from the trial from Halcro’s proffered damage expert who testified Halcro’s company incurred more than $15 million in damages.
The court previously granted summary judgment to all 12 claims of Cendant defendants, other than one aspect of the franchisee’s breach of contract claim. That claim asserted that Cendant’s use of the same personnel to sell and market both the Avis and Budget brands was a breach of contract. But the court also found that the franchisee had not demonstrated the amount of actual damages that Halcro’s company had incurred, if any, as a result of the breach. Accordingly, the court set the trial date to determine the damages.
Cendant attorney John F. Dienelt, DLA Piper, argues that the testimony of Patrick L. Anderson only sets forth his opinions in his expert report and ignores the court’s prior rulings in an effort to expand the scope of damages. Dienelt emphasizes that Anderson’s opinions are “irrelevant and will only serve to confuse the issues.” He further states that the expert testimony’s damage calculations are unreliable because they are “speculative, founded on flawed or incorrect assumptions, fail to consider the impact of other factors, and ignore any benefits to ARAC arising from the combined sales force.” He claims Anderson’s report fails to satisfy the required relevancy and reliability standards for the admission of expert testimony established in case law and federal rules.
But there is one hurdle that Dienelt has to jump over before filing his motion to exclude Anderson’s expert testimony prior to trial. Because his motion is 25 pages, he first had to get permission from the court to exceed the seven-page limit set by the judge. No ruling will be made by the court until the briefing on both sides is completed.
Although Halcro did not return phone calls prior to publishing, his attorney Jeffrey M. Feldman, Feldman Orlansky & Sanders, did offer comment on the facts of the case. He explained that until Cendant’s request to exclude Anderson’s testimony has been fully briefed, the judge will not rule on the motions. After that, a jury will hear the evidence, with or without Anderson’s testimony, and make their decision on what amount should be awarded. Feldman said it could be anything from zero to $15 million, the full amount of damages that the franchisee plaintiffs are requesting. Dienelt did not want to make comments on this ongoing litigation.
Arizona U.S. Attorney files in Cold Stone case
(Previous article: Cold Reality, CFR November/December 2008)
Last June, the Arizona U.S. Attorney filed its motion for summary judgment asking the court to order Cold Stone Creamery to pay $72,800. The disputed amount is a result of a Cold Stone multi-unit franchisee/area developer Sean Brown (company name AZCS) getting into financial trouble several years after he started his business. He borrowed money from creditors, including Cold Stone and Comerica Bank, for his start-up and operational expenses. In late 2005, Brown fell behind on his payments to creditors and on his quarterly and annual federal employment taxes, resulting in assessments and federal tax liens. Cold Stone then terminated him in January 2007, and took possession and control of all of his shops and equipment.
A year later Cold Stone brought a “claim in interpleader” seeking a judicial decision as to whose claims had priority to AZCS’s personal property and equipment, which Cold Stone valued at $72,800. But the U.S. Attorney contends in its motion that its claim for the disputed amount is superior to all other claims and states the material facts as to why.
After the assessments and the IRS’s notices of federal tax liens were recorded, Cold Stone filed a complaint in Arizona federal court against the government on February 28, 2008, claiming the IRS wrongfully levied the assets of AZCS. In addition to the property amount, the government claims money is still owed for all of the tax periods at issue, plus accrued but un-assessed interest, penalties and other statutory additions. In its motion for summary judgment, the U.S. Attorney also alleges that Cold Stone Creamery is not entitled to receive its attorney fees or costs because AZCS’s unpaid tax liabilities are greater than the amount of the funds at issue. “The amount at stake is $72,800, while AZCS’ outstanding tax liabilities equal $190,835.26, plus accruals and other statutory additions as provided by law as of April 14, 2008.”
Cold Stone response to litigation
Two similar cases have arisen in New Mexico and Texas. Regarding Arizona, Joel Schweidel, the company’s senior vice president and assistant general counsel, said at this point Cold Stone is waiting for a determination on motions that they have filed in regard to the primacy of the liens between Comerica Bank and the IRS. “It’s close to a resolution,” he said. “Essentially, these issues have been negotiated among the various parties, and the Texas and New Mexico issues have now been resolved.” Cold Stone anticipates that Arizona will be determined shortly since there have been no objections filed. “With the lien issues resolved, the stores’ assets will now be subject to being disposed of. They are now free of the liens,” he explained.
But one issue remains unclear: Are these litigations included in Cold Stone’s FDDs, and if not, why? When Schweidel’s successor Joshua Becker was asked that question last year he answered no. He stated, “Based upon my meaning of the NASAA (North American Securities Administrators Association) guidelines it does not need to be in the FDD.” Schweidel said that the government cases were not in the FDD because they are not required to be in it. The settlements will also not have to be disclosed
As of August 3, the Department of Justice public affairs e-mailed a statement saying that the summary judgment motion is still pending in the Arizona case, and Cold Stone has not yet responded. Discovery is closed and a trial date has not been set. The Texas case is set for trial on October 9, 2009, and a stipulated judgment and agreed order of dismissal was filed on July 1, 2009. The New Mexico case is still pending.
Janet Sparks is the former publisher of Continental Franchise Review, an industry newsletter that covered the franchise community for more than 30 years before being acquired by Franchise Times Corporation. Janet can be reached at 303-799-7398 or at jsparks@franchisetimes.com
