3 National-Alamo ‘Zees Get Termination Notices; Attorneys Cry Foul
Enterprise Holdings owns three car rental brands: Enterprise, National and Alamo.
Alaska Sales & Service has built a $12-million business as a National-Alamo car rental franchisee since 1967. Corpat has been in the game since 1986 and posts $47 million in annual sales. And Midwest Car boasts $90 million a year from a franchise started in 1968.
All three received termination notices effective January 14, 2018, from their franchisor, known as NACRS or National-Alamo Car Rental System, which their attorneys say are without cause and so constitute an unlawful breach of contract.
The franchisor, on the other hand, says the agreements with the three are unenforceable “perpetual agreements” and therefore terminable at will.
If the franchisor prevails in South Carolina, where it filed the action against the franchisees in U.S. District Court in May, “they say your right to use the National and Alamo names are forever gone, you’re done,” says Jeff Haff, an attorney at Dady & Gardner in Minneapolis representing the franchisees. “So then they have the right to take those National and Alamo brands and operate them as corporate locations.”
Michael Dady of Dady & Gardner calls the franchisor’s action “a material breach of all the parties’ license agreements,” and his firm is “seeking temporary and permanent injunctive relief against the wrongful termination/non-renewal.”
Dady said licenses with NACRS date back to 2002, and assurances were made by the franchisor that agreements would continue to be renewed, as long as the franchisee was in good standing, even after new ownership, Enterprise Holdings, bought the system in 2008. “They say we don’t have to honor that deal,” says Dady. “That’s incredibly unique. It’s an assault on contracts, and it’s their own contract.”
Mike Andrew joined Enterprise Holdings, the parent company of NACRS, in the spring of 2017, and Enterprise filed its claim in May saying the license agreements negotiated by the parties in 2002 are unenforceable “perpetual agreements,” and therefore are terminable at will by the franchisor after one single renewal term has expired.
“The decision by NACRS to terminate the license agreements was made for legitimate business purposes, including to deliver a more consistent level of service to those renting vehicles at National and Alamo locations in the United States, increase operating efficiencies, and improve sales processes in the United States,” said Christy Cavallini, VP of global corporate communications for Enterprise Holdings, via email.
She noted that Enterprise Holdings bought the National and Alamo systems out of bankruptcy in 2008, “saving the system,” and became the licensor under the agreements.
NACRS and the U.S. licensees renewed the license agreements in 2012. In 2017, the remaining U.S. licensees, including Alaska Sales, Corpat and Midwest Car, “took the position that they were entitled to renew the 2002 license agreements forever. NACRS disagrees with the licensee’s position,” she wrote.
“The only prudent approach was to have a South Carolina court declare the effect of the agreements. At this time, NACRS is prepared to pay the licensees the reasonable value of their locations as a settlement in advance of a final adjudication of the dispute,” she wrote.
Alaska, Corpat and Midwest are seeking their own competing declaration from the South Carolina court. Midwest, meanwhile, has filed another lawsuit against NACRS in Green Bay, Wisconsin, relating to Midwest’s Wisconsin and Indiana licensees.
About the latter lawsuit, Cavallini wrote that NACRS has already agreed to the renewal of the Wisconsin and Indiana licensees. “NACRS denies all liability to Midwest and has moved to dismiss the Wisconsin litigation,” she wrote.
To attorneys Dady and Haff, however, you can’t just quit franchising—and take away your franchisees’ livelihoods—because you don’t like the business model. Enterprise “has always chafed at the National-Alamo system having franchisee-owned locations, and would like to eliminate all of those franchises. It has been attempting to buy out franchisee locations since it bought the system in 2008,” said Haff.
When Enterprise acquired the system, “they said we’re not thrilled with franchising, but let us know when you want to sell and we’ll buy you out,” he added. “That’s happened for years, so they’ve shrunk the number of franchisees, and with Mike Andrew arriving they got impatient. EHI’s goal is to combine Enterprise, National and Alamo all into one joint operation without having to deal with franchisees.”
But with at least three franchisees, Enterprise will still need to deal, with those contracts the source of dispute.