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 ofAppeal ruling on April 15, 1999, Sixt has sought to underplay thedamages 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 CarCorporation substantial damages resulting from Sixt breaches ofcontract. The detailed judgment of the Court of Appeal shows howseriously the judges viewed the grave breaches of contract. TheCourt of Appeal has confirmed the order of the previous courtthat Sixt has to provide a statement to be used for assessingdamages due to Budget." The Court held that Budget Rent a Car International, Inc. hadvalidly terminated its licence agreement with Sixt GmbH & Co.Autovermietung KG, effective at the latest in May 1997. Budget'stermination was based on Sixt's violation of its obligations"through repeated, persistent conduct in breach of contract theAppellant (Sixt) gave the Respondent (Budget) reason to terminatethe Franchise Agreement without prior notice in April 1997, forgood cause, after the relationship of mutual trust had brokendown irretrievably in the Spring of 1997 due to the number ofgrave breaches of contract." As a result, Sixt has been operating its car rental businessunder the Budget trademark without authority for the past twoyears and will be required to pay damages to Budget for suchillegal conduct. In addition, the Court of Appeal ruled that"since the Appellant (Sixt) has used after 05/25/1997 and to datestill uses the Budget trademark, without the authorisationrequired under Sec. 14 (2) (1) and (2) Trademark Act, theRespondent (Budget) is entitled to the claim to injunctive reliefas asserted, according to Sec.14 (5) of the Trademark Act." Thecourt also ruled that Sixt, in the years prior to thedetermination, did not promote the Budget system in Germany inthe proper contractual way. Sixt also has to compensate Budgetfor this breach of contract. Additionally, Sixt will be responsible for Budget's legalcosts and for lost profit damages resulting from Sixt'sre-direction of reservations generated in Germany to non-Budgetlocations throughout Europe. The Court of Appeal ruled that "Itis undisputed that since the late Autumn of 1996 the Appellant(Sixt) has transmitted outbound reservations solicited in Germanyto its own subsidiary companies in European foreign countries,via the reservation centre." The recent statement of Sixt that Budget has to compensateSixt for prior investments in the Budget brand in Germany has nolegal basis at all. Sixt has raised this topic in a hearingbefore the Munich Regional Court and was told by the judge thateven if the termination was not valid, he is not entitled to askfor compensation. Budget Rent a Car Corporation, a wholly owned subsidiary ofBudget Group, Inc. (NYSE: BD), is one of the world's top threecar and truck rental systems. The Budget system, which operatesunder the same name worldwide, has more than 3,200 airport andlocal market locations in over 120 countries and territories.Budget has nearly 1,200 corporate-owned and franchised locationsthroughout the Europe, Middle East and Africa region. Around theworld, Budget differentiates itself in the industry through its"out of the ordinary" products and services. Detailed extracts from the Munich Regional Court of AppealJudgment (All extracts appear in italics; words in brackets andunderlining highlighted by Budget) The Court ruled that Sixt illegally transmitted outboundreservations to non-Budget franchisees/corporate operations: "By presenting corresponding supporting documents, theRespondent (Budget) has proved that after September 1996,reservations which had been placed by customers for foreigncountries were not transmitted to the appropriate foreign Budgetlicensee or Budget branch, contrary to the obligation anchored inClause 5.01 of the Agreement, but were continually transmitted toSixt subsidiary companies in Switzerland and Austria. In othercountries such as Portugal, Israel, Italy and Spain, outboundreservations were transmitted to the local company 'EuroDollarCar Rental,' a direct competitor of the Respondent (Budget) andof its Budget franchisees operating in these countries." The Court ruled that Sixt had exploited, contrary to goodfaith, all the benefits of being a part of the Budget rentalsystem, yet disregarded the obligations he had to the system, bycausing damage to the system through the engagement of competingactivities: "In the present case the conduct of the Sixt companies, whichhas been objected to, is directed towards establishing andexpanding a competing business by exploiting - contrary to goodfaith - the simultaneous incorporation into the Respondent's(Budget's) rental system. The Appellant (Sixt) has deployed allthe advantages offered by the BRAC system, yet has disregardedthe obligation that this entails to refrain from damaging thesystem through similar competing activities. It does not wish toaccept the disadvantages that unavoidably arise from theincorporation into a franchise system such as the present one.There are no doubts that the Sixt companies profit from thisselfish conduct at the expense of the Respondent (Budget)." The Court found that Budget was justified in its terminationof the franchise agreement with Sixt. The Court stated thatSixt's actions were in severe breach of Budget's franchiseagreement and, by ignoring Budget's objections and warnings,Budget could no longer be expected to uphold the franchiseagreement with Sixt: "As a result of the conduct of the Sixt companies, which wasin severe breach of the Agreement and contrary to good faith, anddue to its reaction to the objections and warning notices issuedby the Respondent (Budget), the basis of trust of the franchiserelationship was destroyed so severely at the latest in mid-April1997 that the Respondent (Budget) could no longer reasonably beexpected to uphold the contract." Sixt deliberately continued and intensified its conduct, inbreach of the contract: "In the present case one has to proceed on the assumption ofinfringement through gross negligence. At the latest when itstarted to transmit reservations placed in Germany to foreignsubsidiaries or affiliated companies the Appellant (Sixt) wasaware that it was breaching an essential point of the BudgetFranchise Agreement and thus gave the Respondent (Budget) goodcause to issue a notice of extraordinary termination. Despitenumerous objections raised, setting of deadlines and issuance ofnotices of failure, the Appellant (Sixt) did not desist from suchconduct, rather, it even intensified its conduct in breach ofcontract." The Court found that Sixt's refusal to allow inspection ofaccounting 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 reasonabledoubts as to the correctness of the turnover figurescommunicated." The Court required that Sixt provide a statement in order tocalculate damages due to Budget: "The claim to provision of information asserted by theRespondent (Budget) was correctly granted by the Landgericht(Regional Court). The claim to provision of information isnecessary in order to prepare and enforce the Respondent's(Budget's) damage claim, since it is unable to obtain theinformation in a reasonable manner, as the Appellant (Sixt) mayfreely admit." Due to what it deemed illegal use of the Budget trademark, theCourt required Sixt to cease and desist its use of the Budgettrademark and would not grant Sixt an extended period of time toremove the trademark: "The court will not grant the Appellant (Sixt) its wish toallow extensive periods for conversion and using up, in the caseof an order to cease and desist. In accordance with establishedcase law, on principle this Court deems it intolerable tosanction an illegal situation to the detriment of the injuredparty, even on a temporary basis." The judgment continued, "Yetthe exceptional grant of periods for using up, conversion orremoval, does not come into question where the infringing partyhas acted with intent or with gross negligence. In this case theinfringing party (Sixt) is not worthy of respite;" ots OriginalText Service: Budget Rent A Car Internet:http://www.newsaktuell.de Contact: Kimberly Mulcahy of BudgetRent a Car Corp., 630-955-7672 (in the USA) Company NewsOn-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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