Opposition Brief — Cassan Enterprises, Inc. v. Dollar Systems, Inc.

Supreme Court

FIL

No. 97-1669

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1997

CASSAN ENTERPRISES. INC.. ET AI

Petitioners.

<i

DOLLAR SYSTEMS, INC., ET AL..

Respondents

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

JAMES B. HICKS BENJAMIN S. SHARP

KATHY A. JORRIE Counsel of Record

LUCE, FORWARD, HAMILTON & ROBERT L. DEITZ

SCRIPPS, LLP PERKINS COIE LLP

777 South Figueroa St., Suite 3600 607 Fourteenth St., N.W

Los Angeles, Califorma 90017 Suite 800

Telephone: (213) 892-4992 Washington, DC 20005

; ; Telephone: (202) 628-6600

WILLIAM T. WALKER, ESQUIRE

DOLLAR RENT A CAR

SYSTEMS, INC

5330 East 31st Street

Tulsa, Oklahoma 74153-1667

(918) 669-3042 Attorneys for Respondents

NS a ae a

ale SiS ah Sc

i

QUESTION PRESENTED

Did the lower courts properly determine that

application of Washington State's Franchise Investment

Protection Act to the contract between Dollar and Cassan

would impair Dollar's contractual rights in violation of the

Contract Clause of the U. S. Constitution?

il

PARTIES TO THE PROCEEDINGS

Dollar adopts Cassan's statement on page ii of the

Petition, as to the petitioners only

Respondents Dollar Systems, Inc. and Dollar Rent A

Car Systems, Inc. have merged and are currently known as

Dollar Rent A Car Systems, Inc. ("Dollar"). Dollar is a

wholly-owned subsidiary of Respondent Dollar Thrifty

Automotive Group, Inc., formerly known as Pentastar

Transportation Group, Inc. ("Pentastar"). Since December

1997, Dollar Thrifty Automotive Group, Inc. has been a

publicly traded company and is no longer a subsidiary of

Chrysler Corporation.

111

TABLE OF CONTENTS

QUESTION PRESENTED .....

PARTIES TO THE PROCEEDINGS

TABLE OF CONTENTS .

TABLE OF AUTHORITIES

I STATEMENT OF THE CASE

II. REASONS FOR DENYING THE WRIT ..

a; CARCEARSION .......0..0-00-.

il

lil

iV

TABLE OF AUTHORITIES

Cases

Allied Structural Steel Co. v. Spannaus, 438 U.S.

EE 2 | RRP RS Rte ARG RL Bey) pot Ree natin ee 3:5

Birkenwald Distrib. Co. v. Heublein, Inc., 776 P.2d

Tae CRS TN, MOO cries aeons 7

Chico's Pizza Franchises, Inc. v. Sisemore 544 F.

Supp. 248 (E.D. Wash. 1981), aff'd, 685 F.2d

tk he Jot ae +,” | OR Reto ees Wenn opto MEN Yee nc ee ae 7

Energy Reserves Group, Inc., v. Kansas Power &

Light Co., 459 U5. GO CEGRD) «oi csccnescicsececep nice 3, 4,5

Exxon Corp. v. Eagerton, 462 U.S. 176 (1983) ..........00....... 6

Fireside Chrysler-Plymouth Mazda, Inc. v. Chrysler

Corp., 472 N.E.2d 861 (Ill. App. Ct. 1984) 0000.0... 7

Fornaris v. Ridge Tool Co., 423 F.2d 563 (1st Cir.),

rev'd on other grounds, 400 U.S. 41 (1970) «0.0.0.0... 6

Garris v. Hanover Ins. Co., 630 F.2d 1001 (4th Cir.

FREED SARI RITE ae MES CRONE Dake 7 PRONE Ben ie Nat SET 6

G-H Ins. Agency, Inc. v. Continental Ins. Co., 294

eee Be eas his iki a ooo ante ed, 7

Globe Liquor Co. v. Four Horses Distillers Co.,

281 A.2d 19 (Del.), cert. denied, 404 U.S. 873

Cg) Re Raed een a GE MEE SEE TLD An aeamOna tee ee 7

Heublein, Inc. v. Department of Alcoholic Bev.

oo ee Ee ee Ragen ener 7

Vv

Jacobsen v. Anheuser-Busch, Inc. , 392 N.W.2d 868

(Minn. 1986), cert. denied, 479 U.S. 1060 (1987)........... 7

Larco Distrib. Inc. v. Latrobe Brewing Co., 1990

ky We ee is ewer 6

Mankaro Implement Inc. v. J.1. Case Co., [1990-

1992 Transfer Binder] Bus. Franchise Guide

COT) S 9N47 Ce. HE. TOF) ch ee 6

Martino v. McDonald's Corp., 304 N.W.2d 780

“hg Esp MIRA oD MIR Re ec re? Ss imilpae s Rel pelene Mareen 7

McDonald's Corp. v. Nelson, 822 F. Supp. 597

(S.D. Iowa 1993), affd sub nom., Holiday Inns

Franchising, Inc. v. Branstad, 29 F.3d 353 (8th

Ci:), cert. denied, $13 U.S. 1032 (1994) ..............5....5. 6

Morgan v. Kemper Ins. Co., 754 F.2d 145 (4th Cir.

= NRE nintsE ne SMEG OM Tiny beret fy eine Rcoabem me Weer eee 6

Northshore Cycles, Inc. v. Yamaha Motor Corp.,

519 F 26 1061 CN Oe. TIE i is 6

Park Benziger & Co. v. Southern Wine & Spirits,

pe ee eR. |: Re eee eames 7

Rochester v. Royal Appl. Mfg. Co., 569 F. Supp.

SE Pe A A ns ck vndcc aks acpiars ene isencreniesunctonenes 6

Shell v. Metropolitan Life Ins. Co., 380 S.E.2d 183

hte ,__, TRERISPRORARSER SO TRRER aeehestenennr oy ui or mney Sat re 7

Smith Ins., Inc. Co. v. Grievance Comm., 424 A.2d

LS 8 te: : RPM tne apiece fetes xt'y seaseaire verry bie eon peter 7

Superior Motors, Inc. v. Winnebago Indus., Inc.,

SIF FB Fis Ce es BIT a hassles ith eiscnsee sees 6

v1

Ward v. Chevron U.S.A., Inc., 598 P.2d 1027 (Ariz

1979) .... Se ta

Wipperfurth v. U-Haul Co., 304 N.W.2d 767 (Wis

1981) | ) ree

Statutes

United States Constitution, art. I, §10......

Constitutional Provisions

Wash. Rev. Code 19.100.180(1)(c) (1996) ........

No. 97-1669

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1997

CASSAN ENTERPRISES, INC., ET AL.,

Petitioners,

DOLLAR SYSTEMS, INC., ET AL.,

Respondents.

-—BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

;. STATEMENT OF THE CASE

This garden variety diversity case involves a

commercial dispute between respondent Dollar Rent A Car

Systems, Inc. (Dollar), a nationwide car rental company, and

petitioners Cassan Enterprises, Inc., and CMC Investments,

Inc. (Cassan), franchisees of Dollar. In 1993 Cassan filed an

action in Washington State court alleging a variety of tort and

breach of contract claims, as well as claims arising under two

Washington state statutes, the Washington Consumer

Protection Act and the Washington Franchise Investor

Protection Act (FIPA). Cassan sought both damages and

equitable relief. The case was removed to federal court.

Cassan's claims fell into two categories. First, it

contended that Dollar wrongfully failed to offer financial

assistance to Cassan in connection with Cassan's bid for a

2

concession at Sea-Tac Airport in Washington. Cassan

demanded financial assistance of up to one-half of the

monthly franchise fee that its Seattle operation was obligated

to pay Dollar under the Franchise Agreement. Second,

Cassan claimed that Dollar wrongfully refused to allow

Cassan to accept an advertising allowance from GM, which

was conditioned upon Cassan's advertising GM vehicles.

Dollar had a policy that if vehicles were featured in

advertisements, they had to be Chrysler vehicles. At the time

Dollar was owned by Chrysler Corporation, which was also

its featured fleet provider. Dollar refused to make an

exception to this policy for Cassan.

Of relevance to the petition filed by Cassan, FIPA,

generally prohibits franchisors from "discriminat[ing] between

franchises in the charges offered or made for royalties, goods,

services, equipment, rentals, advertising services, or in any

other business dealing," unless the discrimination is 1)

"reasonable," or 2) "based on franchises granted at materially

different times" and the discrimination is "reasonably related"

to that difference in time, or 3) is "not arbitrary." Wash. Rev.

Code 19.100.180(1)(c) (1996). Cassan claimed that Dollar

had discriminated against Cassan because Dollar had

provided financial assistance to some franchisees seeking

airport concessions and had allowed some franchisees to

accept GM advertising allowances, while denying similar

benefits to Cassan. Dollar denied these allegations.

The district court granted Dollar's summary judgment

motion on the FIPA claim on the ground that application of

the Act, which became law in 1972, to the Dollar-Cassan

contract, which was entered into five years earlier, would

violate the Contract Clause of the Washington State

Constitution and of the United States Constitution, art. I,

§10.

3

The other claims went to trial, and a jury found in

favor of Cassan in the amount of $8.7 million. The court

entered two injunctions against Dollar.

On appeal, the United States Court of Appeals for the

Ninth Circuit reversed in every respect. It granted judgment

to Dollar as a matter of law on all legal claims, vacated the

One injunction, and remanded the other injunction for further

determinations.! In addition, it affirmed the grant of

summary judgment in favor of Dollar with respect to the

Contract Clause, holding that retroactive application of FIPA

would indeed violate that provision.

In this Court, Cassan seeks review only of the Ninth

Circuit holding that application of FIPA in this case would

violate the Contract Clause.

II. REASONS FOR DENYING THE WRIT

This case involves no conflict among the courts of

appeals or with precedent of this Court. It breaks no new

legal or constitutional ground. And it bears no national

significance. The issue was decided correctly by both the

district court and the court of appeals in accordance, as

Petitioners concede, Pet. at 7-8, with virtually all courts that

have looked at this or similar legislation

Although not every state law affecting contracts

violates the Contract Clause, that provision "is not a dead

letter," Allied Structural Steel Co. v. Spannaus, 438 US.

234, 241 (1978), and protects the legitimate, reasonable

expectations of parties to a contract. The "threshold inquiry

is ‘whether the state law has, in fact, operated as a substantial

impairment of a contractual relationship.’ " Energy Reserves

' That injunction is still pending in the district court.

4

Group, Inc., v. Kansas Power & Light Co., 459 U.S. 400,

411 (1983), quoting Spannaus 438 US. at 244

If the impairment is substantial, the second inquiry is

whether the state has a “significant and legitimate public

purpose behind the regulation... such as the remedying of a

broad and general social or economic problem." nergy

Reserves Group, 459 US. at 412-13 (citation omitted); see

Spannaus, 438 US. at 249 (legislation at issue "was not

enacted to deal with a situation remotely approaching the

broad and desperate emergency economic conditions of the

early 1930's. . .")

In this case, the courts below properly found both that

the impairment.wrought by FIPA was severe and that the

legislation did not address a broad and general social or

economic problem. They are right on both counts. FIPA is

special interest legislation which, if applied retroactively,

would alter fundamental contract nights, such as Dollar's right

to collect its franchise fee and its right to control its

trademarks

Although Petitioners tellingly do not address the

seriousness of the contractual impairment that FIPA would

cause in this case, it can hardly be gainsaid. First, if Dollar

were required by FIPA to provide Cassan financial assistance

in connection with Cassan's bid for a concession at Sea-Tac

Airport, this obligation would materially change the franchise

fees payable by Cassan to Dollar set forth in the franchise

agreement. Similarly, if Dollar were required by FIPA to

allow Cassan to accept an advertising allowance from GM

conditioned upon featuring GM vehicles in Cassan's

advertisements, this obligation would materially alter the

contractual provision that allows Dollar to approve use of its

logo in all advertising

5

These changes would not constitute mere tinkering at

the margins of the Dollar-Cassan agreement: they address,

rather, core contractual issues. These "severe" and

"permanent" changes, as the district court observed, would

have "substantially impair[ed] Dollar's contractual rights

because [they] would alter the reasonable expectations of the

parties." A-14-15. These rights and expectations, moreover,

were the result of "bargaining by the parties; and throughout

the years since the contract was signed, the parties appear to

have relied upon [their] terms." A-15. The courts below

were thus clearly right that FIPA would operate as a

substantial impairment of the contractual relationship between

Dollar and Cassan.

With respect to the second part of the Spannaus-

Energy Reserves Group test, the courts below were also

correct in ruling that FIPA addressed only a “narrow class,

not a general or broad societal problem..." A-14 (district

court) and that retroactive application of FIPA was

"insufficiently justified," A-10 (court of appeals). On its face,

this statute clearly benefits only a special interest group,

franchisees, and does not have as its purpose "the remedying

of a broad and general social or economic problem." /nergy

Reserves Group, 459 U.S. at 411-12 (citation omitted).

Thus, FIPA is akin to the pension funding charge that applied

only to Minnesota employers that was struck down in

Spannaus and is far different from the Kansas act that

imposed price controls on natural gas that was upheld in

Energy Reserves Group 2

? The Energy Reserves Group Court found it significant

that the natural gas industry is "heavily regulated," 459 US. at

413, presumably because parties to a contract ina heavily

regulated industry must reasonably expect that contractual terms

may be altered by laws or regulations. By contrast, Washington

6

FIPA did not impose "a generally applicable rule of

conduct designed to advance 'a broad societal interest’. ."

but instead "directly ‘adjusted the rights and responsibilities of

contracting parties." /xxon Corp. v. kKagerton, 462 U.S

176, 191-92 (1983) (citation omitted). The "overall purpose

of the Act is specifically to adjust the balance of power

between contracting parties." McDonald's Corp. v. Nelson,

822 F. Supp. $97, 608 (S._D. lowa 1993), affd sub nom.,

Holiday Inns Franchising, Inc. v. Branstad, 29 F 3d 353 (8th

Cir.), cert. denied, 513 U.S. 1032 (1994)

In sum, the courts below properly held that

retroactive application of FIPA would violate the Contract

Clause. The proof of this particular proposition lies in the

fact, as acknowledged by Petitioners, that virtually every

court (and every court of appeals) that has examined special

interest statutes like FIPA has found them to be severe and

unconstitutional impairments of contracts? Indeed, the very

”

State "had not previously regulated franchises in this manner. . ..

A.14-15.

3See, e.g., Holiday Inns Franchising, Inc. v. Branstad, 29

F 3d 383 (8th Cir.), cert. denied, 513 U.S. 1032 (1994),

Northshore Cycles, Inc. v. Yamaha Motor Corp., 919 F.2d 1041,

1043 (Sth Cir. 1990); Morgan v. Kemper Ins. Co., 754 F.2d 145,

147-48 (4th Cir. 1985); Garris v. Hanover Ins. Co. , 630 F.2d

1001, 1005-07 (4th Cir. 1980); Fornaris v. Ridge Tool Co. , 423

F.2d 563 (ist Cir.), rev'd on other grounds, 400 US. 41

(1970)(resolution of constitutional question should have been

deferred to see if Puerto Rico court might construe statute in a way

avoiding that question); Mankaro Implement Inc. v. JI. Case Co.,

{1990-1992 Transfer Binder] Bus. Franchise Guide (CCH) §] 9947

(D. Minn. 1991); Larco Distrib. Inc. v. Latrobe Brewing Co.,

1990 WL 168702 (D. Kan. 1990), Rochester v. Royal Appl. Mfg.

Co., 569 F. Supp. 736 (W.D. Wis. 1983), Superior Motors, Inc. v.

Winnebago Indus., Inc., 359 F Supp. 773, 779 (D.S.C. 1973).

7

provision at issue in this case was found to violate the federal

Contract Clause if applied retroactively in Chico's Pizza

Franchises, Inc. v. Sisemore 544 F. Supp. 248, 250 (ED

Wash. 1981), affd, 685 F.2d 440 (9th Cir. 1982). ("[T]he

conclusion is inescapable that FIPA profoundly altered, to the

point of potential obliteration, the reasonable expectations of

the parties")

Petitioner is simply unhappy with the state of the law.

as it has been almost uniformly developed by federal and state

courts, because it would like to see circumstances that better

favor franchisees. That does not make out a basis for this

Court's review. Petitioner fails to show any inconsistency

between the case below and recent Contract Clause decisions

in the federal courts of appeals. Nor can it distinguish such

cases. In short, this private dispute between franchisor and

franchisee over a reduction in the franchise fee and

advertising restrictions implicates no "general or broad

societal problem" that justifies retroactive application of

FIPA. To the contrary, retroactivity would seriously interfere

Shell v. Metropolitan Life Ins. Co., 380 §.E.2d 183, 188-91

(W.Va. 1989); Heublein, Inc. v. Department of Alcoholic Bev

Control, 376 S_E. 2d 77, 79 (Va. 1989); Birkenwald Distrib. Co

v. Heublein, Inc., 776 P.2d 721, 724-25 (Wash.Ct.App. 1989);

Jacobsen v. Anheuser-Busch, Inc., 392 N.W.2d 868. 872-74

(Minn. 1986), cert. denied, 479 U.S. 1060 (1987), Fireside

Chrysler-Plymouth Mazda, Inc. v. Chrysler Corp., 472 N.E.2d

861, 866 (Ill. App. Ct. 1984); G-H Ins. Agency, Inc. v. Continental

Ins. Co., 294 §_E.2d 336 (S.C. 1982): Martino v. McDonald's

Corp., 304 N.W.2d 780 (Wis. 1981); Wipperfurth v. U-Haul Co.,

304 N.W 2d 767, 773 (Wis. 1981), Park Benziger & Co. v

Southern Wine & Spirits, Inc., 391 So.2d 681 (Fla. 1980); Smith

Ins., Inc. Co. v. Grievance Comm. , 424 A.2d 816, 820 (N.H.

1980), Ward v. Chevron U.S. A., Inc., 598 P.2d 1027 (Ariz. 1979):

Globe Liquor Co. v. Four Horses Distillers Co., 281 A.2d 19

(Del.), cert. denied, 404 U.S. 873 (1971)

with private commercial obligations in a fashion that the

Contract Clause was intended to prevent

Il. CONCLUSION

For the reasons set forth above, the petition for a writ

of certiorari should be denied.

Respectfully submitted,

JAMES B. HICKS BENJAMIN S. SHARP

KATHY A. JORRIE Counsel of Record

LUCE, FORWARD, HAMILTON & ROBERT L. DEITZ

SCRIPPS, LLP PERKINS COIE LLP

777 South Figueroa St., Suite 3600 607 Fourteenth St., N.W., Suite 800

Los Angeles, California 90017 Washington, DC 20005

Telephone: (213) 892-4992 Telephone: (202) 628-6600

WILLIAM T. WALKER, ESQUIRE

DOLLAR RENT A CAR

SYSTEMS, INC.

5330 East 31st Street

Tulsa, Oklahoma 74153-1667

(918) 669-3042 Attorneys for Respondents

Dated: May 15, 1998