Agency Rent A Car System, Inc. v. Grand Rent A Car Corp.

• Decision Date: 18 October 1996
• Docket Number: Nos. 2021,D,A-C,2223,s. 2021
• Citation: 98 F.3d 25,40 USPQ2d 1455
• Parties: AGENCY RENT A CAR SYSTEM, INC.; Avis, Inc.; and Avis Rent A Car System, Inc., Plaintiffs-Appellants/Cross-Appellees, v. GRAND RENT A CAR CORP.; Baker Car and Truck Rental, Inc.; Motorent, Inc.; General Car & Truck Leasing System, Inc.; Shore Rentals, Inc.; Hayes Leasing Company, Inc.; Car and Truck Rentals, Inc.; Checker Leasing, Inc.; and Rent-ar Co., Inc., Defendants-Appellees/Cross-Appellants, Kal-Co Rental & Leasing, Inc.; Ness Rent A Car, Inc.; Auto Rent, Inc.; Coastal Bend Rent A Car, Inc., individually and on behalf of all others similarly situated, Defendants-Appellees. ockets 96-7204, 96-7332.
• Court: U.S. Court of Appeals — Second Circuit

Page 25

98 F.3d 25

40 U.S.P.Q.2d 1455

AGENCY RENT A CAR SYSTEM, INC.; Avis, Inc.; and Avis Rent A Car System, Inc., Plaintiffs-Appellants/Cross-Appellees, v. GRAND RENT A CAR CORP.; Baker Car and Truck Rental, Inc. Motorent, Inc.; General Car & Truck Leasing System, Inc. Shore Rentals, Inc.; Hayes Leasing Company, Inc.; Car and Truck Rentals, Inc.; Checker Leasing, Inc.; and Rent-A-Car Co., Inc., Defendants-Appellees/Cross-Appellants Kal-Co Rental & Leasing, Inc.; Ness Rent A Car, Inc.; Auto Rent, Inc.; Coastal Bend Rent A Car, Inc. individually and on behalf of all others similarly situated, Defendants-Appellees.

Nos. 2021, 2223, Dockets 96-7204, 96-7332.

United States Court of Appeals, Second Circuit.

Argued July 15, 1996.

Decided Oct. 18, 1996.

Malcolm I. Lewin, Morrison Cohen Singer & Weinstein, New York City (Sarah C. Lichtenstein, of counsel; Linda Silberman, New York City, of counsel; Andrew Schepard, Hempstead, New York, of counsel), for Plaintiffs-Appellants.

Job Taylor III, Latham & Watkins, New York City, for Defendant-Appellee/Cross-Appellant Grand Rent A Car.

David M. Zensky, Akin, Gump, Strauss, Hauer & Feld, New York City (Steven M. Pesner, of counsel), for Defendants-Appellees/Cross-Appellants other than Grand Rent A Car and Defendants-Appellees.

Before: WINTER and CABRANES, Circuit Judges, and MOTLEY, District Judge. ^*

WINTER, Circuit Judge:

Avis, Inc., Avis Rent A Car System, Inc. (collectively "AVIS"), and Agency Rent A Car ("Agency") filed this declaratory judgment action against various out-of-state licensees seeking an interpretation of the underlying licensing agreements. Judge Hurley held that the licensees are not subject to personal jurisdiction under Section 302(a)(1) of New York's long-arm statute. N.Y.Civ.Prac.L. & R. § 302(a)(1). We reverse.

BACKGROUND

A. Jurisdictional Facts

The following facts are either undisputed or are alleged in plaintiffs' complaint and affidavits. We accept them as true for the purposes of resolving this jurisdictional dispute. See Hoffritz For Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 56-57 (2d Cir.1985).

Avis, Inc., Avis Rent A Car System, and Agency Rent A Car are Delaware corporations with their principal places of business in Garden City, New York. Avis Rent A Car System, Inc., a wholly owned subsidiary of Avis, Inc., licenses businesses to use the Avis name in various locations in renting virtually new vehicles to business and leisure customers based on time and mileage use. Agency Rent-A-Car, a separate subsidiary of Avis, Inc., recently purchased certain assets constituting the "Agency Business." Agency rents in various locales older vehicles to insurance companies, auto-body repair shops, automobile dealers, and individual customers for use when vehicle owners need cars temporarily because their own have been stolen or are under repair. The name "Avis" is not used in Agency's business.

Defendants-appellees are various AVIS licensees with principal places of business (and incorporation) in California, Texas, New Jersey, Virginia, Alabama, Tennessee, Iowa, Michigan, North Dakota, and Arkansas. Each is a party to an exclusive licensing agreement with AVIS. Eleven of the licensees involved in this action initially entered into licensing agreements with AVIS prior to 1963 when AVIS was headquartered in Boston, Massachusetts. As a result, some of the licensing agreements call for the application of Massachusetts law. However, in 1963 AVIS moved its headquarters from Massachusetts to New York. Since that time, ten of the thirteen licensees in this action have acquired additional AVIS licenses, pursuant to licensing agreements negotiated with AVIS, that contain New York choice-of-law clauses.

Except for differences in choice-of-law provisions, the agreements are identical in pertinent detail. They grant to the licensee an "exclusive" license to use the AVIS "system" and name to rent vehicles in a defined territory. Licensees promise, inter alia, to: (i) provide AVIS written monthly reports of the total time and mileage charges assessed and the number of vehicles rented and available for rental by the licensee; (ii) pay administrative fees and advertising fees to AVIS; (iii) provide customers with uniform liability, fire, theft, and collision insurance; (iv) use standardized AVIS Rental Agreement contracts; (v) comply with the AVIS System Operator's Manual and other directives from AVIS; (vi) permit AVIS to inspect licensees' premises, vehicles, and records without notice; and (vii) subscribe to a national advertising campaign conducted by the "Advertising & Policy Committee," composed of members elected by the licensees and those appointed by AVIS. The licensing agreements also state that AVIS will provide assistance in advertising and in the procurement of large scale accounts and avail the licensee of optional participation in the manufacturers' vehicle fleet programs.

Under separate agreements, licensees have access to and utilize AVIS's computerized central reservation system known as the "Wizard System." According to the complaint, the Wizard System is located in and operated out of AVIS headquarters in Garden City.

In addition, four organizations that service the needs of the licensees are located in Mineola, New York. The first of these, the AVIS Licensee Association, is comprised of officers elected by licensees and represents the interests of the licensees to AVIS. The second, the Advertising & Policy Committee, conducts AVIS's joint advertising campaigns. It is comprised of six members appointed by AVIS and seven rotating members elected by licensees. The third, the AVIS System Advertising Trust, manages advertising funds that are paid by the licensees. The fourth, Vehicle Services of America, Ltd. ("VSA") (of which some of the licensees are shareholders) finances the purchase and lease of AVIS rental cars.

B. The Instant Litigation

Sometime in July 1995, AVIS informed its licensees of its intention to enter the replacement car rental market by acquiring the "Agency Business." Believing that AVIS's acquisition of Agency businesses within the licensees' districts would violate the licensees' contractual rights to exclusive territories, some licensees threatened litigation. In response, AVIS and Agency filed the present action, seeking a declaration that Agency is a stand-alone business that serves a separate market and that AVIS's acquisition of the Agency Business does not violate the licensees' rights under the agreements. AVIS also sought an injunction enjoining licensees and all others similarly situated from commencing litigation in other courts concerning this matter.

Licensees moved to dismiss pursuant to Rule 12(b)(2), Fed.R.Civ.P., for lack of personal jurisdiction. In granting the motion to dismiss, the district court held, inter alia, that although the licensees "transact business" in New York, the instant claim does not "arise out of" those transactions and thus long-arm jurisdiction under N.Y.Civ.Prac.L. & R. § 302(a)(1) does not exist. ¹

DISCUSSION

On appeal, AVIS and Agency contend that because their claim arises out of the licensing agreements that govern the relationship between the parties, it necessarily arises out of transactions by the licensees in New York. In addition to disputing that contention, the licensees argue that the posture of this case as a defensive declaratory judgment action makes it inappropriate for the exercise of long-arm jurisdiction. Finally, the licensees argue that, even if the exercise of personal jurisdiction over the out-of-state defendants is proper, the court should exercise its discretion and refuse to entertain this declaratory judgment action. ²

A court sitting in diversity applies the law of the forum state in determining whether it has personal jurisdiction over the defendants. CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir.1986). Section 302(a)(1) of the New York long-arm statute provides that a court may exercise personal jurisdiction over any foreign defendant who "transacts any business within the state." N.Y.Civ.Prac.L. & R. § 302(a)(1). For a court to exercise jurisdiction under this provision, the claim must "arise from" the transaction of business within the state. Hoffritz, 763 F.2d at 58-59.

A. "Transacts Business"

The question of whether an out-of-state defendant transacts business in New York is determined by considering a variety of factors, including: (i) whether the defendant has an on-going contractual relationship with a New York corporation, George Reiner & Co. v. Schwartz, 41 N.Y.2d 648, 653, 394 N.Y.S.2d 844, 363 N.E.2d 551 (1977); (ii) whether the contract was negotiated or executed in New York, George Reiner, 41 N.Y.2d at 653, 394 N.Y.S.2d 844, 363 N.E.2d 551; Hoffritz, 763 F.2d at 60, and whether, after executing a contract with a New York business, the defendant has visited New York for the purpose of meeting with parties to the contract regarding the relationship, CutCo, 806 F.2d at 367-68; Hoffritz, 763 F.2d at 60; (iii) what the choice-of-law clause is in any such contract, CutCo, 806 F.2d at 366-67; Sacody Technologies, Inc. v. Avant, Inc., 862 F.Supp. 1152, 1156 (S.D.N.Y.1994) (choice-of-law clause is a significant, but not dispositive, factor); and (iv) whether the contract requires franchisees to send notices and payments into the forum state or subjects them to supervision by the corporation in the forum state, CutCo, 806 F.2d at 368. Although all are relevant, no one factor is dispositive. Other factors may also be considered, and the ultimate determination is based on the totality of the circumstances. See PaineWebber Inc. v. Westgate Group, Inc., 748 F.Supp. 115, 118 (S.D.N.Y.1990).

Applying those factors, we do not hesitate to conclude that the AVIS licensees transact business in New York. Their very businesses arise out of an ongoing contractual relationship with AVIS, which is headquartered in New York....