Robert's Waikiki U-Drive v. Budget Rent-A-Car

• Decision Date: 09 June 1980
• Docket Number: Civ. No. 77-0009.
• Citation: 491 F. Supp. 1199
• Parties: ROBERT'S WAIKIKI U-DRIVE, INC., a Hawaii Corporation; Robert's Kauai U-Drive, Inc., a Hawaii Corporation; Robert's Maui U-Drive, Inc., a Hawaii Corporation; and Robert's Hawaii U-Drive, Inc., a Hawaii Corporation, Plaintiffs, Counterclaim-Defendants, v. BUDGET RENT-A-CAR SYSTEMS, INC., a corporation, Defendant, Counterclaim-Plaintiff.
• Court: U.S. District Court — District of Hawaii

491 F. Supp. 1199

ROBERT'S WAIKIKI U-DRIVE, INC., a Hawaii Corporation; Robert's Kauai U-Drive, Inc., a Hawaii Corporation; Robert's Maui U-Drive, Inc., a Hawaii Corporation; and Robert's Hawaii U-Drive, Inc., a Hawaii Corporation, Plaintiffs, Counterclaim-Defendants, v. BUDGET RENT-A-CAR SYSTEMS, INC., a corporation, Defendant, Counterclaim-Plaintiff.

Civ. No. 77-0009.

United States District Court, D. Hawaii.

June 9, 1980.

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Martin Anderson, David J. Reber, Goodsill, Anderson & Quinn, Honolulu, Hawaii, for plaintiffs, counterclaim-defendants.

Wallace S. Fujiyama, Fujiyama, Duffy & Fujiyama, Honolulu, Hawaii, Robert Salman, Phillip, Nizer, Benjamin, Krim & Ballon, New York City, for defendant, counterclaim-plaintiff.

DECISION ON MOTIONS

SAMUEL P. KING, Chief Judge.

I. BACKGROUND FACTS

Robert's Waikiki U-Drive, Inc., et al., (Robert's) brought this action in 1977 against Budget Rent-A-Car Systems, Inc. (Budget) for damages resulting from certain fly-drive agreements Budget had entered into with Aloha Airlines in 1971 and Pan American World Airways in 1972, and from certain acquisitions made by Budget in 1969. The case arises under the federal antitrust laws and the antitrust and unfair competition laws of the State of Hawaii. The Court has independent jurisdiction over the state claims because of diversity of citizenship.

Plaintiffs (Robert's) were four car rental companies doing business on Oahu, Maui, Kauai and Hawaii. These companies were consolidated by merger on December 31, 1978. Robert's is a closely-held, family-owned and operated corporation, operating under the direction of the Robert Iwamoto, Sr. family.

Budget's Hawaii operations were opened in the early 1960's by Irwin Bickson through a licensing or franchise agreement between Budget Rent-A-Car Corporation of America and Mr. Bickson's partnership, doing business as Budget Rent-A-Car of Hawaii. In 1969, Leisure Corporation, a subsidiary of Transamerica Corporation, acquired the independently owned, exclusive Budget licensees on the islands of Oahu, Maui and Kauai. Budget of Kauai was partially owned by Robert Iwamoto, Jr., an officer and director of various Robert's companies, and when he sold out to Leisure, he was required to enter into a restrictive covenant that prevented him from actively participating in the car rental market in Hawaii for five years. In 1974, Leisure Corporation was merged into Transamerica. Defendant Budget now operates the Hawaii franchises and is a wholly owned subsidiary of Budget Rent-A-Car Corporation, which is also owned by Transamerica. Defendant is an Illinois corporation engaged in the car rental business in various states.

Though the acquisitions of the licensees are challenged by Robert's, the crux of the case is the fly-drive agreements. Beginning in the summer of 1971, Budget, in conjunction with Aloha Airlines, began offering fly-drive programs. The essence of these programs was that the consumer was offered a package, so that when he flew on Aloha he received a special rate on a Budget car. In the first program, an Aloha passenger who flew to Maui or Kauai could rent a Budget car for one day for $19.95. In the second program, an Aloha passenger who flew to the island of Hawaii could rent a Budget car for one day for $12.95. The third program, and the one that is at the heart of this lawsuit, was the $7.00 fly-drive package. In an agreement with Aloha, Budget promised to rent automatic compact cars to certain Aloha passengers for one day for $7.00. The regular Budget rate was $14.00.

This agreement was entered into between Budget and Aloha in September 1971, and provided that Aloha was to pay Budget $7.00 for each rental. The program remained in effect through September 1973. In October of that year a new fly-drive agreement was entered into, and by its terms the payments to Budget were not to be linked to the number of cars rented, but rather were to be linked to Budget's prorata share of the advertising costs of the programs.

Robert's contends that the Federal Aviation Act forbade an airline from reducing the airfare it was required to charge under its tariffs. Robert's claims that although the payments to Budget from Aloha were stated to be for advertising expenses, they were in fact illegal rebates that had the effect of reducing airfares. Robert's also claims that Budget and Aloha engaged in a fraudulent coverup to hide the true nature of the rebates from the C.A.B., from competitors and from the general public. Robert's alleges that during the course of the coverup Budget and Aloha falsified invoices, and Aloha and its employees submitted altered documents to and gave perjured testimony before the C.A.B.

In April 1972, Budget entered into a fly-drive agreement with Pan American. The agreement covered only the island of Oahu, and the fly-drives were available both to round-trip Pan American passengers and to passengers who switched from another carrier to Pan American for their return trip to the Mainland. The payments from Pan American to Budget were $5.00 per rental.

In June 1972, the C.A.B. began an investigation of the Budget-Pan American fly-drive program. Richard O'Melia, Director of the Bureau of Enforcement of the C.A.B., wrote to the President of Pan American stating that the C.A.B. had received a complaint contending that the fly-drive arrangement constituted "rebates in violation of Section 403(b) 49 U.S.C. § 1373(b) of the Federal Aviation Act and an unfair practice or an unfair method of competition within the meaning of Section 411 49 U.S.C. § 1381 of the Act." Robert's alleges that during the C.A.B. investigation a false copy of the Budget-Pan American agreement was submitted to the C.A.B. The submitted agreement spoke of Pan American reimbursing Budget for one-half of the total advertising expenditures, rather than Pan American paying Budget a flat, per-car figure. Robert's also claims that during a contemporaneous C.A.B. audit of Aloha, a similar false contract was submitted. The C.A.B. closed its informal investigation of the Budget-Pan American fly-drives without determining the legality of the arrangement. Robert's argues that this was due to the fraud perpetrated on the C.A.B.

The C.A.B. commenced a formal enforcement proceeding against Aloha in 1973. In his 1975 decision, the Administrative Law Judge determined that Aloha had violated 1) § 403(b) of the Federal Aviation Act by indirectly rebating to passengers the payments it had made to Budget; 2) § 404(b) of the Act, 49 U.S.C. § 1374(b), by making the lower airfare available only to those passengers who rented Budget cars and 3) § 411 of the Act by violating § 403(b), and "by interfering with the normal competitive processes through the use of the unlawful rebating plan to increase its market share at the expense of a competitor." The Administrative Law Judge ordered Aloha to cease and desist from its violations of the Act. The decision of the Administrative Law Judge was affirmed by the C.A.B. in an "Opinion and Order" filed in October 1976.

Aloha petitioned the Court of Appeals for the District of Columbia Circuit for review of the C.A.B.'s order. That court affirmed the C.A.B. insofar as it had determined that the 1971 fly-drive plan allowed for illegal rebates in violation of the Act, but reversed the C.A.B.'s finding that the 1973 agreement violated the Act. The court did not find substantial evidence in the record to support the latter finding. Aloha Airlines, Inc. v. C.A.B., 598 F.2d 250 (D.C. Cir. 1979).

In 1972, Aloha initiated an antitrust action against Hawaiian Airlines in this Court. Hawaiian counterclaimed, charging that the fly-drive agreements were illegal under the antitrust laws. During pretrial proceedings on the counterclaim, Hawaiian asserted that the fly-drives were illegal tying arrangements. This Court rejected that claim as a matter of law. Aloha Airlines, Inc. v. Hawaiian Airlines, Inc., 68 F.R.D. 351, 353 (D.Hawaii 1975). A jury decided against Hawaiian on the counterclaim, but this Court granted a new trial because of evidence that John Sakamoto of Aloha had given perjured testimony. The counterclaim was settled before a retrial.

II. ROBERT'S § 1 CLAIM AGAINST BUDGET

A. The Fly-Drives as Illegal Tying Arrangements

Robert's initial contention is that the $7.00 fly-drive agreements between Budget and Aloha, and between Budget and Pan American, were tying arrangements, illegal per se under § 1 of the Sherman Act, 15 U.S.C. § 1 (1976). Robert's moves for partial summary judgment and for an order in the form of a jury instruction to the effect that these fly-drives were "tying arrangements which are to be found illegal per se under Section 1 of the Sherman Act if Robert's demonstrates that there was sufficient economic power in the tying product and a not insubstantial amount of commerce was affected."

The Court rejects the contentions of Robert's that the fly-drives were illegal tying arrangements.¹ On the surface the plan looks relatively simple. Certain Aloha customers were told that they could rent a Budget car for one day for $7.00. It appears at first glance that if there were a tying arrangement, the tying product was the discounted car rental. That was the product that was intended to, and in fact did attract customers. Clearly customers were not accepting the "onerous" discounted car rental rate in order to take advantage of the normal Aloha airfare. Nevertheless, plaintiffs ask the Court to rearrange the transaction. They contend that since in reality Budget was receiving rebates from Aloha in the amount of the discount (or nearly in the amount of the discount), the products should be viewed as a $14.00 car rental and discounted airfare. Therefore, contends Robert's, the discounted airfare was the tying product, and the car rental was the tied product. The Court will ar...