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Republic depending on home-court advantage

Wayne Huizenga made sure he had a home-court advantage when he took on Japan's largest automakers.Toyota Motor Corp. and American Honda Motor Co. wouldn't approve its franchisees selling into Republic's burgeoning network of 115 car showrooms.

Wayne Huizenga made sure he had a home-court advantage when he took on Japan's largest automakers.

Toyota Motor Corp. and American Honda Motor Co. wouldn't approve its franchisees selling into Republic's burgeoning network of 115 car showrooms.

So he bought Honda and Toyota franchises in Florida, Texas, Arizona and Washington, states with laws that give franchise owners the right to sell their companies to whomever they please.

That put Fort Lauderdale, Florida-based Republic, whose single largest shareholder is Bermuda resident Michael DeGroote, in the driver's seat in lawsuits filed by Toyota and Honda to block some franchised dealership sales.

"The likelihood is the transactions will be approved,'' said Gary Duvall, a Seattle lawyer who specialises in franchise law. "They are pro-dealer states.'' Toyota and Honda hope that's wrong. They object to Republic's rapid growth and lack of experience in selling cars, and that it's trying to build an empire riding on their brand names. They also say their contracts let them choose who can operate their dealerships -- mostly experienced auto retailers, and that doesn't include billionaire entrepreneur Huizenga.

Two years ago, Republic hadn't sold a single car. It was a waste-management company with $55 million in annual revenue. Now, after a buying binge orchestrated by Huizenga, it's the largest US auto dealer, expecting about $5.5 billion in revenue this year just from car sales.

Republic's lack of a track record doesn't bother US automakers. Ford Motor Co., Chrysler Corp. and General Motors Corp., with the exception of its Saturn division, have allowed Republic to buy franchised dealerships in 12 states.

But it bothered Toyota enough to sue Republic, in an effort to block its planned purchase of Joe Myers Automotive Group in Houston. Toyota also opposes Republic's purchase of a Toyota dealer in Tempe, Arizona, and Toyota and Lexus dealers in the Tampa, Florida, area and in Spokane, Washington.

Honda, meanwhile, filed a federal lawsuit in Los Angeles two days after Republic agreed to buy a Miami Honda franchise. Honda's suit seeks to block Republic from buying more Honda and Acura dealerships. It says Republic's size could lead it to demand concessions that would put smaller dealers out of business. The same argument's made by Toyota. Republic says it won't ask for special treatment.

Honda also says Republic's promotion of its AutoNation brand could devalue its Honda and Acura brands. AutoNation is the name Republic uses for its new-and used-car dealership chains.

While federal courts have handled some franchise disputes, franchise lawyers say the vast majority of disagreements are settled by state regulators and courts.

In the four states where Republic's bought Honda and Toyota dealers, regulators and courts make it hard for a manufacturer to thwart someone who wants to buy a franchise. As long as a buyer has the money and a clean criminal record, and the sale won't reduce the franchisor's market share, the sale will usually get the nod, experts said.

"If there's any state in the US you want to test the law, it would be in Florida,'' said auto dealership consultant Tony Argiz, a certified public accountant in southern Florida.

In 1992, a Florida court approved a franchise sale over GM's objection, saying the buyer already operated a GM franchise and so was presumed to be qualified.

In Arizona, state law puts the burden of proof in franchise disputes on the brand owner, not the franchisee. In a 1982 case, a state court said Dairy Queen of Southern Arizona was unreasonable in rejecting a franchise sale, even though the buyer had experienced sales declines at other Dairy Queen stores and had been late in making royalty payments.

"Republic has chosen its battles wisely,'' said Jordan Hymowitz, an analyst with Montgomery Securities in San Francisco.

In Texas, Republic's planned $33 million purchase of the Joe Myers dealership in Houston got off track last week when regulatory delays initiated by Toyota prompted Joe Myers to cancel the sale because it hadn't closed by the May deadline.

Republic said it still wants to buy the dealer, and analysts expect that it ultimately will prevail before the Texas Motor Vehicle Board. The company's asked the board to declare illegal Toyota's requirement that nine months elapse between purchases of dealerships by a single buyer. Toyota says it requires the wait to evaluate whether the dealer's given good customer service.

Texas franchise sales have been rejected on limited grounds, such as if the manufacturer can demonstrate that the sale will reduce its market share.

Expansion-minded Republic says that's hardly the case when it's the buyer.

Outside of the four states Republic has picked to do battle in, some laws allow manufacturers to reject sales on grounds that are "reasonable'' -- a vague rule that results in wildly different outcomes.

The contracts of franchise agreements almost always give the franchisors broad authority. Courts in a few cases have upheld contracts that give manufacturers the right to reject sales of franchises without giving a reason.

"There is a patchwork quilt of state franchise laws right now,'' said Susan Kezios, president of the Chicago-based American Franchisee Association. That's prompted the group to push for federal legislation or consistent state rules to protect the ability of franchise owners to sell, no matter where their businesses are located.

The association says support has picked up in the past few years, though it acknowledges approval is unlikely this year from a Republican-controlled Congress skeptical of more regulation and national mandates.

"Every state has got a different rule,'' Kezios says. ''Your success depends on the state you are in.'' That's the reason Texas, Florida, Arizona and Washington look so alluring to Republic's Huizenga.