Tri County Distributing, Inc. v. Canandaigua Wine Co. ( 1993 )

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Tri County Distributing, Inc., Appellee, v. Canandaigua Wine
Company, Inc. et al., Appellants.
[Cite as Tri County Distributing, Inc. v. Canandaigua Wine Co.
(1993), Ohio St.3d .]
Commercial transactions -- Alcoholic beverages franchise not
created by operation of law pursuant to R.C. 1333.83
through the mere existence of a written contract between a
manufacturer and distributor of such products, where the
contract disclaims any intention to create such a
relationship and the contract term is for less than six
months.
(No. 92-1479 -- Submitted September 14, 1993 -- Decided
December 29, 1993.)
Appeal from the Court of Appeals for Mahoning County, No.
92 C.A. 37.
Plaintiff-appellee, Tri County Distributing, Inc., is a
wholesale distributor of alcoholic and nonalcoholic beverages.
For a period of years, according to appellee's complaint,
appellee possessed the right, pursuant to a franchise
relationship with Guild Wineries and Distilleries ("Guild"), a
California nonprofit agricultural cooperative, to market and
distribute products bearing the Cook's Wines, Cook's Sparkling
Wines, Chase-Limogere, Cribari Wines, Dunnewood Wines and
Vintner's Choice labels in Mahoning, Columbiana, Trumbull and
Ashtabula Counties.
On August 2, 1991, defendant-appellant Canandaigua Wine
Company, Inc. ("Canandaigua"), a Delaware corporation with its
principal place of business in Canandaigua, New York, entered
into a purchase agreement with Guild whereby the product line
previously sold by Guild would be marketed by Canandaigua. The
agreement provided in relevant part:
"Section 10.12 Distributor Notification. It is
specifically agreed and understood by the parties hereto that
as a condition to the closing of the transactions contemplated
hereby, Buyer [Canandaigua], for its own purposes *** agrees to
notify on or prior to Closing the Distributors listed in
Disclosure Schedule 10.12 that they will not be appointed as
distributors for the Buyer and their Distribution Arrangements
will not be assumed by Buyer. Buyer hereby agrees *** to
indemnify and hold Seller [Guild] and its directors, officers,
employees, members, agents, successors and assigns harmless
from, against and in respect of any and all liability arising
from or related to the Distributors and Distribution
Arrangements referenced in this Section 10.12 and the
notification of such Distributors as provided herein."
(Emphasis added.)
The disclosure schedule provided as follows:
"DISCLOSURE SCHEDULE 10.12
"Distributor Discontinuation Notification
"All Seller's Distributors in the following states:
"1. Missouri
"2. Wisconsin
"3. Arizona
"4. Maryland
"5. Ohio
"6. Nevada
"7. Idaho
"8. Washington" (Emphasis added.)
Pursuant to the purchase agreement, Canandaigua notified
appellee regarding its acquisition of Guild. On September 25,
1991, Canandaigua, sent the following letter to appellee:
"Gentlemen/Madames:
"This letter is to advise you that the Canandaigua Wine
Company, Inc. has acquired certain of the assets of Guild
Wineries and Distilleries including the brands previously
produced and distributed by Guild. Our Sales Department is
currently in the process of reviewing the market conditions in
the State of Ohio and will, during this interim review period,
continue to make the Guild brands you currently carry available
to you on an interim order-by-order basis.
"Any orders for products you wish to place during the
interim review period will be subject to the enclosed 'Terms
and Conditions of Sale.' In addition, it is understood that
(i) for any order placed, Canandaigua reserves the right, in
its sole and absolute discretion, to accept or reject the order
and (ii) any acceptance or shipment by Canandaigua of such
order shall not give rise or amount to a
manufacturer-distributor or franchisor-franchisee relationship
under Ohio Revised Code { 1333.82 et seq.
"If you accept the terms of this letter and the enclosed
Terms and Conditions of Sale, please sign the additional
enclosed executed copies of these documents and return them to
us via any overnight delivery service. We will not be able to
process any orders from you until we receive signed documents
indicating your acceptance.
"Any rights to purchase any Guild brands conferred by this
letter will either (i) expire on the earlier of six months or
written notice from Canandaigua discontinuing such rights or
(ii) be superseded by a written appointment letter and/or
distribution agreement." (Emphasis added.)
The document accompanying the letter provided in relevant
part:
"CANANDAIGUA WINE COMPANY
"TERMS AND CONDITIONS OF SALE
"1. DEFINITIONS.
"(a) The term 'Products' as used herein shall mean the
following products:
"Cook's wines, Cribari wines
"(b) The term 'Territory' as used herein shall mean the
following geographic areas where Distributor shall be
responsible for the sale and distribution of the Products:
"Counties of Trumbull, Columbiana and Mahoning
"***
"3. TERMS OF SALE. The Company agrees to sell to
Distributor and Distributor agrees to buy from the Company
Products at such prices and on such terms and conditions as
will be determined from time to time by Company. All orders of
products received by Canandaigua Wine Company, Inc. ('the
Company') from Distributor are subject to acceptance in writing
by the Company and all returns of the Products may be made only
after the prior written approval of the Company. The Company
will endeavor to fill the accepted orders subject to the
availability of the Products, the demand of other distributors,
the inventory on hand of Distributor and subject to delays
caused by government orders or requirements, transportation
conditions, labor or material shortages, strikes, labor
disputes, fires or any other cause beyond the Company's
control. The Distributor hereby expressly releases the Company
from all liabilities for any loss or damage arising from the
failure of the Company to fill any orders of Distributor.
"***
"8. MISCELLANEOUS.
"(a) Construction. This document and the understanding
between the parties shall be construed and enforced under the
laws of the State of New York. The Distributor specifically
consents to personal jurisdiction in the federal and state
courts located in the State of New York and to service of
process consistent with the laws of New York. The parties
hereby designate the Counties of Monroe or Ontario in the State
of New York as the place of trial for any action or proceeding
arising out of or in connection with this document or the
understanding between the parties." (Emphasis added.)
Appellee's vice-president signed the agreement on October
1, 1991.
On January 31, 1992, Canandaigua notified appellee by
letter that appellee's distribution territory for the former
Guild products had been changed. The letter and attachments
thereto provided:
"This is to advise you that Canandaigua Wine Company is
appointing Tri-County Distributing effective March 1, 1992, as
its wholesale distributor for Cook's Wines, Cook's Sparkling
Wines, Chase-Limogere, Cribari Wines, Vintner's Choice and
Dunnewood for your assigned territory subject to your agreeing
to the terms of the enclosed distributor agreement.
"Please sign both contracts and return them both to
Canandaigua Wine Company, attention: Joyce MacKay, and we will
return an executed copy to you for your records.
"If you have any questions, please feel free to call."
"SCHEDULE A
"PRODUCTS
"Cook's Wines, Cook's Sparkling Wines, Chase-Limogere,
Cribari Wines[,] Dunnewood Wines, Vintner's Choice
"SCHEDULE B
"TERRITORY
[areas, counties, or state]
"County of Ashtabula"
The effect of this notification was purportedly to divest
appellee of its distribution rights for Guild products in
Mahoning, Trumbull and Columbiana Counties, while permitting it
to retain them in Ashtabula County.
On February 12, 1992, appellee instituted the present
action for declaratory judgment and injunctive relief in the
Mahoning County Court of Common Pleas, seeking a determination
that, notwithstanding the agreements of September 25, 1991 and
January 31, 1992, a franchise relationship between appellee and
Canandaigua had been created by operation of law pursuant to
R.C. 1333.83, and that Canandaigua's attempt to terminate
appellee's rights violated R.C. 133.82 et seq.
On February 14, 1992, Canandaigua filed a motion to
dismiss the action. On March 13, 1992, the trial court granted
the motion. On June 11, 1992, the Court of Appeals for
Mahoning County reversed and remanded, concluding that a
franchise relationship had been established between Canandaigua
and appellee and that the interest of Ohio in regulating the
sale of alcoholic beverages rendered invalid any agreement
vesting jurisdiction in another state to determine rights and
responsibilities arising under Ohio law. The court therefore
did not address the challenge advanced by Canandaigua under
Section 15(D), Article II of the Ohio Constitution regarding
the 1990 amendment to R.C. 1333.87, which vested exclusive
jurisdiction over such disputes in Ohio courts.
The cause is now before this court pursuant to the
allowance of a motion to certify the record.
Comstock, Springer & Wilson and Marshall D. Buck, for
appellee.
Jones, Day, Reavis & Pogue, John W. Edwards II, Kathleen
B. Burke and John M. Majoras, for appellants Canandaigua Wine
Company, Inc. and Gene Minardi.
DiBlasio, Flask & Associates and H.A. DiBlasio, for
appellant Ohio Wine Imports Co., Inc.
Buckingham, Doolittle & Burroughs and Orville L. Reed III;
J. Richard Lumpe and Timothy J. Bechtold, urging affirmance for
amicus curiae, Wholesale Beer and Wine Association of Ohio.
Per Curiam. The threshold question presented by the
instant action concerns whether a franchise relationship exists
between the appellee and Canandaigua. Resolution of this issue
requires consideration of R.C. 1333.83. At the relevant time,
it provided:
"Every manufacturer of alcoholic beverages shall contract
with or offer in good faith to its distributors a written
franchise providing for, and specifying the rights and duties
of both parties in effecting the sale of the specified brands
or products of the manufacturer. Any notice or acceptance
required to be given or made by either party to the franchise
shall be in writing and signed by the authorized representative
of the parties. Any breach, actual or claimed, of a franchise
made pursuant to this section shall not be grounds for
suspension or revocation of any permit or consent to import
issued by the department of liquor control. When a distributor
of beer or wine for a manufacturer, or the successors or
assigns of the manufacturer, distributes the beer or wine for
six months or more without a written contract, a franchise
relationship is established between the parties, and sections
1333.82 to 1333.87 of the Revised Code apply to the
manufacturer, its successor or assigns, and the distributor."
(Emphasis added.) 140 Ohio Laws, Part II, 3970-3971.
The parties differ as to the meaning of this provision.
Appellee (Tri County) contends that the six-month "course of
dealing" franchise arising by operation of law under R.C.
1333.83 occurs only in the absence of a written agreement.
Stated differently, without a written agreement, a manufacturer
and distributor must engage in a course of dealing for six
months in order for a franchise to be created. However, where
there is a written agreement, its mere existence and not its
terms creates a franchise. Appellee seeks support for this
view in R.C. 1333.82(D), which states:
"'Franchise' means a contract or any other legal device
used to establish a contractual relationship between a
manufacturer and a distributor."
Appellant Canandaigua responds that appellee's
interpretation results in an absurdity by creating a franchise
relationship from the mere existence of a written agreement
which clearly disclaims any such relationship. Appellant
instead interprets R.C. 1333.83 to mean that a franchise
relationship is created either through a six-month course of
dealing or through a written agreement which expressly
establishes a franchise relationship (or, at least, does not
expressly disclaim the existence of such a relationship).
Appellee suggests, however, that the purpose of R.C.
1333.83 is to preclude manufacturers from abusing their
superior bargaining power by triggering a franchise
relationship whenever an agreement is executed between the
parties. Appellee contends that the law protects distributors
from unfair tactics by providing that any agreement assures an
ongoing relationship between the parties and by precluding the
manufacturer from terminating the relationship except for
reasonable cause. See R.C. 1333.84(D).
While this latter interpretation of the motivation behind
R.C. 1333.83 has some appeal, given the plain language of the
statute it would be nonsensical to suggest that the very
agreement which disclaims any franchise relationship is the
vehicle by which such a relationship is established. Second,
it would be extremely ironic if a short-term course of dealing
(i.e., less than six months) without a contract will not
establish a franchise relationship but a written understanding
of similar duration which disclaims any such intent produces
the opposite effect.
We therefore conclude that an alcoholic beverages
franchise is not created by operation of law pursuant to R.C.
1333.83 through the mere existence of a written contract
between a manufacturer and distributor of such products where
the contract disclaims any intention to create such a
relationship and the contract term is for less than six months.1
Inasmuch as the contract at issue does not create a
franchise relationship governed by R.C. 1333.82 et seq., it is
unnecessary to consider whether the forum-selection provision
contained in the contract would conflict with R.C. 1333.87 or
whether the 1990 amendment to R.C. 1333.87 vesting exclusive
jurisdiction in Ohio courts of common pleas (143 Ohio Laws,
Part I, 1278-1279) violated the single-subject requirement of
Section 15(D), Article II of the Ohio Constitution.
The forum selection provision is therefore valid and
jurisdiction over the present action is properly vested thereby
in the courts of New York. See Kennecorp Mtge. Brokers, Inc.
v. Country Club Convalescent Hosp., Inc. (1993), 66 Ohio St.3d
173, 610 N.E.2d 987.
Accordingly, the judgment of the court of appeals is
reversed and the cause is remanded for reinstatement of the
trial court's judgment.
Judgment reversed and
cause remanded.
Moyer, C.J., A.W. Sweeney, Douglas, Wright, Resnick, F.E.
Sweeney and Pfeifer, JJ., concur.
FOOTNOTE:
1 While inapplicable to the instant controversy,
subsequent amendments to R.C. 1333.85 appear to address the
situation presented herein. R.C. 1333.85, as amended by
Am.Sub. H.B. No. 725, effective April 16, 1993, provides in
relevant part:
"Except as provided in divisions (A) to (D) of this
section, no manufacturer or distributor shall cancel or fail to
renew a franchise or substantially change a sales area or
territory without the prior consent of the other party for
other than just cause and without at least sixty days' written
notice to the other party setting forth the reasons for such
cancellation, failure to renew, or substantial change.
"***
"(D) If a successor manufacturer acquires all or
substantially all of the stock or assets of another
manufacturer through merger or acquisition or acquires or is
the assignee of a particular product or brand of alcoholic
beverage from another manufacturer, the successor manufacturer,
within ninety days of the date of the merger, acquisition,
purchase, or assignment, may give written notice of
termination, nonrenewal, or renewal of the franchise to a
distributor of the acquired product or brand. If the successor
manufacturer complies with the provisions of this division,
just cause or consent of the distributor shall not be required
for the termination or nonrenewal. Upon termination or
nonrenewal of a franchise pursuant to this division, the
distributor shall sell and the successor manufacturer shall
repurchase the distributor's inventory of the terminated or
nonrenewed product or brand as set forth in division (C) of
this section, and the successor manufacturer also shall
compensate the distributor for the diminished value of the
distributor's business that is directly related to the sale of
the product or brand terminated or not renewed by the successor
manufacturer. The value of the distributor's business that is
directly related to the sale of the terminated or nonrenewed
product or brand shall include, but shall not be limited to,
the appraised market value of those assets of the distributor
principally devoted to the sale of the terminated or nonrenewed
product or brand and the goodwill associated with that product
or brand." (Emphasis added.)