Esber Beverage Co. v. Labatt USA Operating Co., L.L.C.

[Cite as Esber Beverage Co. v. Labatt USA Operating Co., L.L.C., 138 Ohio St.3d 71, 2013-
Ohio-4544.]
ESBER BEVERAGE COMPANY, APPELLANT, v. LABATT USA OPERATING
COMPANY, L.L.C., ET AL., APPELLEES.
[Cite as Esber Beverage Co. v. Labatt USA Operating Co., L.L.C.,
138 Ohio St.3d 71, 2013-Ohio-4544.]
Ohio Alcoholic Beverages Franchise Act—R.C. 1333.85(D)—Successor
manufacturer may terminate distributor’s franchise by giving the
distributor notice of termination within 90 days of successor’s acquisition
of product or brand.
(No. 2012-0941—Submitted May 8, 2013—Decided October 17, 2013.)
APPEAL from the Court of Appeals for Stark County, Nos. 2011CA00113 and
2011CA00116, 2012-Ohio-1183.
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O’NEILL, J.
Overview
{¶ 1} This case deals with the rights of manufacturers and distributors of
alcoholic beverages under the Ohio Alcoholic Beverages Franchise Act, R.C.
1333.82 et seq., when a manufacturer sells all of its rights relating to a particular
brand of alcoholic beverage to a successor manufacturer. Under R.C. 1333.85(D),
when there is a transfer of ownership, the successor manufacturer may terminate
any distributor’s franchise without just cause by giving the distributor notice of
termination within 90 days of the acquisition of the particular product or brand.
Such notice of termination triggers an evaluation of the franchise value, for which
the successor manufacturer must compensate the terminated franchisee. Id. We
hold that R.C. 1333.85(D) is clear and unambiguous and permits successor
manufacturers to assemble their own team of distributors so long as the successor
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manufacturers provide timely notice and compensate those distributors who are
not being retained.
Facts and Procedural History
{¶ 2} Appellant, Esber Beverage Company (“Esber”), is one of the
oldest family-owned, continuously operated beverage wholesalers in Ohio and the
United States. It was founded in 1937 by Dave and Helen Esber and is currently
operated by second- and third-generation Esber family members. Appellee InBev
entered into a written franchise agreement with Esber on November 30, 2007.
The franchise agreement provided that Esber was to be the exclusive distributor of
Labatt brand products in a ten-county area of Ohio for an indefinite period.
{¶ 3} On July 13, 2008, InBev N.V./S.A., InBev’s parent corporation,
entered into an agreement to acquire Anheuser-Busch Companies, a merger that
would create the largest brewing company in the world. United States v. InBev
N.V./S.A., D.D.C. No. 08-cv-1965 (Aug. 11, 2009) (memorandum order) available
at http://www.justice.gov/atr/cases/f248900/248957.pdf (accessed July 23, 2013).
This purchase agreement caused the United States Department of Justice to file an
antitrust complaint against InBev N.V./S.A. On the same day that it filed that
complaint, November 14, 2008, the Department of Justice also filed a proposed
final judgment under which InBev N.V./S.A. would divest itself of all assets
relating to the sale of Labatt brand products in the United States, including the
right to sell Labatt brand products. See Proposed Final Judgment filed November
14, 2008, in InBev N.V./S.A., D.D.C. No. 08-cv-1965, available at
http://www.justice.gov/atr/cases/f239400/239448.pdf (accessed July 23, 2013).
{¶ 4} In accordance with the proposed final judgment, InBev N.V./S.A.
sold the Labatt brands to appellee KPS Capital Partners, L.P., a private equity
firm, which formed appellee Labatt USA Operating Company, L.L.C. (“Labatt
Operating”) to acquire the assets. On March 13, 2009, Labatt Operating acquired
the exclusive right to sell Labatt brand products in the United States.
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January Term, 2013
{¶ 5} As the successor manufacturer to InBev, Labatt Operating invited
the Labatt distributors in Ohio to make a presentation as to why they should be
chosen to distribute the Labatt brand products for various regions in Ohio. Esber
made such a presentation and requested both to continue distributing products in
its existing territory and to expand its distribution territory to additional counties.
But in a letter dated May 15, 2009, Labatt Operating notified Esber that it
intended to terminate Esber’s franchise to distribute Labatt brand products. The
letter stated that the notification was made “within the 90 day period of the
acquisition, pursuant to [R.C.] 1333.85(D)” and that Labatt Operating intended to
compensate Esber fully as required by R.C. 1333.85(D) and 1333.851.
{¶ 6} Following receipt of the termination letter, Esber filed a complaint
in the Stark County Court of Common Pleas. The trial court granted a
preliminary injunction ordering Labatt Operating to continue to distribute its
Labatt products through Esber, and it later granted partial summary judgment in
Esber’s favor. The trial court held that the franchise-termination rules of R.C.
1333.85(D) apply to a successor manufacturer only when no written franchise
agreement existed between the distributor and the former manufacturer. The trial
court found that Labatt Operating had assumed InBev’s written franchise
agreement with Esber when Labatt Operating acquired the Labatt brands, and it
held that the statutory franchise-termination provision therefore did not apply.
{¶ 7} The Fifth District Court of Appeals reversed the summary-
judgment decision, holding that R.C. 1333.85(D) does give a successor
manufacturer the right to terminate a franchise agreement within 90 days of
acquiring the brand and that the statute does not differentiate between successors
to manufacturers that had written franchise agreements and successors to
manufacturers that had franchise agreements that had arisen by operation of law.
Therefore, following a de novo review, the court of appeals ruled that Labatt
Operating was permitted by R.C. 1333.85(D) to terminate the franchise agreement
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as a matter of law and that the trial court should have granted summary judgment
in favor of Labatt Operating.
{¶ 8} In a single proposition of law before this court, Esber asserts: “The
Ohio Alcoholic Beverages Franchise Act does not permit a successor
manufacturer to terminate a distributor without cause when the successor
manufacturer has itself entered into or assumed a written contract with the
distributor.”
{¶ 9} We review cases involving a grant of summary judgment using a
de novo standard of review. Bonacorsi v. Wheeling & Lake Erie Ry. Co., 95 Ohio
St.3d 314, 2002-Ohio-2220, 767 N.E.2d 707, at ¶ 24. Summary judgment is
appropriately granted when “ ‘(1) [n]o genuine issue as to any material fact
remains to be litigated; (2) the moving party is entitled to judgment as a matter of
law; and (3) it appears from the evidence that reasonable minds can come to but
one conclusion, and viewing such evidence most strongly in favor of the party
against whom the motion for summary judgment is made, that conclusion is
adverse to that party.’ ” M.H. v. Cuyahoga Falls, 134 Ohio St.3d 65, 2012-Ohio-
5336, 979 N.E.2d 1261, at ¶ 12, quoting Temple v. Wean United, Inc., 50 Ohio
St.2d 317, 327, 364 N.E.2d 267 (1977), citing Civ.R. 56(C).
Analysis
{¶ 10} In Ohio, an alcoholic-beverage-distribution franchise is a creature
of statute. The Ohio Alcoholic Beverages Franchise Act was enacted by the
General Assembly in 1974. Am.Sub.H.B. No. 857, 135 Ohio Laws, Part II, 913.
The purpose of the act was “to eliminate unfair practices by beer and wine
manufacturers in their dealings with distributors.” Legislative Service
Commission Bill Analysis, Am.Sub.H.B. No. 857 (1974). The General Assembly
included language in the act specifying that all contractual provisions that waive
or fail to comply with the act are void. R.C. 1333.83.
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January Term, 2013
{¶ 11} Pursuant to the act, every manufacturer of alcoholic beverages
must offer its distributors a written franchise agreement specifying the rights and
duties of each party. Id. If the parties do not enter into a written franchise
agreement, a franchise relationship will arise as a matter of law when a distributor
distributes products for 90 days or more. Id.{¶ 12} The act also specifies the prerequisites for canceling or terminating
a franchise. R.C. 1333.85. The general rule is that prior consent of the other
party and 60 days’ notice is required in order to cancel a franchise. Id. The act
also specifies situations that constitute just cause for cancellation and situations
that do not. Id. When just cause exists, consent and notice are not required. Id.Regardless of whether the franchise is canceled with the prior consent of the
distributor or whether the manufacturer can show just cause for canceling the
franchise relationship, the manufacturer is always required to repurchase all of the
terminated distributor’s unsold inventory and sales aids. Id. Most relevant to this
dispute, however, is the fact that the act also establishes a specific procedure for
terminating a franchise when the manufacturer sells a particular brand or product
of alcoholic beverage to a successor manufacturer.
{¶ 13} Specifically, R.C. 1333.85(D) provides that if a successor
manufacturer acquires all or substantially all of the stock or assets of another
manufacturer, the successor manufacturer may give written notice of termination,
nonrenewal, or renewal of the franchise to a distributor of the acquired product or
brand. Any notice of termination or nonrenewal of the franchise to a distributor
of the acquired product or brand shall be received at the distributor’s principal
place of business within 90 days of the date of the acquisition. If notice is not
received within this 90-day period, a franchise relationship is established between
the parties. And if the successor manufacturer complies with the provisions of the
statute, neither just cause nor consent of the distributor is required for termination
or nonrenewal. On termination of a franchise, the successor manufacturer must
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repurchase the distributor’s inventory and must compensate the distributor for the
diminished value of the distributor’s business that is directly related to the sale of
the product terminated by the successor manufacturer, including the appraised
market value of the distributor’s assets devoted to the sale of the terminated
product and the goodwill associated with that product.
{¶ 14} Despite these protections, Esber asserts that the Ohio Alcoholic
Beverage Franchise Act does not permit a successor manufacturer to terminate a
distributor’s franchise without just cause within the 90-day period when the
successor manufacturer has itself entered into or assumed a written contract with
the distributor. We disagree. “When a statute’s language is clear and
unambiguous, a court must apply it as written.” Estate of Johnson v. Randall
Smith, Inc., 135 Ohio St.3d 440, 2013-Ohio-1507, 989 N.E.2d 35, at ¶ 16, citing
Zumwalde v. Madeira & Indian Hill Joint Fire Dist., 128 Ohio St.3d 492, 2011-
Ohio-1603, 946 N.E.2d 748, ¶ 23-24. The plain language of the statute allows the
successor manufacturer to terminate a franchise. The definition of “franchise”
includes both written franchise agreements and franchise agreements that have
arisen by operation of law. R.C. 1333.82(D). Allowing a successor manufacturer
to terminate a written franchise agreement without cause is clearly permitted
under R.C. 1333.85(D), as long as the successor manufacturer provides written
notice of the termination to the distributor within 90 days of the sale, merger, or
acquisition, and as long as compensation for the lost value of the franchise is
provided. Moreover, pursuant to statute, the parties are unable to restrict this right
of termination by contract—under R.C. 1333.83, “[a]ny provision of a franchise
agreement that waives any of the prohibitions of, or fails to comply with, sections
1333.82 to 1333.87 of the Revised Code is void and unenforceable.”
{¶ 15} In this case, in order to resolve an antitrust case against it, InBev
sold the right to sell Labatt brand products in the United States to Labatt
Operating. The closing date of the sale was March 13, 2009, and the purchase
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January Term, 2013
agreement expressly included all wholesale distributor contracts. It is not
disputed that Labatt Operating is a successor manufacturer of InBev. Thus,
Labatt Operating was in compliance with the statute when it gave notice to Esber
that it would be terminating Esber’s franchise as a distributor of the Labatt brand
products. Labatt Operating also informed Esber of its intent to compensate Esber
in accordance with its statutory duty under R.C. 1333.85(D).
{¶ 16} Labatt Operating is a successor manufacturer that gave notice of its
intention to terminate to Esber within 90 days of its purchase of the Labatt brands
from InBev. Labatt Operating is required to compensate Esber in accordance
with R.C. 1333.85(D), and it is not disputed that it accepted that responsibility in
its notice of termination. Nothing more is required under the statute.
{¶ 17} Therefore, we conclude that Labatt’s termination of Esber’s
franchise met the statutory requirements of the Ohio Alcoholic Beverages
Franchise Act. Esber is entitled to compensation as specified under R.C.
1333.85(D). Accordingly, we affirm the Fifth District Court of Appeals’
judgment holding that it was error for the trial court to grant summary judgment
to Esber. The Fifth District found that summary judgment should have been
granted to Labatt Operating as a matter of law. We agree. R.C. 1333.85(D) is
clear and unambiguous on its face, and Labatt Operating followed its
requirements for the termination of a franchise. This matter is remanded to the
trial court for further proceedings consistent with this opinion.
Judgment affirmed.
O’CONNOR, C.J., and LANZINGER, KENNEDY, and FRENCH, JJ., concur.
O’DONNELL, J., concurs in judgment only.
PFEIFER, J., dissents without opinion.
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Taft, Stettinius & Hollister, L.L.P., Charles R. Saxbe, and Stephen C.
Fitch; Roetzel & Andress, L.P.A., and Stephen W. Funk; Tzangas, Plakas,
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Mannos & Raies, Ltd., Lee Plakas, and Gary Corroto; and Stanley R. Rubin, for
appellant.
Frantz Ward, L.L.P., James B. Niehaus, and Olivia L. Southam; and
Milligan Pusateri Co., L.P.A., and Paul J. Pusateri, for appellees Labatt USA
Operating Company, L.L.C., KPS Capital Partners, L.P., North American
Breweries, Inc., and Doug Tomlin.
James L. Messenger, Richard J. Thomas, and Jerry R. Krzys, for appellee
Superior Beverage Group, Ltd.
Krugliak, Wilkins, Griffiths & Dougherty Co. and John P. Maxwell,
urging reversal for amicus curiae Tramonte Distributing Company.
Squire Sanders, L.L.P., David W. Alexander, and Emily E. Root, urging
reversal for amicus curiae Beverage Distributors, Inc.
Lancione, Lloyd & Hoffman and Tracey Lancione Lloyd, urging reversal
for amicus curiae Muxie Distributing Co., Inc.
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