Esber Beverage Co. v. Wine Group, Inc.

[Cite as Esber Beverage Co. v. Wine Group, Inc., 2012-Ohio-1215.]
COURT OF APPEALS
STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT
ESBER BEVERAGE COMPANY : JUDGES:
:
: Hon. John W. Wise, P.J.
Plaintiff-Appellee : Hon. Julie A. Edwards, J.
: Hon. Patricia A. Delaney, J.
-vs- :
: Case No. 2011CA00179
THE WINE GROUP, INC., et al. :
:
:
Defendants-Appellants : OPINION
CHARACTER OF PROCEEDING: Appeal from the Stark County Court of
Common Pleas, Case No. 2010CV02750
JUDGMENT: AFFIRMED
DATE OF JUDGMENT ENTRY: March 19, 2012
APPEARANCES:
For Appellants: For Appellee:
BRETT S. KRANTZ LEE E. PLAKAS
JONATHAN T. HYMAN GARY T. CORROTO
One Cleveland Center, 20th Floor 220 E. Market Ave. S., 8th Floor
1375 E. 9th St. Canton, OH 44702
Cleveland, OH 44114-1793
STANLEY R. RUBIN
437 Market Ave. N.
Canton, OH 44702
[Cite as Esber Beverage Co. v. Wine Group, Inc., 2012-Ohio-1215.]
Delaney, J.
{¶1} Defendants-Appellants The Wine Group, Inc. and The Wine Group, LLC
appeal the November 17, 2010 and July 15, 2011 judgment entries of the Stark
County Court of Common Pleas.
STATEMENT OF THE FACTS AND CASE
{¶2} Appellant The Wine Group, Inc. (“TWG”) is a manufacturer of wine, as
defined under Ohio law. Plaintiff-Appellee Esber Beverage Company is a distributor of
alcoholic beverages within the state of Ohio. For the past 25 years, Esber has had an
exclusive franchise relationship with TWG, whereby it has acted as the exclusive
distributor of TWG products in and around northeastern Ohio.
{¶3} On July 2, 2010, TWG sent a letter to Esber stating TWG was
terminating Esber’s franchise effective September 6, 2010. TWG stated in its letter
that it determined it was in TWG’s best interests to move distribution of its wine
products in Ohio to a single statewide distributor, Dayton Heidelberg Distributing
Company. The July 2, 2010 termination letter does not allege Esber breached the
franchise agreement, deficiently performed under the agreement, or violated any
section of the Ohio Alcoholic Beverage Franchise Act (“OABFA”), R.C. 1333.82, et
seq.
{¶4} Esber filed a complaint against TWG and Dayton Heidelberg Distributing
Company in the Stark County Court of Common Pleas. The complaint stated claims
for declaratory judgment under OABFA, injunctive relief, unjust enrichment, intentional
interference with a business relationship, and conspiracy. Esber argued TWG’s
termination of the franchise agreement violated the OABFA. TWG removed the case
Stark County, Case No. 2011CA00179 3
to federal court. On August 30, 2010, the federal court remanded the case to the
Stark County Court of Common Pleas.
{¶5} Esber filed a Motion for Temporary Restraining Order on September 1,
2010. The trial court granted the TRO after a hearing and by agreement of the parties
and the trial court, the TRO was converted to a preliminary injunction on September 8,
2010.
{¶6} Esber filed a Motion for Partial Summary Judgment as to its claims for
declaratory judgment and permanent injunction. Esber argued that it was entitled to
judgment as a matter of law based on the OABFA, specifically R.C. 1333.85. The trial
court held a non-oral hearing on the motion and on November 17, 2010, it granted
Esber’s motion for partial summary judgment. The trial court determined TWG’s
decision to cancel its franchise relationship with Esber on that basis that it was in its
“best interests” to consolidate into one statewide distributor was without “just cause”
and in violation of R.C. 1333.85. Based on the trial court’s judgment, Esber amended
its complaint to remove its claim for permanent injunctive relief.
{¶7} After proceeding through discovery, Esber filed a motion to dismiss its
remaining claims and to convert the November 17, 2010 Judgment Entry into a final,
appealable order. By Judgment Entry dated July 15, 2011, the trial court entered a
final, appealable order.
{¶8} It is from these judgment entries TWG now appeals.
Stark County, Case No. 2011CA00179 4
ASSIGNMENT OF ERROR
{¶9} TWG raises one Assignment of Error:
{¶10} “I. THE TRIAL COURT ERRED IN CONCLUDING THAT A STATEWIDE
CONSOLIDATION OF THE DISTRIBUTION OF PRODUCTS, AS A MATTER OF
LAW, CANNOT CONSTITUTE ‘JUST CAUSE’ FOR TERMINATION UNDER [THE]
OHIO ALCOHOL BEVERAGE FRANCHISE ACT, R.C. 1333.82-1333.87.”
STANDARD OF REVIEW
{¶11} Summary judgment proceedings present the appellate court with the
unique opportunity of reviewing the evidence in the same manner as the trial court.
Smiddy v. The Wedding Party, Inc., 30 Ohio St.3d 35, 36, 506 N.E.2d 212 (1987). As
such, we must refer to Civ.R. 56(C) which provides, in pertinent part:
Summary judgment shall be rendered forthwith if the pleading,
depositions, answers to interrogatories, written admissions, affidavits,
transcripts of evidence in the pending case and written stipulations of
fact, if any, timely filed in the action, show that there is no genuine issue
as to any material fact and that the moving party is entitled to judgment
as a matter of law. * * * A summary judgment shall not be rendered
unless it appears from such evidence or stipulation and only from the
evidence or stipulation, that reasonable minds can come to but one
conclusion and that conclusion is adverse to the party against whom the
motion for summary judgment is made, such party being entitled to have
the evidence or stipulation construed most strongly in the party's favor.
Stark County, Case No. 2011CA00179 5
{¶12} Pursuant to the above rule, a trial court may not enter summary
judgment if it appears a material fact is genuinely disputed. Vahila v. Hall, 77 Ohio
St.3d 421, 429, 674 N.E.2d 1164 (1997), citing Dresher v. Burt, 75 Ohio St.3d 280,
662 N.E.2d 264 (1996).
DISCUSSION
A. Ohio Alcoholic Beverage Franchise Act
{¶13} The parties agree this matter is to be resolved under the OABFA. The
OABFA was passed by the General Assembly in 1974 and the Act governs the
franchise relationship between manufacturers and distributors of alcoholic beverages
in Ohio. The OABFA affords Ohio beer and wine distributors unique protections. It
has been held the purpose of the OABFA is “to remedy the lack of equal bargaining
power between Ohio’s alcoholic beverage wholesalers and out-of-state beverage
manufacturers.” Esber Beverage Co. v. LaBatt USA Operating Co., Stark C.P. No.
2009CV03142 (Dec. 1, 2009). Accord, Beverage Distributors, Inc. v. Miller Brewing
Co., 803 F.Supp.2d 765 (S.D. Ohio 2011); Hill Distributing Co. v. St. Killian Importing
Co., Inc., S.D. Ohio No. 2:11-CV-706, 2011 WL 3957255 (Sept. 7, 2011).
{¶14} At issue in the present case is R.C. 1333.85. The statute reads, in
pertinent part:
(A) 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'
Stark County, Case No. 2011CA00179 6
written notice to the other party setting forth the reasons for such
cancellation, failure to renew, or substantial change.
***
(B) The occurrence of any of the following events shall not constitute just
cause for cancellation of or failure to renew a franchise or substantially
changing a sales area or territory without the prior consent of the other
party:
***
(3) A unilateral alteration of the franchise by a manufacturer for a reason
unrelated to any breach of the franchise or violation of sections 1333.82
to 1333.86 of the Revised Code by the distributor;
***
{¶15} There is no dispute in this case that R.C. 1333.85 prohibits the
termination of a franchise between a manufacturer and a distributor absent “just
cause.” The issue between the parties is what constitutes “just cause.” TWG argues
that a manufacturer may terminate a franchise with just cause if the basis for the
termination is a reasoned and legitimate business decision. In contrast, Esber
contends a manufacturer’s unilateral business decision to terminate the franchise,
without a distributor’s breach or nonperformance, cannot be considered just cause.
B. Just Cause under R.C. 1333.85
{¶16} The OABFA does not define “just cause.” There is a dearth of case law
as to the meaning of “just cause” utilized in the statute. The parties point this Court to
two divergent federal district court opinions as to the meaning of “just cause.” TWG
Stark County, Case No. 2011CA00179 7
urges this Court to find Superior Beverage Co., Inc. v. Schieffelin & Co., N.D. Ohio
Nos. 1:05 CV 0834, 4:05 CV 0868, 2007 WL 2756912 (Sept. 20, 2007), dispositive of
the definition of just cause. Esber relies upon Tri-County Wholesale Distributors, Inc.
v. The Wine Group, Inc., S.D. Ohio No. 2:10-cv-693, 2010 WL 3522973 (Sept. 2,
2010) for the definition of just cause. As will be discussed below, we find the
determination of Tri-County Wholesale Distributors, Inc. v. The Wine Group, Inc.,
supra, to be dispositive of the meaning of “just cause.”
{¶17} In Schieffelin, the defendant manufacturer terminated the plaintiff
distributorship in order to consolidate the distribution network to a single distributor.
The court defined just cause as “a requirement of minimum rationality and business
purpose,” relying upon Dayton Heidelberg Distrib. Co. v. Vineyard Brands, Inc. 74
F.Appx. 509 (6th Cir. 2003) and Francis A. Bonanno, Inc. v. ISC Wines of California,
56 Ohio App.3d 62, 564 N.E.2d 1105 (2nd Dist. 1989) to support its holding.
Schieffelin at *5. “[O]nly where the manufacturer’s business dissatisfaction is entirely
arbitrary is just cause lacking.” Id. at *6. “Although the manufacturer may meet its
burden by pointing to wrongdoing on behalf of the franchisee, the case law requires
only bare business judgment.” Id.
{¶18} The Schieffelin court determined the manufacturer’s reasons for
terminating the franchise relationship were rooted in “minimum rationality and
business purpose.” Schieffelin, quoting Dayton Heidelberg, supra. Schieffelin
concluded the manufacturer’s business reasons for consolidating to a single distributor
constituted just cause.
Stark County, Case No. 2011CA00179 8
{¶19} The court in Tri-County Wholesale Distributors, Inc. v. The Wine Group,
Inc., supra, was presented with the identical issue as in Schieffelin: the manufacturer
terminated the franchise so the manufacturer could consolidate their distribution
network to a single statewide distributor. In deciding the meaning of “just cause,” the
district court reviewed the Schieffelin decision in comparison to a case reaching an
opposite result, Dayton Heidelberg Distrib. Co. v. Vintners Intern. Co. of New York,
S.D. Ohio No. C-3-87-436, 1991 WL 1119912 (Apr. 8, 1991). In Vintners, the
manufacturer terminated the distributorships solely to implement a new marketing
strategy where there were fewer distributors. The Vintners court discussed the
meaning of just cause under the OABFA:
[T]he Alcoholic [Beverage] Franchise Act was enacted to provide
some protection to local distributors from the vagaries of the
marketplace. If manufacturers could cancel franchises simply for
business motivations, that protection would become illusory; there would
be no need for such a legislative act. A rational manufacturer will never
cancel a distributorship unless it feels that the cancellation would be to
its profit and advantage. Thus, virtually all cancellations are for
“legitimate business reasons,” a fact surely well known to the Ohio
legislature. Under a capitalist system of commerce, where a rational
businessman always seeks to maximize profits, there is no need for a
statute requiring the cancellation of a franchise agreement to be based
upon a legitimate business reason. Therefore, just cause must mean
Stark County, Case No. 2011CA00179 9
something more than a manufacturer's unilateral determination that it
could make more money if a franchise were terminated.
Vintners contends, perhaps correctly, that this interpretation of the
Act means that a manufacturer could be locked into an unprofitable
situation if changing market conditions render its current distribution
network inadequate. This may well be. However, the Ohio legislature
has determined that this is a business risk which must be assumed by all
manufacturers of alcoholic beverages which avail themselves of the
rights and privileges of marketing their wares in Ohio. This Court can
only interpret the will of the legislature; it cannot pass judgment on the
wisdom of its pronouncements.
Vintners argues strenuously that the case law supports its
interpretation of the Act. This is not so. There are, in fact, no cases
which deal with this particular situation, i.e., where a manufacturer has
cancelled a franchise without alleging any sort of discontent with that
distributor's performance. In Bonanno, for example, the court found that
the importer had permissibly cancelled a franchise because the
distributor had failed to meet the importer's standards of “reasonable
business aggressiveness.” Vintners has made no such claim against
Plaintiffs.
Dayton Heidelberg Distrib. Co. v. Vintners Intern. Co. of New York, supra, at *8.
Stark County, Case No. 2011CA00179 10
{¶20} The Wine Group court found Vintners and Schieffelin were irreconcilable.
The Wine Group, supra, at *3. Upon review, the district court found the reasoning in
Vintners to be more persuasive.
{¶21} First, the court found that in the cases relied upon by Schieffelin, there
was more to the manufacturers’ decisions to terminate the franchises than simply a
marketing strategy. In those cases, there was a deficient performance by the
distributor that resulted in the termination of the franchise. The Wine Group, supra at
*4.
{¶22} Second, The Wine Group court found that Vintners considered the
impact of R.C. 1333.85(B)(3) to the issue of just cause, while Schieffelin (decided in
2007) never mentioned the subsection in its decision. Effective September 26, 1990,
a new subsection was added to R.C. 1333.85 that reads:
(B) The occurrence of any of the following events shall not constitute just
cause for cancellation of or failure to renew a franchise or substantially
changing a sales area or territory without the prior consent of the other
party:
***
(3) A unilateral alteration of the franchise by a manufacturer for a reason
unrelated to any breach of the franchise or violation of sections 1333.82
to 1333.86 of the Revised Code by the distributor * * *.
{¶23} While not applicable to the Vintners case because the statute was
enacted during the pendency of the case, Vintners analyzed the meaning of the
addition of R.C. 1333.85(B)(3) to the determination of just cause. Vintners held that
Stark County, Case No. 2011CA00179 11
R.C. 1333.85(B)(3) “prohibits importers from terminating distributorships simply for
purposes of restructuring an existing franchising network, as Vintners did here, absent
a breach of duty by the franchisee.” It further stated:
[T]he legislature was aware that, in the absence of any formal
definition of just cause, courts interpreting §1333.85 were applying a
“case-by-case” analysis. By specifically defining what is not just cause,
and leaving undefined what is just cause, the legislature has effectively
agreed with the courts that the term “just cause” does not lend itself to a
single, bright-line definition but, instead, is highly dependent upon the
facts of the particular case.
Finally, applying this fact-sensitive concept of just cause to the case
at bar, there is little doubt that the Ohio legislature fully intended the result
which the Court has reached. By amending the former §1333.85 to
expressly prohibit franchise terminations based solely upon a
manufacturer's unilateral decision to alter its distribution network, the
legislature made clear its intent to disallow actions such as Vintners'
cancellation of Plaintiffs' franchises, even though done in good faith.
Vintners, supra at *9.
{¶24} Our review of the case law presented on this matter demonstrates that
The Wine Group, and its reliance upon Vintners, is more persuasive than Schieffelin.
Vintners takes into consideration the purposes of the OABFA and R.C. 1333.85(B)(3)
to determine the meaning of “just cause.” As such, we consider The Wine Group to be
dispositive of whether TWG had just cause to terminate its franchise with Esber.
Stark County, Case No. 2011CA00179 12
C. TWG Termination of Esber Franchise under The Wine Group
{¶25} TWG argues it had a legitimate business reason to terminate the
franchise with Esber and therefore, just cause for termination. That decision,
however, does not comport with the OABFA.
{¶26} R.C. 1333.85(A) states that a manufacturer shall not cancel a franchise
without just cause. R.C. 1333.85(B)(3) explains that a unilateral alteration of the
franchise by the manufacturer for a reason unrelated to a breach of the franchise or a
violation of the OABFA is not just cause for cancellation of the franchise. The July 2,
2010 termination letter sent to Esber by TWG was a unilateral alteration of the
franchise by TWG unrelated to any breach or violation by Esber. TWG argues in its
reply brief that it did not unilaterally alter the franchise, but rather it terminated the
franchise. We note that a reply brief is not the place for briefing new arguments that
were not raised in appellant's brief. See App.R. 16(C). See, also, State ex rel. Colvin
v. Brunner, 120 Ohio St.3d 110, 2008–Ohio–5041, 896 N.E.2d 979, ¶ 61.
{¶27} Further, under the analysis and reasoning in The Wine Group and
Vintners as to the meaning of just cause, reasonable minds can only conclude that
TWG’s business reasons for terminating the franchise were not just cause. We find
our holding to be supported by the purpose of the OABFA:
[T]he Alcoholic Beverage Franchises Act is designed in part to
protect distributors from certain practices of beverage manufacturers. It
recognizes that distributors often have a substantial investment in their
businesses, including the physical assets and real property used to
distribute the manufacturers’ products, and that to allow a manufacturer
Stark County, Case No. 2011CA00179 13
to unilaterally terminate a franchise agreement puts the franchise
distributors at great harm. The just cause requirement for terminating a
franchise agreement is intended to protect the franchisee from this type
of arbitrary and potentially coercive act.
Beverage Distrib., Inc. v. Miller Brewing Co., supra quoting Beverage Distrib., Inc. v.
Miller Brewing Co., S.D. Ohio Nos. 2:08-cv-827, 2:08-cv-931, 2:08-cv-1112, 2:08-cv-
1131, 2:08-cv-1136, 2:09-cv-0022, 2009 WL 1542730, at *5 (June 2, 2009).
{¶28} Under Vintners, The Wine Group, and R.C. 1333.85(B)(3), TWG’s
legitimate business reason to consolidate its distributors, without evidence of a breach
or violation of the OABFA by Esber, does not constitute just cause to unilaterally
terminate the franchise between TWG and Esber.
{¶29} Accordingly, TWG’s sole Assignment of Error is overruled.
{¶30} The judgment of the Stark County Court of Common Pleas is affirmed.
By: Delaney, J.
Wise, P.J. and
Edwards, J. concur.
HON. PATRICIA A. DELANEY
HON. JOHN W. WISE
HON. JULIE A. EDWARDS
[Cite as Esber Beverage Co. v. Wine Group, Inc., 2012-Ohio-1215.]
IN THE COURT OF APPEALS FOR STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT
ESBER BEVERAGE COMPANY :
:
:
Plaintiff-Appellee :
:
-vs- : JUDGMENT ENTRY
:
THE WINE GROUP, INC., et al. :
:
: Case No. 2011CA00179
Defendants-Appellants :
For the reasons stated in our accompanying Opinion on file, the judgment of the
Stark County Court of Common Pleas is affirmed. Costs assessed to Appellants.
HON. PATRICIA A. DELANEY
HON. JOHN W. WISE
HON. JULIE A. EDWARDS