Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.J.: Terminated liquor flow equipment business franchisee wins stay pending appeal of injunction denial, (Mar 6, 2024)

By E. Darius Sturmer, J.D.

The franchisor was also denied its separate request to dismiss the dealer’s termination suit brought under the NJFPA.

Berg Liquor Systems, LLC, a manufacturer of liquor dispensing equipment and bar management systems, was not entitled to dismissal of a former dealer’s lawsuit alleging Berg violated the New Jersey Franchise Practices Act (“NJFPA”) when it terminated the parties’ Dealership Agreement, the federal district court in Newark, New Jersey, has held. The court decided it appropriate to stay a decision on the merits of Berg’s motion to dismiss until the Third Circuit ruled as to the dealer’s appeal of the denial of its request for a preliminary injunction. At the same time, that dealer—Autobar Systems of N.Y., which does business as Total Liquor Controls—was not entitled to a stay of the court’s earlier denial of that injunction request pending the Third Circuit’s resolution of the appeal of that ruling. Berg’s motion to dismiss and Total Liquor’s motion to stay were both denied (Autobar Systems of N.J. v. Berg Liquor Systems, LLC, March 4, 2024, Shipp, M.).

Total Liquor was a dealer for Berg for 45 years and generated most of its revenue from selling Berg products. Berg manufactures and sells equipment to control the flow of liquor, beer, and other beverages, principally for the bar industry, and operates a network of franchised dealerships. In 2003, Total Liquor and Berg’s predecessor, Berg Company LLC, formalized their business relationship in a non-exclusive Dealership Agreement. Defendant Berg acquired Berg Company in mid-2022.

In February 2023, Berg sent correspondence to Total Liquor indicating that it would be terminating the Dealership Agreement. Total Liquor responded by demanding that the termination be rescinded and arguing that the decision violated the NJFPA. Berg refused to reconsider, countering that it had good cause. Berg cited Total Liquor’s failure to meet quota requirements for more than five years and claimed Total Liquor had improperly worked with competitors to bid on projects that Berg was seeking.

Total Liquor filed a four-count complaint in state court, asserting violations of the NJFPA, breach of contract, breach of the covenant of good faith and fair dealing, and declaratory judgment. Alongside its complaint, Total Liquor pursued a preliminary injunction and temporary restraints to enjoin Berg from terminating it as a dealer. The state court entered a temporary restraining order (“TRO”) pending the return date of the Order to Show Cause for a Preliminary Injunction, August 4, 2023.

Before that date arrived, Berg removed the case to federal court. On August 16, 2023, the federal court denied Total Liquor’s request for a preliminary injunction on the grounds that it did not meet its burden of showing irreparable harm. Total Liquor appealed the order, and that matter remains before the Third Circuit.

Shortly after filing its appeal, Total Liquor filed a motion to stay the federal court’s order on the basis that it wrongly dissolved the state court’s TRO, which should be reinstated to maintain the status quo during the pendency of its appeal.

Meanwhile, Berg filed a motion to dismiss the complaint, arguing that the NJFPA claim failed because Total Liquor does not operate a place in New Jersey and that the other claims failed because Berg did not violate the terms of the Dealership Agreement.

The court ruled on both motions.

Stay pending appeal. Total Liquor failed to shoulder its heavy burden of establishing that injunctive relief was warranted during the period prior to the Third Circuit’s review of the August 2023 order, the court decided. Noting that the bar is “set particularly high” for obtaining a stay pending appeal, the court concluded that Total Liquor’s failure to raise any new facts of law suggesting its appeal was likely to succeed was reason enough to deny the requested stay. A review of the motion revealed that its purpose was to re-hash arguments that had already been thoroughly deliberated in the memorandum order, in the court’s view. Thus, the court observed, essentially the motion amounted to a request that it change course and reverse the findings set forth in its memorandum order.

Motion to dismiss. The court turned briefly to Berg’s motion to dismiss each count under Rule 12(b)(6), but only to stay any decision on the merits of that motion until the Third Circuit renders its decision as to Total Liquor’s request for a preliminary injunction. In this case, a stay was appropriate because the outcome of the appeal to the Third Circuit “would affect the determination of a pending motion ‘requiring forbearance on this [c]ourt’s part to avoid inconsistent rulings’ in the same litigation.” The court explained that meant a district court could exercise its sound discretion to hold one lawsuit in abeyance to abide by the outcome of an appeal that may substantially affect the lawsuit or which may be dispositive of the issues.

The court was skeptical that the stay would cause undue prejudice to the movant or the status of the litigation, noting that the case is still in its infancy and no discovery has been completed. Judicial economy similarly favored a stay insofar as critical issues on appeal overlap with Berg’s motion. The court’s ruling on Berg’s motion to dismiss during the appeal could thereby result in inconsistent adjudications. Thus, the court concluded that a stay pending appeal would simplify the litigation, promote judicial economy, and avoid interfering with the orderly administration of Total Liquor’s appeal.

The Case is No. 3:23-cv-03790-MAS-JBD.

Attorneys: Michael J. Canning (Giordano, Halleran & Ciesla, PC) for Autobar Systems of N.J. Timothy Michael Haggerty (Friedman Kaplan Seiler Adelman & Robbins) for Berg Co., LLC and Berg Liquor Systems, LLC.

Companies: Autobar Systems of N.J.; Berg Co., LLC; Berg Liquor Systems, LLC

MainStory: TopStory FranchisingDistribution NewJerseyNews GCNNews