Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Ohio App. Ct.: Alcoholic beverage distributorship termination ruling vacated and remanded, (Mar 17, 2014)

By John W. Arden, J.D., LL.M.

An appellate court ruling that Heineken USA, Inc. was a successor manufacturer, entitled to give notice of its intent to terminate Esber Beverage Company’s distribution rights for Strongbow Hard Cider under the Ohio Alcoholic Beverage Franchise Act, was vacated and the case remanded upon reconsideration by the Ohio Court of Appeals (Heineken USA, Inc. v. Esber Beverage Co., March 10, 2014, Gwin, W.).

The appellate court granted Esber’s motion for reconsideration, vacated its earlier decision, and reversed the trial court’s summary judgment in Esber’s favor. The case was remanded for more factual development. After further discovery and development of underlying facts concerning various transactions and the relationship of entities involved, either party could seek summary judgment.

Esber is an Ohio distributor of alcoholic beverages to retail permit holders in the state. Heineken N.V. is a beverage manufacturer based in the Netherlands. Heineken USA is a wholly-owned subsidiary.  In April 2008, Heineken N.V. acquired Scottish & Newcastle UK Ltd. businesses in Belgium, Finland, Ireland, Portugal, the United Kingdom, and the United States. As a result, Heineken assumed exclusive control over S&N UK, its subsidiaries and its assets, including Strongbow Hard Cider. Since that time, Heineken has manufactured, marketed, and sold Strongbow in international markets.

Prior to January 1, 2013, Heineken supplied Strongbow in the United States through its import agent Vermont Hard Cider Company, LLC. Effective December 31, 2012, Heineken compensated Vermont Hard Cider in exchange for early termination of its right to supply Strongbow in the U.S. Thereafter, Heineken USA was the exclusive import agent for the brand.

By letter dated October 30, 2012, Heineken and Heineken USA gave notice to Esber that it was terminating its franchise and associated distribution rights with respect to Strongbow pursuant to Section 1333.85(D) of the Ohio Alcoholic Beverage. That statutory provision allows a “successor manufacturer” that acquires the stock or assets of another manufacturer to give written notice of termination or nonrenewal to a distributor of the acquired manufacturer within 90 days of the acquisition and requires the successor manufacturer to compensate the distributor for the diminished value of the business that is directly related to the sale of the terminated products.

Heineken USA also filed a complaint in the Stark County Court of Common Pleas, seeking a determination of the diminished value of Esber’s business due to the loss of the Strongbow brand. Esber filed a motion for summary judgment.

The trial court granted Esber’s motion, finding that Heineken USA was not a “successor manufacturer” and therefore the termination rules of Section 1333.85(D) did not apply. Heineken USA appealed.

In the first instance, the Court of Appeals held that Heineken USA was a successor manufacturer and that the trial court erred in finding otherwise. It reversed the trial court’s grant of summary judgment in Esber’s favor. Esber filed motions for reconsideration, to certify a conflict, and for en banc consideration of the appellate court decision.

“Esber’s application for reconsideration raises an obvious error in our decision,” the Court of Appeals wrote. “No cross motion for summary judgment had been filed in the trial court. We grant Esber’s application for reconsideration and vacate our decision and instead upon consideration of the motion and the responses, we hereby reverse the trial court’s entry of summary judgment in favor of defendant-appellee Esber because we find from a complete and thorough review of the record in this case genuine issues of material fact exist.”

In a concurrence, Judge William B. Hoffman agreed with the decision to grant reconsideration and to reverse the trial court’s summary judgment in favor of Esber on the existing record. However, he found it “premature and advisory” for the appellate court to find there were genuine issues of material fact that precluded summary judgment at this stage of the litigation. Such a determination should be left to the parties and the trial court and should not be considered a mandate from the appellate court, he wrote.

The case is No. 2013 CA 00158.

Attorneys: James L. Messenger (Henderson, Covington, Messenger, Newman & Thomas Co., L.P.A.) for Heineken USA, Inc. Gary Corroto (Tzangas, Plakas, Mannos, Ltd.) for Esber Beverage Co.

Companies: Heineken USA, Inc.; Esber Beverage Co.

Cases: FranchisingDistribution OhioNews