Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Ohio App.: Denial of beverage distributor’s request to vacate injunction reversed, (Oct 8, 2015)

By Michael Menzhuber, J.D., LL.M.

A trial court’s decision to deny a beverage distributor’s request to vacate an injunction, which permitted a competing beverage distributor to continue to distribute LaBatt brand beverage products, and for a hearing to claim damages against the security bond, was reversed by the Ohio Court of Appeals in Canton. The Court of Appeals reversed the trial court’s decision after determining that its interpretation of the Ohio Alcoholic Beverages Franchise Act, which supported its decision to grant the preliminary injunction, was determined to be incorrect by the Ohio Supreme Court based on the clear and unambiguous language of the statute (Esber Beverage Co. v. LaBatt USA Operating Co., L.L.C., October 5, 2015, Baldwin, J.).

Background. Esber Beverage Co., an Ohio beverage wholesaler, had a written distribution agreement with InBev to distribute Labatt brand products in a ten-county area of Ohio for an indefinite period. In July 2008, InBev entered into an agreement to acquire Anheuser-Busch Companies. To comply with a final judgment in a Department of Justice challenge to the acquisition, InBev sold the Labatt brands to KPS Capital Partners L.P., which formed Labatt USA Operating Co., L.L.C. (Labatt USA), a subsidiary of North American Breweries Holdings, LLC (NAB).

Shortly after acquiring the LaBatt brands, NAB decided to use Superior Beverage Group (Superior) to distribute the brands. NAB, in a letter dated within 90 days of LaBatt USA’s acquisition, notified Esber that it intended to terminate Esber’s franchise to distribute Labatt brand products. The Ohio Alcoholic Beverages Franchise Act provides that a successor manufacturer may terminate a 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.

Esber filed suit, seeking, among other things, a preliminary injunction to allow it to continue to distribute LaBatt products during the pendency of the lawsuit. The trial court granted the preliminary injunction and Esbar was required to post a security bond. On cross-motions of the parties, the trial court granted partial summary judgment to Esber, holding that: (1) the statute did not apply because Labatt USA had assumed the distribution agreement between InBev and Esber and had no superseding statutory right to terminate the agreement; and (2) Labatt USA was not a “successor manufacturer” within the meaning of the statute.

On appeal, the Fifth District Ohio Court of Appeals reversed, holding that the statute gave successor manufacturers the right to terminate a franchise agreement within 90 days of acquiring the brand and that it did not differentiate between successors that had written franchise agreements and those that did not. Esber appealed the decision to the Ohio Supreme Court which upheld the judgment of the Court of Appeals. On remand, the trial court granted LaBatt USA’s motion for summary judgment based on the decision of the Ohio Supreme Court. However, it found that it had not abused its discretion in issuing the preliminary injunction and, accordingly, overruled Superior’s motion to vacate the injunction and release the bond.

On appeal, Superior asserted that the trial court erred, as a matter of law, by: (1) applying the wrong legal tests when it denied Superior’s motions to vacate the injunction and release the bond; (2) concluding that the Court of Appeals’ prior decision precluded a finding that the preliminary injunction was wrongfully issued; and (3) denying Superior’s bond motion because the law of case doctrine requires a conclusion the preliminary injunction was wrongfully issued.

Preliminary Injunction. The Court of Appeals determined that the decision by the trial court to grant the preliminary injunction was a legal decision, not one based on a snapshot of what the evidence would show at trial concerning the permanent injunction. Where the decision of the trial court on the preliminary injunction, the permanent injunction, and the merits of the case involve the same evidence and was based strictly on statutory interpretation, the abuse of discretion standard should not apply because the trial court did not have discretion regarding its legal interpretation of the statute.

Because the trial court’s interpretation of the statute, which supported its decision to grant the preliminary injunction, was ultimately determined to be incorrect by the Ohio Supreme Court, based on the clear and unambiguous language of the statute, the Court of Appeals concluded that the trial court should have granted Superior’s request for a hearing to claim damages against the security bond and reversed the trial court’s judgment.

The case is No. 2014CA00192.

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

Companies: Esber Beverage Co.; Superior Beverage Group, Ltd.; Labatt USA Operating Company

Cases: FranchisingDistribution OhioNews