Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Ohio Sup. Ct.: Successor alcoholic beverage manufacturer may terminate distributor, even if successor has written franchise agreement, (Oct 18, 2013)

By Tobias J. Gillett, J.D., LL.M.

A successor manufacturer of alcoholic beverages was permitted to terminate a wholesaler’s distribution franchise without just cause, because the Ohio Alcoholic Beverages Franchise Act permitted such termination as long as the successor complied with the Act’s notice and time limit provisions and because the Act did not differentiate between successors that had written franchise agreements and those that did not, the Ohio Supreme Court has ruled (Esber Beverage Co. v. Labatt USA Operating Co., L.L.C., October 17, 2013, O’Neill, W.).

Esber Beverage Co. is an Ohio beverage wholesaler. Esber had a written franchise agreement with InBev to distribute Labatt brand products in a ten-county area of Ohio for an indefinite period. On July 13, 2008, InBev N.V./S.A., InBev’s parent company, entered into an agreement to acquire Anheuser-Busch Companies. To comply with a final judgment in a Department of Justice challenge to the acquisition, In Bev sold the Labatt brands to KPS Capital Partners L.P., which formed Labatt USA Operating Co., L.L.C. to acquire the assets.

In a letter dated within 90 days of Labatt Operating’s acquisition of the right to sell Labatt brand products in the United States, Labatt Operating notified Esber that it intended to terminate Esber’s franchise to distribute Labatt brand products. Franchise termination rules in the Ohio Alcoholic Beverages Franchise Act permitted a successor manufacturer to 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.

Labatt filed suit in the Stark County Court of Common Pleas, which granted partial summary judgment to Esber, holding that the franchise-termination rules applied only to a successor manufacturer when no written franchise agreement existed between the distributor and the former manufacturer. On appeal, the Fifth District 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.

The Ohio Supreme Court upheld the judgment of the Court of Appeals. The Court observed that “[w]hen a statute’s language is clear and unambiguous, a court must apply it as written,” and here “[t]he plain language of the statute allows the successor manufacturer to terminate a franchise.” The definition of “franchise” in the Alcoholic Beverages Franchise Act included both written franchise agreements and those that had arisen by operation of law, and termination without cause was permitted as long as the successor complied with the notice provision and 90-day limit. Moreover, parties could not restrict the right of termination by contract, because any franchise agreement provision “that waives any of the prohibitions of, or fails to comply with,” the statute was “void and unenforceable.”

Here, Labatt Operating was indisputably a successor of InBev and was in compliance with the statute’s notice and time limit provisions. Therefore, the court upheld Court of Appeals’ decision that summary judgment should have been granted to Labatt Operating, although it noted that Esber was entitled to compensation under the statute.

The case is No. 2013-Ohio-4544.

Attorneys: Charles R. Saxbe (Taft, Stettinius & Hollister, L.L.P.), Stephen W. Funk (Roetzel & Andress, L.P.A.), and Lee Plakas (Txangas, Plakas, Mannos & Raies, Ltd.) for Esber Beverage Co. James L. Messenger (Henderson, Covington, Messenger, Newman & Thomas Co., L.P.A.) for Superior Beverage Group, Ltd. James B. Niehaus (Frantz Ward LLP) and Paul J. Pusateri (Milligan Pusateri Co., L.P.A.) for Labatt USA Operating Co., L.L.C., KPS Capital Partners, L.P., and North American Breweries, Inc.

Companies: Esber Beverage Co.; Labatt USA Operating Co., L.L.C.; Superior Beverage Group, Ltd.; KPS Capital Partners L.P.

Cases: FranchisingDistribution OhioNews