Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D. Ohio: Termination questions under Ohio Alcoholic Beverage Franchise Act denied certification, (Jan 8, 2014)

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

Distributors’ questions regarding the constitutionality of a provision of the Ohio Alcoholic Beverage Franchise Act, permitting termination of franchises by a successor of an alcoholic beverage manufacturer, were denied certification to the Ohio Supreme Court. The federal district court in Columbus refused to certify the questions because they did not constitute issues of law that may be determinative of the proceeding and because there was controlling precedent in Ohio Supreme Court decisions (Tri County Wholesale Distributors, Inc. v. Labatt USA Operating Co., LLC, January 6, 2014, Marbley, A.).

Tri County Wholesale Distributors, Inc. and the Bellas Company (d/b/a Iron City Distributing) were Ohio distributors of alcoholic beverages that had franchise relationships with Labatt USA Operating Co. Tri County and Iron City entered into written distribution agreements with Labatt USA in 2010 and 2011, respectively. In March 2013, they each received letters from Labatt, purporting to terminate their distribution agreements under the successor manufacturer provision of the Ohio Alcoholic Beverage Franchise Act (Ohio Rev. Code §1333.85(D)). That provision authorizes termination or nonrenewal of a distribution agreement by a successor manufacturer that acquires a manufacturer or brand, within 90 days of the acquisition, upon 90 days’ notice to the distributor.

The distributors challenged the termination, filing a complaint alleging breach of contract and requesting a declaratory judgment that Labatt be prevented from terminating their distribution franchises under the Alcoholic Beverage Franchise Act or that Labatt’s action under Ohio Rev. Code §1333.85(D) be considered an unconstitutional taking. The distributors moved for a preliminary injunction barring termination, which was granted by the district court.

Subsequently, the distributors made a motion to certify the following questions to the Ohio Supreme Court:

1. Would the termination of a written contract for the distribution of alcoholic beverages under Ohio Rev. Code § 1333.85(D) and the transfer of those distribution rights to a new distributor pursuant to a court order issued under Ohio Rev. Code § 1333.851 violate the Takings Clause of the Ohio Constitution, Section 19, Article 1?

2. To avoid any constitutional questions under the Takings Clause of the Ohio Constitution, should Ohio Rev. Code §§ 1333.85 and 1333.851 be interpreted so that they do not apply when the written distribution contract at issue is not extinguished by the transaction described in § 1333.85(D)?

While federal courts have the power to certify questions to state supreme courts, it is not mandatory, the district court stated. Under the Ohio Supreme Court Rules of Practice, the state high court may answer questions certified to it by federal courts where (1) the question of Ohio law may be determinative of the proceeding and (2) there is no controlling precedent in the decisions of the Ohio Supreme Court.

According to the federal district court, the question of constitutionality of Ohio Rev. Code § 1333.85 does not rise to the level necessary for certification and there was controlling precedent in Ohio Supreme Court decisions.

The Ohio Supreme Court’s recent decision in Esber v. Labatt (Business Franchise Guide ¶15,175), which upheld Labatt’s termination of a distributor under the successor manufacturer provision, did not even mention the issue of constitutionality, the district court noted. Moreover, the court found that it had “far more than sufficient guidance” to consider the constitutionality of § 1333.85(D).

“There are various Ohio and federal cases that, though they do not specifically address the constitutionality of § 1333.85(D) under the Taking Clause of the Ohio Constitution, are precedential and provide this Court with guidance.”

Under the two-pronged analysis, the district court did not find a need for certification under the Ohio Supreme Court Rules of Practice.

Even if the distributors had sufficiently demonstrated the need for certification of their questions, the Ohio Supreme Court’s ruling in Esber v. Labatt would dissuade the district court from granting certification.

The case is No. 2:13-CV-317.

Attorneys: Christopher Haas (Squire Sanders) for Tri County Wholesale Distributors, Inc. and The Bellas Company. James B Niehaus (Frantz Ward LLP) for Labatt USA Operating Co., LLC. North American Breweries Holdings, LLC

Companies: Tri County Wholesale Distributors, Inc.; The Bellas Company; Labatt USA Operating Co., LLC; North American Breweries Holdings, LLC

Cases: FranchisingDistribution OhioNews