828 F.3d 421
6th Cir.2016Background
- Tri County Wholesale Distributors and Iron City Distributing ("distributors") had franchise agreements to distribute Labatt and related beer brands in Ohio; Labatt USA Operating Co. was the named supplier.
- Labatt USA Operating was wholly owned through multiple holding companies by North American Breweries Holdings, LLC (NAB Holdings); NAB Holdings was owned by KPS entities until sold to CCR on December 11, 2012.
- CCR sent termination letters in March 2013 claiming § 1333.85(D) of the Ohio Revised Code allowed termination because CCR (a successor) acquired all or substantially all stock/assets of another manufacturer.
- Distributors sued seeking (a) a declaration that § 1333.85(D) did not apply, (b) in the alternative, that application would effect an unconstitutional taking, and (c) if § 1333.85(D) applied, the proper measure of "diminished value."
- District court: held § 1333.85(D) applied (control-based test), rejected Takings Clause claims, and after trial awarded diminished-value damages ($2,756,459 to Tri County; $302,720 to Iron City).
- Sixth Circuit: affirms applicability of § 1333.85(D) and rejection of Takings claims; reverses and remands limited valuation issue—directing deduction of projected profits for the period between valuation date and actual termination.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of § 1333.85(D): whether a parent-level acquisition triggers the successor-manufacturer exception | Statute requires acquisition of "another manufacturer"; only entity registered/licensed as manufacturer (Labatt USA) qualifies; parent-level transfers outside scope | § 1333.85(D) covers transactions that effect a change in control over brands; functional/control-based test should apply so CCR’s parent-level acquisition qualifies | Held: functional, control-based test applies; CCR’s acquisition changed control and § 1333.85(D) applies (termination permitted) |
| Takings claim: whether permitting termination under § 1333.85(D) is a taking requiring compensation under federal/Ohio constitutions | Franchise is property; state sanctioning of termination converts suppliers’ act into a government taking for private purpose | The Takings Clause addresses government action; § 1333.85 is a statutory entitlement the state can create or modify—suppliers’ terminations are private acts permitted by statute, not governmental takings | Held: No taking; district court properly dismissed Takings Clause claims |
| Damages: whether net operating losses (NOLs) incurred while obtaining replacement brands should be added to diminished-value award | NOLs are separate losses and not captured by brand-value DCF; distributors seek additional compensation for depleted assets during replacement efforts | DCF valuation of brand captures projected future profits; adding NOLs would double-recover the same lost profits | Held: DCF brand valuation already accounts for lost profits; court correctly denied separate NOL award |
| Damages timing: whether profits earned by distributors after the valuation date but before actual termination must be deducted from diminished-value award | Distributors argue they kept profits lawfully while litigation pending and should not disgorge them | Suppliers argue allowing distributors to keep those actual profits plus an award based on projected profits yields a windfall; projected profits for the pendency period should be deducted | Held: Reverse in part — actual post-valuation profits should not be deducted without discounting; court must deduct the projected (discounted) profits for the period up to actual termination from the diminished-value award |
Key Cases Cited
- Lavado v. Keohane, 992 F.2d 601 (6th Cir.) (standard of review for judgment on pleadings and de novo review noted)
- Esber Beverage Co. v. Labatt USA Operating Co., 3 N.E.3d 1173 (Ohio 2013) (interpreting § 1333.85(D) with a control-based approach to identify a successor manufacturer)
- Armstrong v. United States, 364 U.S. 40 (U.S. 1960) (explaining that the Takings Clause protects against government, not private, takings)
- Minneapolis Taxi Owners Coal., Inc. v. City of Minneapolis, 572 F.3d 502 (8th Cir.) (no protected property interest where regulatory regimes are subject to change)
- Max Trucking, LLC v. Liberty Mut. Ins. Corp., 802 F.3d 793 (6th Cir.) (standard for clear-error review of district-court factual findings)