ESBER BEVERAGE COMPANY v. THE WINE GROUP, INC., et al.
Case No. 2011CA00179
COURT OF APPEALS STARK COUNTY, OHIO FIFTH APPELLATE DISTRICT
March 19, 2012
2012-Ohio-1215
Hon. John W. Wise, P.J.; Hon. Julie A. Edwards, J.; Hon. Patricia A. Delaney, J.
CHARACTER OF PROCEEDING: Appeal from the Stark County Court of Common Pleas, Case No. 2010CV02750; JUDGMENT: AFFIRMED
For Appellants:
BRETT S. KRANTZ
JONATHAN T. HYMAN
One Cleveland Center, 20th Floor
1375 E. 9th St.
Cleveland, OH 44114-1793
For Appellee:
LEE E. PLAKAS
GARY T. CORROTO
220 E. Market Ave. S., 8th Floor
Canton, OH 44702
STANLEY R. RUBIN
437 Market Ave. N.
Canton, OH 44702
Delaney, J.
{¶1} Defendants-Appellants The Wine Group, Inc. and The Wine Group, LLC appeal the November 17, 2010 and July 15, 2011 judgment entries of the Stark County Court of Common Pleas.
STATEMENT OF THE FACTS AND CASE
{¶2} Appellant The Wine Group, Inc. (“TWG“) is a manufacturer of wine, as defined under Ohio law. Plaintiff-Appellee Esber Beverage Company is a distributor of alcoholic beverages within the state of Ohio. For the past 25 years, Esber has had an exclusive franchise relationship with TWG, whereby it has acted as the exclusive distributor of TWG products in and around northeastern Ohio.
{¶3} On July 2, 2010, TWG sent a letter to Esber stating TWG was terminating Esber‘s franchise effective September 6, 2010. TWG stated in its letter that it determined it was in TWG‘s best interests to move distribution of its wine products in Ohio to a single statewide distributor, Dayton Heidelberg Distributing Company. The July 2, 2010 termination letter does not allege Esber breached the franchise agreement, deficiently performed under the agreement, or violated any section of the Ohio Alcoholic Beverage Franchise Act (“OABFA“),
{¶4} Esber filed a complaint against TWG and Dayton Heidelberg Distributing Company in the Stark County Court of Common Pleas. The complaint stated claims for declaratory judgment under OABFA, injunctive relief, unjust enrichment, intentional interference with a business relationship, and conspiracy. Esber argued TWG‘s termination of the franchise agreement violated the OABFA. TWG removed the case
{¶5} Esber filed a Motion for Temporary Restraining Order on September 1, 2010. The trial court granted the TRO after a hearing and by agreement of the parties and the trial court, the TRO was converted to a preliminary injunction on September 8, 2010.
{¶6} Esber filed a Motion for Partial Summary Judgment as to its claims for declaratory judgment and permanent injunction. Esber argued that it was entitled to judgment as a matter of law based on the OABFA, specifically
{¶7} After proceeding through discovery, Esber filed a motion to dismiss its remaining claims and to convert the November 17, 2010 Judgment Entry into a final, appealable order. By Judgment Entry dated July 15, 2011, the trial court entered a final, appealable order.
{¶8} It is from these judgment entries TWG now appeals.
{¶9} TWG raises one Assignment of Error:
{¶10} “I. THE TRIAL COURT ERRED IN CONCLUDING THAT A STATEWIDE CONSOLIDATION OF THE DISTRIBUTION OF PRODUCTS, AS A MATTER OF LAW, CANNOT CONSTITUTE ‘JUST CAUSE’ FOR TERMINATION UNDER [THE] OHIO ALCOHOL BEVERAGE FRANCHISE ACT,
STANDARD OF REVIEW
{¶11} Summary judgment proceedings present the appellate court with the unique opportunity of reviewing the evidence in the same manner as the trial court. Smiddy v. The Wedding Party, Inc., 30 Ohio St.3d 35, 36, 506 N.E.2d 212 (1987). As such, we must refer to
Summary judgment shall be rendered forthwith if the pleading, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence in the pending case and written stipulations of fact, if any, timely filed in the action, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. * * * A summary judgment shall not be rendered unless it appears from such evidence or stipulation and only from the evidence or stipulation, that reasonable minds can come to but one conclusion and that conclusion is adverse to the party against whom the motion for summary judgment is made, such party being entitled to have the evidence or stipulation construed most strongly in the party‘s favor.
DISCUSSION
A. Ohio Alcoholic Beverage Franchise Act
{¶13} The parties agree this matter is to be resolved under the OABFA. The OABFA was passed by the General Assembly in 1974 and the Act governs the franchise relationship between manufacturers and distributors of alcoholic beverages in Ohio. The OABFA affords Ohio beer and wine distributors unique protections. It has been held the purpose of the OABFA is “to remedy the lack of equal bargaining power between Ohio‘s alcoholic beverage wholesalers and out-of-state beverage manufacturers.” Esber Beverage Co. v. LaBatt USA Operating Co., Stark C.P. No. 2009CV03142 (Dec. 1, 2009). Accord, Beverage Distributors, Inc. v. Miller Brewing Co., 803 F.Supp.2d 765 (S.D. Ohio 2011); Hill Distributing Co. v. St. Killian Importing Co., Inc., S.D. Ohio No. 2:11-CV-706, 2011 WL 3957255 (Sept. 7, 2011).
{¶14} At issue in the present case is
(A) Except as provided in divisions (A) to (D) of this section, no manufacturer or distributor shall cancel or fail to renew a franchise or substantially change a sales area or territory without the prior consent of the other party for other than just cause and without at least sixty days’
written notice to the other party setting forth the reasons for such cancellation, failure to renew, or substantial change. * * *
(B) The occurrence of any of the following events shall not constitute just cause for cancellation of or failure to renew a franchise or substantially changing a sales area or territory without the prior consent of the other party:
* * *
(3) A unilateral alteration of the franchise by a manufacturer for a reason unrelated to any breach of the franchise or violation of sections
1333.82 to1333.86 of the Revised Code by the distributor;* * *
{¶15} There is no dispute in this case that
B. Just Cause under R.C. 1333.85
{¶16} The OABFA does not define “just cause.” There is a dearth of case law as to the meaning of “just cause” utilized in the statute. The parties point this Court to two divergent federal district court opinions as to the meaning of “just cause.” TWG
{¶17} In Schieffelin, the defendant manufacturer terminated the plaintiff distributorship in order to consolidate the distribution network to a single distributor. The court defined just cause as “a requirement of minimum rationality and business purpose,” relying upon Dayton Heidelberg Distrib. Co. v. Vineyard Brands, Inc. 74 F.Appx. 509 (6th Cir. 2003) and Francis A. Bonanno, Inc. v. ISC Wines of California, 56 Ohio App.3d 62, 564 N.E.2d 1105 (2nd Dist. 1989) to support its holding. Schieffelin at *5. “[O]nly where the manufacturer‘s business dissatisfaction is entirely arbitrary is just cause lacking.” Id. at *6. “Although the manufacturer may meet its burden by pointing to wrongdoing on behalf of the franchisee, the case law requires only bare business judgment.” Id.
{¶18} The Schieffelin court determined the manufacturer‘s reasons for terminating the franchise relationship were rooted in “minimum rationality and business purpose.” Schieffelin, quoting Dayton Heidelberg, supra. Schieffelin concluded the manufacturer‘s business reasons for consolidating to a single distributor constituted just cause.
[T]he Alcoholic [Beverage] Franchise Act was enacted to provide some protection to local distributors from the vagaries of the marketplace. If manufacturers could cancel franchises simply for business motivations, that protection would become illusory; there would be no need for such a legislative act. A rational manufacturer will never cancel a distributorship unless it feels that the cancellation would be to its profit and advantage. Thus, virtually all cancellations are for “legitimate business reasons,” a fact surely well known to the Ohio legislature. Under a capitalist system of commerce, where a rational businessman always seeks to maximize profits, there is no need for a statute requiring the cancellation of a franchise agreement to be based upon a legitimate business reason. Therefore, just cause must mean
something more than a manufacturer‘s unilateral determination that it could make more money if a franchise were terminated.
Vintners contends, perhaps correctly, that this interpretation of the Act means that a manufacturer could be locked into an unprofitable situation if changing market conditions render its current distribution network inadequate. This may well be. However, the Ohio legislature has determined that this is a business risk which must be assumed by all manufacturers of alcoholic beverages which avail themselves of the rights and privileges of marketing their wares in Ohio. This Court can only interpret the will of the legislature; it cannot pass judgment on the wisdom of its pronouncements.
Vintners argues strenuously that the case law supports its interpretation of the Act. This is not so. There are, in fact, no cases which deal with this particular situation, i.e., where a manufacturer has cancelled a franchise without alleging any sort of discontent with that distributor‘s performance. In Bonanno, for example, the court found that the importer had permissibly cancelled a franchise because the distributor had failed to meet the importer‘s standards of “reasonable business aggressiveness.” Vintners has made no such claim against Plaintiffs.
Dayton Heidelberg Distrib. Co. v. Vintners Intern. Co. of New York, supra, at *8.
{¶21} First, the court found that in the cases relied upon by Schieffelin, there was more to the manufacturers’ decisions to terminate the franchises than simply a marketing strategy. In those cases, there was a deficient performance by the distributor that resulted in the termination of the franchise. The Wine Group, supra at *4.
{¶22} Second, The Wine Group court found that Vintners considered the impact of
(B) The occurrence of any of the following events shall not constitute just cause for cancellation of or failure to renew a franchise or substantially changing a sales area or territory without the prior consent of the other party:
* * *
(3) A unilateral alteration of the franchise by a manufacturer for a reason unrelated to any breach of the franchise or violation of sections
1333.82 to1333.86 of the Revised Code by the distributor * * *.
{¶23} While not applicable to the Vintners case because the statute was enacted during the pendency of the case, Vintners analyzed the meaning of the addition of
[T]he legislature was aware that, in the absence of any formal definition of just cause, courts interpreting § 1333.85 were applying a “case-by-case” analysis. By specifically defining what is not just cause, and leaving undefined what is just cause, the legislature has effectively agreed with the courts that the term “just cause” does not lend itself to a single, bright-line definition but, instead, is highly dependent upon the facts of the particular case.
Finally, applying this fact-sensitive concept of just cause to the case at bar, there is little doubt that the Ohio legislature fully intended the result which the Court has reached. By amending the former § 1333.85 to expressly prohibit franchise terminations based solely upon a manufacturer‘s unilateral decision to alter its distribution network, the legislature made clear its intent to disallow actions such as Vintners’ cancellation of Plaintiffs’ franchises, even though done in good faith.
Vintners, supra at *9.
{¶24} Our review of the case law presented on this matter demonstrates that The Wine Group, and its reliance upon Vintners, is more persuasive than Schieffelin. Vintners takes into consideration the purposes of the OABFA and
{¶25} TWG argues it had a legitimate business reason to terminate the franchise with Esber and therefore, just cause for termination. That decision, however, does not comport with the OABFA.
{¶26}
{¶27} Further, under the analysis and reasoning in The Wine Group and Vintners as to the meaning of just cause, reasonable minds can only conclude that TWG‘s business reasons for terminating the franchise were not just cause. We find our holding to be supported by the purpose of the OABFA:
[T]he Alcoholic Beverage Franchises Act is designed in part to protect distributors from certain practices of beverage manufacturers. It recognizes that distributors often have a substantial investment in their businesses, including the physical assets and real property used to distribute the manufacturers’ products, and that to allow a manufacturer
to unilaterally terminate a franchise agreement puts the franchise distributors at great harm. The just cause requirement for terminating a franchise agreement is intended to protect the franchisee from this type of arbitrary and potentially coercive act.
Beverage Distrib., Inc. v. Miller Brewing Co., supra quoting Beverage Distrib., Inc. v. Miller Brewing Co., S.D. Ohio Nos. 2:08-cv-827, 2:08-cv-931, 2:08-cv-1112, 2:08-cv 1131, 2:08-cv-1136, 2:09-cv-0022, 2009 WL 1542730, at *5 (June 2, 2009).
{¶28} Under Vintners, The Wine Group, and
{¶29} Accordingly, TWG‘s sole Assignment of Error is overruled.
{¶30} The judgment of the Stark County Court of Common Pleas is affirmed.
By: Delaney, J.
Wise, P.J. and
Edwards, J. concur.
HON. PATRICIA A. DELANEY
HON. JOHN W. WISE
HON. JULIE A. EDWARDS
ESBER BEVERAGE COMPANY v. THE WINE GROUP, INC., et al.
Case No. 2011CA00179
IN THE COURT OF APPEALS FOR STARK COUNTY, OHIO FIFTH APPELLATE DISTRICT
2012-Ohio-1215
For the reasons stated in our accompanying Opinion on file, the judgment of the Stark County Court of Common Pleas is affirmed. Costs assessed to Appellants.
HON. PATRICIA A. DELANEY
HON. JOHN W. WISE
HON. JULIE A. EDWARDS