Esber Beverage Co. v. Labott USA Operating Co., L.L.C.

2015 Ohio 4169

• Court: Ohio Court of Appeals
• Decided: October 5, 2015
• Docket: 2014CA00192
• Status: Published

Opinion

[Cite as Esber Beverage Co. v. Labott USA Operating Co., L.L.C., 2015-Ohio-4169.]

COURT OF APPEALS STARK COUNTY, OHIO FIFTH APPELLATE DISTRICT

ESBER BEVERAGE COMPANY, : JUDGES: : Hon. W. Scott Gwin, P.J. Plaintiff - Appellee : Hon. John W. Wise, J. : Hon. Craig R. Baldwin, J. -vs- : : LABATT USA OPERATING COMPANY, : Case No. 2014CA00192 LLC, et al., : : Defendant - Appellant : OPINION

CHARACTER OF PROCEEDING: Appeal from the Stark County Court of Common Pleas, Case No. 2009 CV 03142

JUDGMENT: Reversed and Remanded

DATE OF JUDGMENT: October 5, 2015

APPEARANCES:

For Plaintiff-Appellee For Defendant-Appellant Superior Beverage Group, Ltd. GARY A. CORROTO MARIA C. KLUTINOTY EDWARDS JAMES L. MESSENGER Tzangas, Plakas & Mannos, Ltd. RICHARD J. THOMAS 220 Market Avenue South, Eighth Fl. JERRY R. KRZYS Canton, OH 44702 6 Federal Plaza Central, Suite 1300 Youngstown, OH 44503 STANLEY R. RUBIN 437 Market Avenue North Canton, OH 44702 Stark County, Case No. 2014CA00192 2

Baldwin, J.

{¶1} Appellant Superior Beverage Group, Ltd. appeals a judgment of the Stark

County Common Pleas Court denying its motion to vacate the preliminary injunction in

the instant case and release the bond posted by appellee Esber Beverage Company.

STATEMENT OF FACTS AND CASE

{¶2} KPS Capital Partners, L.P. (KPS) is a Delaware limited partnership in the

business of providing management and investment services to private equity funds.

Investment funds managed by KPS own North American Breweries Holdings, LLC,

which in turn owns 100% of North American Breweries, Inc. (NAB). Labatt USA

Operating Co. is an indirect, wholly owned subsidiary of NAB. Doug Tomlin is regional

sales director of appellant Labatt USA Operating Co. Appellant Superior Beverage

Group (Superior) is a family-owned distributor of alcoholic beverages located in

Youngstown, Ohio, which distributed the Genesee brands of beer for NAB. Appellee

Esber Beverage Company (Esber) is a family-owned beer and wine distribution

business located in Canton, Ohio, which distributed Labatt products in certain counties

in Ohio.

{¶3} Esber has distributed the Labatt brands since the 1950's. Prior to 1995,

Esber acquired the Labatt products from the Labatt Brewing Company Ltd. (LBCL), a

Canadian company. In 1995, Interbrew, a Belgian brewer, purchased LBCL and

acquired control of the Labatt brands. Interbrew merged with AmBev in 2004 to form

InBev N.V./S.A. At the time of the 2004 merger, Labatt products were imported to the

United States by an entity called Labatt USA LLC, which is not the same company as

appellant Labatt USA Operating Co. Stark County, Case No. 2014CA00192 3

{¶4} Following the Interbrew/AmBev merger, InBev N.V./S.A. merged Labatt

USA LLC with Beck's North America into a third subsidiary, Latrobe Brewing Company,

and renamed the merged company InBev USA L.L.C. As of January 1, 2005, Esber

acquired the Labatt brands from InBev USA (hereinafter, InBev) for distribution in Stark

and surrounding counties. InBev notified Esber that it was terminating Esber's franchise

pursuant to R.C. 1333.85(D) because InBev was a “successor manufacturer” within the

meaning of the statute and therefore had ninety days to terminate the franchise. Esber

challenged the termination and this Court ultimately concluded that InBev was not a

successor manufacturer, but rather the merger that took place was “more accurately

defined as a restructuring and renaming of its U.S. business operations, with no

products changing ownership control.” Esber Beverage Co. v. InBev USA LLC, Stark

App. No.2006CA00113, 2007–Ohio–927, ¶ 66.

{¶5} On November 30, 2007, InBev and Esber negotiated a new distribution

agreement. This agreement appointed Esber as the exclusive distributor of Labatt

products in ten Ohio counties for an indefinite term. Esber had the right of first refusal

“to be appointed to carry any new brands or extensions of existing Brands that are

produced in Canada or are imported into the United States by Supplier [InBev] or any

successor in interest ...” Distribution Agreement, § 8(a)(i-x).

{¶6} In July of 2008, InBev agreed to acquire Anheuser–Busch Companies,

Inc. The United States Justice Department filed an anti-trust suit against InBev in

November, 2008. To resolve the lawsuit, InBev agreed to transfer the Labatt brands to

another entity with the ability to compete in the relevant markets. InBev agreed to sell

the Labatt brands and related assets to a KPS affiliate. The Labatt brands were Stark County, Case No. 2014CA00192 4

transferred to Labatt USA Operating, a KPS affiliate formed to acquire InBev's assets

related to the Labatt brands. Labatt USA Operating became a subsidiary of NAB, which

also owned High Falls Operating Co., LLC, which distributed Genesee brands. Superior

was the distributor of Genessee brands in the same general market where Esber

distributed Labatt brands.

{¶7} Shortly after acquiring the Labatt brands, NAB invited both Esber and

Superior to make a presentation regarding each distributor's ability to distribute both the

Labatt and Genesee brands in the relevant market. NAB decided to use Superior to

distribute both Labatt and Genesee and notified Esber of its decision to terminate

Esber's distribution agreement on May 15, 2009.

{¶8} Esber filed the instant action on August 14, 2009, for declaratory

judgment, injunctive relief and compensatory damages, alleging breach of contract,

promissory estoppel, tortious interference with business relations, conspiracy and

antitrust violations.

{¶9} On December 1, 2009, the trial court granted Esber's motion for a

preliminary injunction, which allowed Esber to continue to distribute Labatt products

during the pendency of the lawsuit. Esber posted a bond in the amount of $100,000.00.

The trial court stated, "There are allegations that Superior will be losing approximately

$35,000 to $40,000 a month in gross profit each month the transfer is delayed. As a

result, it is further preliminary [sic] ordered that this order shall take effect upon the

payment of $150,000 to the clerk of court as security for this preliminary injunction."

Judgment Entry, December 1, 2009. Stark County, Case No. 2014CA00192 5

{¶10} On cross-motions of the parties for summary judgment, the trial court

granted partial summary judgment to Esber, finding that the defendants were bound by

the terms of the distribution agreement and that they did not have the right to terminate

the agreement pursuant to R.C. 1333.85(D). The court found that R.C. 1333.85(D) did

not apply because Labatt USA Operating had assumed the distribution agreement

entered into between InBev and Esber and had no superseding statutory right to

terminate the agreement. The court further found that even if R.C. 1333.85(D) did apply,

Labatt USA Operating was not a successor manufacturer within the meaning of the

statute. Judgment Entry, November 29, 2010. The trial court issued a permanent

injunction.

{¶11} In May of 2011, Esber voluntarily dismissed its remaining claims. The trial

court issued a final appealable order on May 12, 2011, which incorporated the

November 29, 2010 judgment.

{¶12} This Court reversed the decision of the trial court, holding that R.C.

1333.85(D) does give a successor manufacturer the right to terminate a franchise

agreement within 90 days of acquiring the brand and that the statute does not

differentiate between successors to manufacturers that had written franchise

agreements and successors to manufacturers that had franchise agreements that had

arisen by operation of law. We therefore found that Labatt Operating was permitted by

R.C. 1333.85(D) to terminate the franchise agreement as a matter of law and that the

trial court should have granted summary judgment in favor of Labatt Operating. Esber

Beverage Company v. Labatt USA Operating Company, LLC, 5th Dist. Stark Nos.

2011CA00113 and 2011CA00116, 2012-Ohio-1183. Stark County, Case No. 2014CA00192 6

{¶13} Esber appealed the decision to the Ohio Supreme Court. The Supreme

Court affirmed our decision and remanded to the trial court for further proceedings

consistent with its opinion. Esber Beverage Company v. Labatt USA Operating

Company, LLC, 138 Ohio St.3d 71, 3 N.E.3d 1173, 2013-Ohio- 4544.

{¶14} Subsequent to the remand, the trial court increased Esber’s bond from

$150,000.00 to $350,000.00. Judgment Entry, July 14, 2014. Superior moved to

vacate the preliminary injunction and to release the bond, requesting a hearing on

damages incurred as a result of the injunction.

{¶15} In a judgment filed October 17, 2014, the trial court granted Labatt’s

motion for summary judgment based on the decision of the Ohio Supreme Court. The

trial court found that it had not abused its discretion in issuing the preliminary injunction,

and accordingly overruled Superior’s motion to vacate the injunction and hold a hearing

on Superior’s damages claimed against the bond.

{¶16} Superior assigns the following errors on appeal:

{¶17} “I. THE TRIAL COURT ERRED AS A MATTER OF LAW BY APPLYING

THE WRONG LEGAL TEST WHEN IT DENIED DEFENDANT-APPELLANT,

SUPERIOR BEVERAGE GROUP, LTD.’S (“SUPERIOR”) MOTION TO VACATE

INJUNCTION AS WRONGFULLY ISSUED AND MOTION TO RELEASE BOND

(“BOND MOTION”), BECAUSE REVERSAL OF THE PERMANENT INJUNCTION IS

CONCLUSIVE EVIDENCE THAT THE PRELIMINARY INJUNCTION IS

WRONGFULLY ISSUED.

{¶18} “II. THE TRIAL COURT ERRED AS A MATTER OF LAW BY APPLYING

THE WRONG LEGAL TEST WHEN IT DENIED SUPERIOR’S BOND MOTION, FOR IF Stark County, Case No. 2014CA00192 7

THE REVERSAL OF A PERMANENT INJUNCTION IS NOT CONCLUSIVE EVIDENCE

THAT A PRELIMINARY INJUNCTION WAS WRONGFULLY ISSUED, THEN A

PRELIMINARY INJUNCTION IS WRONGFULLY ISSUED IF THE ENJOINED PARTY

ALWAYS HAD A RIGHT TO DO THE ENJOINED ACT.

{¶19} “III. THE TRIAL COURT ERRED AS A MATTER OF LAW IN

CONCLUDING THAT THIS COURT’S DECISION IN ESBER V. LABATT USA I

PRECLUDES A FINDING THAT THE DECEMBER 1, 2009 PRELIMINARY

INJUNCTION WAS WRONGFULLY ISSUED.

{¶20} “IV. THE TRIAL COURT ERRED AS A MATTER OF LAW IN DENYING

SUPERIOR’S BOND MOTION, BECAUSE THE LAW OF THE CASE DOCTRINE

REQUIRES A CONCLUSION THAT THE PRELIMINARY INJUNCTION WAS

WRONGFULLY ISSUED.”

I.- IV.

{¶21} We address appellant's assignments of error together as they all raise the

issue that the court's judgment overruling its motion to release the bond was incorrect

as a matter of law.

{¶22} At the outset, we note that this Court did not rule in our earlier opinion that

the court's judgment issuing the preliminary injunction was correct on the merits. The

sole issue raised in the earlier appeal was that the court erred in granting injunctive

relief because only money damages were available pursuant to the statute. In

overruling this assignment of error, we did not rule that the court was correct on the

merits in granting injunctive relief; rather, we ruled that injunctive relief was available

under the statute. In fact, we reversed the summary judgment of the trial court, which Stark County, Case No. 2014CA00192 8

granted a permanent injunction to Esber, thus reversing the permanent injunction on the

merits.

{¶23} Superior argues that the court erred in overruling the motion to release the

bond because the court's reasons for granting the preliminary injunction were incorrect

as a matter of law, as held by this Court and the Ohio Supreme Court. Esber argues

that the court did not abuse its discretion in entering a preliminary injunction based on

the facts and law before the court at the time the injunction was entered, and therefore

the court did not err in overruling Superior's motion to release the bond.

{¶24} The bond in the instant case was posted pursuant to Ohio Civ. R. 65(C):

{¶25} "No temporary restraining order or preliminary injunction is operative until

the party obtaining it gives a bond executed by sufficient surety, approved by the clerk

of the court granting the order or injunction, in an amount fixed by the court or judge

allowing it, to secure to the party enjoined the damages he may sustain, if it is finally

decided that the order or injunction should not have been granted."

{¶26} Ohio law is somewhat unsettled as to what a party must demonstrate in

order to recover on the bond. The Ohio Supreme Court has held that dissolution of an

injunction is conclusive evidence that it was wrongfully issued. Berkey Co. v. Sylvania

Co., 97 Ohio St. 67, 119 N.E.140 (1917). However, appellate courts have distinguished

Berkey on the basis that it was unclear as to whether Berkey involved the dissolution of

a preliminary or permanent injunction, and the court affirming the dissolution of the

injunction was silent as to the propriety of any preliminary injunction which may have

been issued. See Del-Fair, Inc. v. Seyferth, 1st Dist. Hamilton No. C-800277, 1981 WL Stark County, Case No. 2014CA00192 9

9765 (June 6, 1981); Daniel Const. Co. v. International Brotherhood of Elec. Workers,

4th Dist. Ross Nos. 1237, 1243, 1986 WL 14075 (December 10, 1986).

{¶27} The Sixth District has held that a court in which a temporary injunction

issued has discretion, upon its dissolution, to determine whether or not the injunction

was properly granted. Benrus v. Weinstein Wholesale Jewelers, Inc., 108 Ohio App.

525, 163 N.E.2d 406 (1959), paragraph 5 of the syllabus. Therefore, appellate districts

have determined that an action upon the bond accrues only where the trial court abused

its discretion in issuing the preliminary injunction, with the trial court making the first

determination as to whether it wrongfully issued the injunction. Professional

Investigations & Consulting Agency, Inc. v. PICA Corp., 69 Ohio App. 3d 753, 761, 591

N.E.2d 1265(1990); Daniel, supra; Del-Fair, supra. A finding that the evidence is

insufficient to support a permanent injunction does not necessarily mean the evidence

was insufficient to support a preliminary injunction because more evidence is needed to

support a permanent injunction. Professional Investigations, supra, at page 762;

Daniel, supra.

{¶28} In contrast, the federal courts of appeals have consistently held that the

reversal on appeal of an injunction triggers the wrongfully enjoined party's right to

pursue recovery on the security bond. Division No. 1, Detroit, Broth. of Locomotive

Engineers v. Consolidated Rail Corporation, 844 F.2d 1218 (6th Cir. 1988). However,

Fed. Civ. R. 65 (C) includes slightly different language than its counterpart in the Ohio

Civil Rules, providing that the movant give security in an amount the court considers

proper to pay damages sustained by "any party found to have been wrongfully enjoined Stark County, Case No. 2014CA00192 10

or restrained." The Rule does not include the language found in the Ohio Rule that it be

"finally decided that the order or injunction should not have been granted."

{¶29} However, in the instant case, 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. The merits of this

case were decided on cross-motions for summary judgment by the trial court, who

made the same legal determination in Esber's favor that he earlier made in granting the

preliminary injunction. In considering the issue on appeal, both this Court and the Ohio

Supreme Court found the trial court's decision to be erroneous as a matter of law, and

rather than finding summary judgment inappropriate because of disputed facts, both

courts found that the trial court erred in failing to grant summary judgment to the

defendants. In affirming this Court's decision, the Ohio Supreme Court stated:

{¶30} "Accordingly, we affirm the Fifth District Court of Appeals' judgment

holding that it was error for the trial court to grant summary judgment to Esber. The Fifth

District found that summary judgment should have been granted to Labatt Operating as

a matter of law. We agree. R.C. 1333.85(D) is clear and unambiguous on its face, and

Labatt Operating followed its requirements for the termination of a franchise. This matter

is remanded to the trial court for further proceedings consistent with this opinion." Esber

Beverage Co. v. Labatt USA Operating Co., 138 Ohio St.3d 71, 75, 2013-Ohio-4544, 3

N.E.3d 1173, 1177, ¶ 17 (2013).

{¶31} Because the decision to grant the preliminary injunction in the instant case

and the subsequent determinations that the court erred in granting summary judgment

on the merits, including the permanent injunction, were based solely on legal grounds, Stark County, Case No. 2014CA00192 11

we find that the abuse of discretion standard does not apply. Questions of statutory

interpretation are questions of law, which are reviewed de novo. Riedel v. Consol. Rail

Corp., 125 Ohio St.3d 358, 2010-Ohio-1926, ¶6, 928 N.E.2d 448 (2010). This is not a

case where the evidence was later found by either the trial court or the court of appeals

to be insufficient to support the permanent injunction. The trial court's legal reasoning

was found to be flawed based on the clear language of the statute, and the court

applied the same interpretation of the statute in granting the preliminary injunction that

the court would later use in determining the merits of the case. Where the decision of

the trial court on both the preliminary injunction, the permanent injunction, and the

merits of the case involved the same evidence and was based strictly on statutory

interpretation, the abuse of discretion standard should not apply, as the trial court did

not have discretion regarding its legal interpretation of the statute.

{¶32} The bond in the instant case was ordered to protect Superior, who would

lose profits during the time LaBatt was enjoined from terminating its agreement with

Esber. The trial court's interpretation of the statute which supported its decision

granting the preliminary injunction was ultimately determined by the Ohio Supreme

Court to be incorrect based on the clear and unambiguous language of the statute.

The trial court should therefore have granted Superior's request for a hearing, at which

Superior would have the opportunity to prove damages suffered during the time period

agreed upon between the parties on March 28, 2011, up to the damage amount

secured by the bond. Stark County, Case No. 2014CA00192 12

{¶33} Appellant's assignments of error are sustained. The judgment of the Stark

County Common Pleas Court is reversed and this cause is remanded to that court for

further proceedings consistent with this opinion. Costs are assessed to appellee.

By: Baldwin, J.

Gwin, P.J. and

Wise, J. concur.