Esber Beverage Co. v. Wine Group, Inc.

2012 Ohio 1215

• Court: Ohio Court of Appeals
• Decided: March 19, 2012
• Docket: 2011CA00179
• Status: Published

Opinion

[Cite as Esber Beverage Co. v. Wine Group, Inc., 2012-Ohio-1215.]

COURT OF APPEALS STARK COUNTY, OHIO FIFTH APPELLATE DISTRICT

ESBER BEVERAGE COMPANY : JUDGES: : : Hon. John W. Wise, P.J. Plaintiff-Appellee : Hon. Julie A. Edwards, J. : Hon. Patricia A. Delaney, J. -vs- : : Case No. 2011CA00179 THE WINE GROUP, INC., et al. : : : Defendants-Appellants : OPINION

CHARACTER OF PROCEEDING: Appeal from the Stark County Court of Common Pleas, Case No. 2010CV02750

JUDGMENT: AFFIRMED

DATE OF JUDGMENT ENTRY: March 19, 2012

APPEARANCES:

For Appellants: For Appellee:

BRETT S. KRANTZ LEE E. PLAKAS JONATHAN T. HYMAN GARY T. CORROTO One Cleveland Center, 20th Floor 220 E. Market Ave. S., 8th Floor 1375 E. 9th St. Canton, OH 44702 Cleveland, OH 44114-1793 STANLEY R. RUBIN 437 Market Ave. N. Canton, OH 44702 [Cite as Esber Beverage Co. v. Wine Group, Inc., 2012-Ohio-1215.]

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”), R.C. 1333.82, et

seq.

{¶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 Stark County, Case No. 2011CA00179 3

to federal court. On August 30, 2010, the federal court remanded the case to the

Stark County Court of Common Pleas.

{¶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 R.C. 1333.85. The trial

court held a non-oral hearing on the motion and on November 17, 2010, it granted

Esber’s motion for partial summary judgment. The trial court determined TWG’s

decision to cancel its franchise relationship with Esber on that basis that it was in its

“best interests” to consolidate into one statewide distributor was without “just cause”

and in violation of R.C. 1333.85. Based on the trial court’s judgment, Esber amended

its complaint to remove its claim for permanent injunctive relief.

{¶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. Stark County, Case No. 2011CA00179 4

ASSIGNMENT OF ERROR

{¶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, R.C. 1333.82-1333.87.”

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 Civ.R. 56(C) which provides, in pertinent part:

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. Stark County, Case No. 2011CA00179 5

{¶12} Pursuant to the above rule, a trial court may not enter summary

judgment if it appears a material fact is genuinely disputed. Vahila v. Hall, 77 Ohio

St.3d 421, 429, 674 N.E.2d 1164 (1997), citing Dresher v. Burt, 75 Ohio St.3d 280,

662 N.E.2d 264 (1996).

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 R.C. 1333.85. The statute reads, in

pertinent part:

(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' Stark County, Case No. 2011CA00179 6

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

to 1333.86 of the Revised Code by the distributor;

{¶15} There is no dispute in this case that R.C. 1333.85 prohibits the

termination of a franchise between a manufacturer and a distributor absent “just

cause.” The issue between the parties is what constitutes “just cause.” TWG argues

that a manufacturer may terminate a franchise with just cause if the basis for the

termination is a reasoned and legitimate business decision. In contrast, Esber

contends a manufacturer’s unilateral business decision to terminate the franchise,

without a distributor’s breach or nonperformance, cannot be considered just cause.

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 Stark County, Case No. 2011CA00179 7

urges this Court to find Superior Beverage Co., Inc. v. Schieffelin & Co., N.D. Ohio

Nos. 1:05 CV 0834, 4:05 CV 0868, 2007 WL 2756912 (Sept. 20, 2007), dispositive of

the definition of just cause. Esber relies upon Tri-County Wholesale Distributors, Inc.

v. The Wine Group, Inc., S.D. Ohio No. 2:10-cv-693, 2010 WL 3522973 (Sept. 2,

2010) for the definition of just cause. As will be discussed below, we find the

determination of Tri-County Wholesale Distributors, Inc. v. The Wine Group, Inc.,

supra, to be dispositive of the meaning of “just cause.”

{¶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. Stark County, Case No. 2011CA00179 8

{¶19} The court in Tri-County Wholesale Distributors, Inc. v. The Wine Group,

Inc., supra, was presented with the identical issue as in Schieffelin: the manufacturer

terminated the franchise so the manufacturer could consolidate their distribution

network to a single statewide distributor. In deciding the meaning of “just cause,” the

district court reviewed the Schieffelin decision in comparison to a case reaching an

opposite result, Dayton Heidelberg Distrib. Co. v. Vintners Intern. Co. of New York,

S.D. Ohio No. C-3-87-436, 1991 WL 1119912 (Apr. 8, 1991). In Vintners, the

manufacturer terminated the distributorships solely to implement a new marketing

strategy where there were fewer distributors. The Vintners court discussed the

meaning of just cause under the OABFA:

[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 Stark County, Case No. 2011CA00179 9

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. Stark County, Case No. 2011CA00179 10

{¶20} The Wine Group court found Vintners and Schieffelin were irreconcilable.

The Wine Group, supra, at *3. Upon review, the district court found the reasoning in

Vintners to be more persuasive.

{¶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 R.C. 1333.85(B)(3) to the issue of just cause, while Schieffelin (decided in

2007) never mentioned the subsection in its decision. Effective September 26, 1990,

a new subsection was added to R.C. 1333.85 that reads:

(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

(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

to 1333.86 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 R.C. 1333.85(B)(3) to the determination of just cause. Vintners held that Stark County, Case No. 2011CA00179 11

R.C. 1333.85(B)(3) “prohibits importers from terminating distributorships simply for

purposes of restructuring an existing franchising network, as Vintners did here, absent

a breach of duty by the franchisee.” It further stated:

[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 R.C. 1333.85(B)(3)

to determine the meaning of “just cause.” As such, we consider The Wine Group to be

dispositive of whether TWG had just cause to terminate its franchise with Esber. Stark County, Case No. 2011CA00179 12

C. TWG Termination of Esber Franchise under The Wine Group

{¶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} R.C. 1333.85(A) states that a manufacturer shall not cancel a franchise

without just cause. R.C. 1333.85(B)(3) explains that a unilateral alteration of the

franchise by the manufacturer for a reason unrelated to a breach of the franchise or a

violation of the OABFA is not just cause for cancellation of the franchise. The July 2,

2010 termination letter sent to Esber by TWG was a unilateral alteration of the

franchise by TWG unrelated to any breach or violation by Esber. TWG argues in its

reply brief that it did not unilaterally alter the franchise, but rather it terminated the

franchise. We note that a reply brief is not the place for briefing new arguments that

were not raised in appellant's brief. See App.R. 16(C). See, also, State ex rel. Colvin

v. Brunner, 120 Ohio St.3d 110, 2008–Ohio–5041, 896 N.E.2d 979, ¶ 61.

{¶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 Stark County, Case No. 2011CA00179 13

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 R.C. 1333.85(B)(3), TWG’s

legitimate business reason to consolidate its distributors, without evidence of a breach

or violation of the OABFA by Esber, does not constitute just cause to unilaterally

terminate the franchise between TWG and Esber.

{¶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 [Cite as Esber Beverage Co. v. Wine Group, Inc., 2012-Ohio-1215.]

IN THE COURT OF APPEALS FOR STARK COUNTY, OHIO

FIFTH APPELLATE DISTRICT

ESBER BEVERAGE COMPANY : : : Plaintiff-Appellee : : -vs- : JUDGMENT ENTRY : THE WINE GROUP, INC., et al. : : : Case No. 2011CA00179 Defendants-Appellants :

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. JULIE A. EDWARDS