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From Antitrust Law Daily, October 16, 2015

Beer distributors entitled to stay in unlawful termination suit

By Greg Hammond, J.D.

Two beer distributors were entitled to a stay pending appeal after the federal district court in Columbus, Ohio granted the defendant beer manufacturer summary judgment of the distributors’ unlawful termination claims and the distributors filed an appeal. The distributors, however, were required to post bond of 15 percent of the profits the manufacturer reaped from the distribution of the beer brands in 2012 (Tri County Wholesale Distributors, Inc. v. Labatt USA Operating Co., LLC, October 14, 2015, Marbley, A.).

Labatt USA Operating Co., LLC supplies alcoholic beverages to distributors in Ohio, and is a “manufacturer” of beer and flavored malt beverages, as defined in the Ohio Alcoholic Beverages Franchise Act (OABFA). Labatt entered into written distribution agreements with Tri County Wholesale Distributors, Inc. and the Bellas Co., doing business as Iron City Distributing (Iron City). However, Labatt was subsequently purchased by Cerveceria Costa Rica, S.A. (CCR), which—shortly thereafter—terminated the two distribution agreements. Tri County and Iron City filed suit against Labatt and CCR, seeking declaratory judgment that (1) the defendants are prohibited from terminating their existing distribution franchises with Labatt, pursuant to the OABFA; or (2) that the OABFA so-applied would constitute an unconstitutional taking. The district court granted the defendants’ motion for summary judgment, finding Labatt a “successor manufacturer” under the OABFA. However, the court also determined that Tri County was entitled to a payment of $2.75 million as compensation for the diminished value of its business as a result of the loss of certain beer brands. Iron City was similarly entitled to a payment of $300,000. Tri County and Iron City moved for a stay of declaratory judgment pending appeal.

In particular, Tri County and Iron City urged the court to find that an unsecured stay of judgment pending appeal will preserve the status quo and protect all parties’ interests while the appeal was pending. The defendants opposed the motion, arguing that: (1) O.R.C. § 1333.851(A)(4) expressly provided than an appeal from the trial court’s diminished value determination did not stay the transfer of the brands, thus prohibiting a stay in this case; (2) Federal Rule of Civil Procedure 62(d) was inapplicable because the plaintiffs were not appealing from a “money judgment” against them; and (3) the defendants further failed to meet their burden of showing extraordinary circumstances warranting a waiver of the Rule 62(d) bond requirement. In addition, the defendants claimed that even if the court found that Rule 62(c) applied, the plaintiffs were not entitled to a discretionary stay under the applicable factors.

The court first concluded that application of Rule 62 would not violate O.R.C. §1333.851, because nothing in the language of the Ohio statute, nor case law, directed the court to deny a stay pending appeal and order CCR to pay the diminished value as previously determined.

Next, the court rejected the plaintiffs’ request for an unsecured stay of judgment, finding a supersedeas bond appropriate because the declaratory judgment was monetary in nature, constituting property. The purpose of the bond would be to preserve the status quo for the sake of the appellant, but to also secure the appellee from loss resulting from a stay of execution and to compensate it for the deprivation of the immediate benefits of its judgment. The court therefore ordered Tri County and Iron City to post bond in the amount of 15 percent of the profits the defendants reaped from the plaintiffs’ distribution of the beer brands at issue in 2012, times one and one-half—the average length of an appeal.

Finally, the court concluded that the equities weighed in favor of granting a stay of the declaratory judgment, noting that the case raised serious, novel questions of statutory interpretation; the court’s determination had the irrefutable potential to dramatically change the landscape for beer distribution in Ohio; the Franchise Act expressed a clear interest in protecting local distributorships; and although both entities could suffer some financial damage, the defendants’ harm could be safeguarded through the posting of the bond.

The case number is 2:13-CV-317.

Attorneys: David Warren Alexander (Squire Patton Boggs LLP) for Tri County Wholesale Distributors, Inc. and The Bellas Co. d/b/a Iron City Distributing. James B. Niehaus (Frantz Ward LLP) for Labatt USA Operating Co., LLC, Cerveceria Costa Rica, S.A. and North American Breweries Holdings, LLC.

Companies: Tri County Wholesale Distributors, Inc.; The Bellas Co. d/b/a Iron City Distributing; Labatt USA Operating Co., LLC; Cerveceria Costa Rica, S.A; North American Breweries Holdings, LLC

MainStory: TopStory FranchisingDistribution OhioNews

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