Heineken U.S.A., Inc. v. Esber Beverage Co.

Citation: 2014 Ohio 291Docket: 2013CA00158

Court: Ohio Court of Appeals; January 26, 2014; Ohio; State Appellate Court

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The case Heineken U.S.A. Inc. v. Esber Beverage Co. involves the interpretation of the Ohio Alcoholic Beverages Franchise Act (OABFA) regarding the rights of alcoholic beverage manufacturers and distributors upon the transfer of ownership. Under R.C. 1333.85(D), a successor manufacturer can terminate a distributor's franchise without just cause within 90 days of acquiring a brand, provided they give notice and compensate the terminated distributor for franchise value. The Ohio Supreme Court clarified that this statute allows successor manufacturers to choose their distributors as long as they follow the required notification and compensation procedures.

Esber Beverage Company, an established Ohio beverage distributor, contested the actions following Heineken N.V.'s acquisition of certain brands, including Strongbow Hard Cider, from Scottish & Newcastle UK Ltd. in April 2008. Heineken N.V. assumed control over these brands and had previously supplied Strongbow in the U.S. through Vermont Hard Cider Company prior to January 1, 2013. The Court of Appeals of Stark County, Ohio, reversed and remanded the lower court's decision, emphasizing the implications of the OABFA on franchise relationships during ownership transfers.

Heineken B.V. entered into an agreement with VHCC on December 31, 2012, compensating it for the early termination of its right to supply Strongbow in the U.S. Following this, Heineken B.V. designated Heineken USA (HUSA) as the exclusive U.S. import agent for Strongbow starting January 1, 2013. On October 30, 2012, Heineken B.V. and HUSA notified Esber of the termination of its franchise and distribution rights for Strongbow, citing R.C. 1333.85(D). HUSA subsequently filed a complaint on March 29, 2013, in Stark County Court, seeking a determination on the impact of this termination on Esber's business value. Esber responded with a motion for summary judgment, which the trial court granted, ruling that R.C. 1333.85(D) applied only to successor manufacturers and that HUSA did not qualify as such.

The standard of review for summary judgment is de novo, assessing whether there are genuine issues of material fact, the moving party is entitled to judgment as a matter of law, and if reasonable minds could only conclude against the party opposing the motion. HUSA's sole assignment of error claimed that the trial court erred in its ruling, asserting that HUSA is indeed a "successor manufacturer" and that proper notice of termination was provided to Esber under R.C. 1333.85(D).

The Ohio Alcoholic Beverage Franchise Act (OABFA), enacted in 1974, aims to prevent unfair practices by manufacturers toward distributors. It mandates that manufacturers offer written franchise agreements outlining the parties' rights and duties. If no written agreement exists, a franchise relationship arises after 90 days of distribution. The OABFA also outlines the requirements for terminating a franchise, which generally include prior consent and 60 days' notice, although just cause exceptions apply. Regardless of the termination method, manufacturers must repurchase all unsold inventory and sales aids from the terminated distributor.

The act establishes a procedure for terminating a franchise when a manufacturer sells a specific brand of alcoholic beverage to a successor manufacturer. Under R.C. 1333.85(D), if a successor manufacturer acquires a substantial portion of another manufacturer's assets, it can notify the distributor of termination or nonrenewal of the franchise within 90 days of acquisition. Failure to provide notice results in the establishment of a franchise relationship. Termination does not require just cause or distributor consent if the successor complies with the statute. Upon termination, the successor manufacturer must repurchase the distributor's inventory and compensate for the diminished value of the distributor's business related to the terminated product, including the appraised market value of the assets and associated goodwill.

HUSA claims to be a "successor manufacturer" under R.C. 1333.82(B), which allows it to terminate Esber’s franchise agreement. Evidence shows that Heineken N.V. acquired the Strongbow brand on April 28, 2008, and has since marketed it through subsidiaries, with VHCC importing it to the U.S. Heineken N.V. and S&N UK did not have ownership or contractual relationships with VHCC; rather, VHCC had contracts with Heineken B.V. An agreement for early termination of VHCC's import rights took effect on December 31, 2012, after which HUSA was named the sole supplier.

"Manufacturer" in the OABFA includes suppliers to distributors, while "distributor" refers to entities selling alcoholic beverages to retailers, excluding the state. "Franchise" denotes the contractual relationship between manufacturers and distributors. There is no evidence that VHCC is based in Ohio or that it has supplied alcoholic beverages to Ohio distributors, indicating that R.C. 1333.82 does not govern their relationship. Additionally, even if it did, the statute allows for franchise cancellation with mutual consent.

VHCC entered into an early termination agreement with Heineken in exchange for valuable consideration. The central issue is whether Heineken N.V. or Heineken B.V. must honor VHCC's contracts with Strongbow distributors like Esber. The court determined that neither Heineken entity is obligated to do so if the procedures outlined in R.C. 1333.85(D) are followed. VHCC, as the supplier of Strongbow, had contractual relationships with distributors, while Heineken N.V. and B.V. did not engage directly with these distributors. Once Heineken B.V. legally terminated its agreement with VHCC, it gained the right to designate who would supply Strongbow, provided the statutory procedure was adhered to. 

The ownership of the Strongbow brand by Heineken N.V., B.V., or HUSA is irrelevant to this matter, as VHCC operated independently from these entities under a contractual relationship. The court clarified that in a previous case (Esber I), it found that Heineken's attempt to terminate a franchise without proper notice was unlawful due to the manipulation of transaction dates, reinforcing the importance of compliance with R.C. 1333.85(D). In the current case, no claims were made that these time requirements were not satisfied, and Heineken B.V. acquired the right to supply Strongbow from VHCC, an independent entity, for valuable consideration.

Esber's reliance on the case of Hill Distrib. Co. v. St. Killian Importing Co. is deemed unpersuasive. In St. Killian, a new importer attempted to terminate a franchise agreement, leading to Hill's motion for a preliminary injunction. The court granted the injunction, ruling that the manufacturer retained control over its brands and needed to approve the new importer, indicating that this change was a business reorganization rather than qualifying St. Killian as a "successor manufacturer" under R.C. 1333.85(D). However, the court emphasized that this decision was preliminary and not a final resolution, stating that further factual development was necessary and that R.C. 1333.85(B)(2) was more relevant at that time. Additionally, the Ohio Supreme Court clarified that "just cause" is not needed for terminating a franchise under R.C. 1333.85(D) and affirmed that successor manufacturers could establish their distributor teams with proper notice and compensation to those not retained. HUSA, identified as a successor manufacturer, is entitled to notify Esber of its intent to terminate the agreement within 90 days of acquiring the supply rights for Strongbow brands from VHCC. Consequently, the trial court's summary judgment in favor of Esber is reversed, and the case is remanded for further proceedings.