Coca-Cola Bottling Co. of Ogden, Inc. v. Coca-Cola Co., COCA-COLA

• Decision Date: 14 September 1993
• Docket Number: No. 92-2108,COCA-COLA,92-2108
• Citation: 4 F.3d 930
• Parties: BOTTLING COMPANY OF OGDEN, INC., Plaintiff-Appellee, Durango Coca-Cola Bottling Co.; Coca-Cola Bottling Company of Winfield, Kansas, Plaintiffs-Counter-Defendants-Appellees, v. TheCOMPANY, Defendant-Counter-Claimant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 930

4 F.3d 930

COCA-COLA BOTTLING COMPANY OF OGDEN, INC., Plaintiff-Appellee Durango Coca-Cola Bottling Co.; Coca-Cola Bottling Company of Winfield, Kansas, Plaintiffs-Counter-Defendants-Appellees, v. The COCA-COLA COMPANY, Defendant-Counter-Claimant-Appellant.

No. 92-2108.

United States Court of Appeals Tenth Circuit.

Sept. 14, 1993.

Rehearing Denied Oct. 14, 1993.

James R. McGibbon, Sutherland, Asbill & Brennan, Atlanta, GA (J.D. Fleming, Jr., and Williams M. Hames, Sutherland, Asbill & Brennan, Atlanta, GA, Leonard G. Espinosa and Thomas J. Dunn, Moses, Dunn, Beckley, Espinosa & Tuthill, Albuquerque, NM, with him, on the brief, for Durango Coca-Cola Bottling Co. and The Coca-Cola Bottling Co. of Ogden, Inc.; Bruce M. Perry, Todd A. Rossman and William A. Morrow, White, Peterson, Perry, Pruss, Morrow & Gigray, P.A., Nampa, Idaho, with him, on the brief, for The Coca-Cola Bottling Co. of Winfield, KS), for plaintiffs-counter-defendants-appellees.

Michael C. Russ, King & Spalding, Atlanta, GA (Reginald R. Smith, King & Spalding, Atlanta, GA, Alan Konrad, Miller, Stratvert, Torgerson & Schlenker, P.A., Albuquerque, NM, with him, on the briefs), for defendant-counter-claimant-appellant.

Before BALDOCK, HOLLOWAY and BRORBY, Circuit Judges.

BRORBY, Circuit Judge.

The Coca-Cola Company (Company) appeals the entry of summary judgment in favor of three Coca-Cola bottlers, Coca-Cola Bottling Company of Ogden, Inc., Durango Coca-Cola Bottling Company, and The Coca-Cola Bottling Company of Winfield, Kansas (Bottlers). Each of the Bottlers filed a declaratory judgment action against the Company seeking a determination of their rights and obligations under the original Bottling Contracts and the subsequent 1983 Amendment. The principal issue raised is whether the Company's withholding of consent to arrangements where the Bottlers subcontract all of the bottling to entities known as "agency processors" is unreasonable. The cases were consolidated, and the district court ruled in favor of the Bottlers, holding that the contractual obligations were unambiguous and the Company's position was unreasonable as a matter of law.

BACKGROUND

The Company distributes its beverage products nationwide through a network of local bottlers. Historically, the Bottlers not only bottled the Coca-Cola product, but also were fully responsible for the distribution of the product within their exclusive territories. Notwithstanding this historical practice, the distribution and bottling of Coca-Cola products has changed substantially with the development of new bottling technologies, the introduction of new packaging materials and containers, and the expansion of the Coca-Cola product line. These recent changes have prompted smaller local bottlers to subcontract their bottling functions to larger bottling operations who can take advantage of the economies of scale. This procedure is referred to as agency processing. Although the Company permits the Bottlers to engage in agency processing, they do not believe the contract, as it is amended, allows the Bottlers to cease production entirely and rely solely on agency processing. Since the Company contends that total reliance on agency processing is prohibited, they assert that the Bottlers must sign a Non-Producing Bottlers Agreement, conceding marketing and transfer concerns to the company. Conversely, the Bottlers insist that the Amendment permitting agency processing includes no limitation regarding the degree of agency processing allowed, and the Company is unreasonably withholding its consent to such agency processing agreements. Therein lies the basis for the present dispute. ¹

A brief history of the parties' contractual arrangement will be helpful. Upon receipt of exclusive territorial bottling operations from the Western Coca-Cola Bottling Company (Winfield 1936, Durango 1938, and Ogden 1949), each of the Bottlers signed a Bottler's Contract in which the Bottlers agreed to the terms of paragraph FOURTH, addressing quality, marketing, production and trademark concerns of the Company. Although paragraph FOURTH does not explicitly direct the Bottlers to bottle the product on the premises of the Bottler, the Company contends such a local production obligation is implicit in the original contract. Conversely, the Bottlers challenge whether paragraph FOURTH initially imposed an obligation to locally produce.

As the changes in bottling technology began in the 1970s, the Bottlers received Company approval on a case-by-case basis to obtain a portion of their product from agency processors as they were unable to produce all of the product and package requirements in their own processing facilities. Generally, the Company would consent to these temporary processing arrangements but would require the bottler to acknowledge that the arrangement did not alter the bottler's contractual obligation to bottle the beverages. In 1977, the Company adopted a standard "Temporary Processing Agreement" (TPA), which had a one-year duration and acknowledged the Bottlers' obligation to invest in plant and equipment and recognized the Agreement in no way modified the respective rights and obligations of the parties under the original contract.

The introduction of diet Coke in 1982 prompted a new round of Company and Bottlers negotiations. These negotiations provide the immediate backdrop for the present dispute. The Company considered diet Coke a new product which would necessarily mandate a new contract, enabling the Company to sell diet Coke to the Bottlers under a higher price formula. Conversely, Bottlers representatives argued the existing contract still governed diet Coke since it was essentially the same product with a different sweetener. The 1983 Amendment emerged as a compromise from this dispute and modified the existing Bottlers' Contracts. In exchange for receiving a favorable price formula for diet Coke, the Company agreed to a number of concessions. For example, paragraph 2.3 provided the Bottlers' rights are perpetual and may be terminated only for a material breach; paragraph 9 allowed the Bottler to select which products to promote in its territory; and paragraph 14.5 assured that the Company would not use onerous quality control specifications. Among these concessions, the Company recognized Bottlers may be party to agency processing agreements in paragraph 9.2. Under paragraph 9.2, the Company agreed that they "shall not unreasonably withhold (i) any consents ... or (ii) approval" to agency processing agreements. Although the Company presently acknowledges paragraph 9.2 of the 1983 Amendment allows agency processing, they have notified the Bottlers that they will withhold consent to arrangements where the Bottlers intend to rely exclusively on agency processing. The Company has proffered numerous business justifications attempting to demonstrate their withholding of consent is not unreasonable as provided in paragraph 9.2.

Meanwhile in 1982, the Company began to develop a policy to regulate Bottlers who ceased production at their facilities entirely and relied solely on agency processing. The Company and Bottlers representatives eventually negotiated a Non-Producing Bottlers Agreement (NPBA), which allows Bottlers to terminate production in exchange for various contractual concessions. These concessions include stock transfer restrictions, performance obligations, and marketing controls. Although the Bottlers in this action are nonproducing, they continue to operate without signing an NPBA. ² The Company insists that unless the Bottlers sign an NPBA or commence production they are in violation of the original contract. The Bottlers filed this declaratory judgment action to determine whether under the Bottlers' Contract as amended it is unreasonable for the Company to withhold its consent to agency processing arrangements in which the Bottlers subcontract all of the bottling.

The declaratory judgment action was brought under diversity jurisdiction, 28 U.S.C. Sec. 1332 (1988), in the federal district court of New Mexico, and is thereby governed by New Mexico choice of law rules. See Moore v. Subaru of America, 891 F.2d 1445, 1448 (10th Cir.1989). The parties agree that under New Mexico's choice of law rules, the applicable law for the interpretation of a contract is the law in the state where the final act necessary for the formation of the contract is performed. Spiess v. United Servs. Life Ins. Co., 348 F.2d 275, 276 (10th Cir.1965); Eichel v. Goode, Inc., 101 N.M. 246, 250-51, 680 P.2d 627, 631-32 (App.1984). The parties do not dispute that the last act necessary for the formation of the Bottlers' Contract and the 1983 Amendment occurred in Atlanta, making Georgia law controlling. ³

The district court in ruling from the bench found the Bottlers' duty to bottle under the original contract was unambiguously modified by paragraph 9.2 in the 1983 Amendment, and the Company's withholding of consent to allow agency processing for all of the Bottlers' production is unreasonable. The Company appeals the district court's entry of summary judgment on three grounds. First, appellant contends the district court erred in holding that paragraph 9.2 of the 1983 Amendment unambiguously amended the Bottlers' Contract. Second, the Company argues the district court erred by not finding paragraph 9.2 vague and unenforceable under Georgia law. Third, appellant argues the district court erred in determining the Company's withholding of consent was unreasonable as a matter of law. The Bottlers, in turn, alternatively assert the original Bottlers' Contract imposed no local production obligation upon them in the first instance.

We review the grant or denial of summary judgment de novo and apply the same legal standard used by the district court under Fed.R.Civ.P. 56(c). Eaton v. Jarvis Products Corp., 965 F.2d 922, 925 (10th Cir.1992). Summary judgment is appropriate when "there is no genuine...