Brittain v. Stroh Brewery Co.

Citation991 F.2d 787
Decision Date04 February 1993
Docket NumberNo. 92-1645,92-1645
PartiesNOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit. Larry BRITTAIN; Fred C. Hitchcock; H. Dean Proctor; Ted Proctor, Plaintiffs-Appellants, v. THE STROH BREWERY COMPANY, Defendant-Appellee. . Argued:
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

Appeal from the United States District Court for the Middle District of North Carolina, at Greensboro. William L. Osteen, Sr., District Judge. (CA-90-30-G)

Clinton Eudy, Jr., ADAMS, KLEEMEIER, HAGAN, HANNAH & FOUTS, Greensboro, North Carolina, for Appellants.

Mark Nixon Poovey, WOMBLE, CARLYLE, SANDRIDGE & RICE, Winston-Salem, North Carolina, for Appellee.

Amiel J. Rossabi, R. Harper Heckman, ADAMS, KLEEMEIER, HAGAN, HANNAH & FOUTS, Greensboro, North Carolina, for Appellants.

Jeffrey R. McFadden, Timothy A. Thelen, WOMBLE, CARLYLE, SANDRIDGE & RICE, Winston-Salem, North Carolina, for Appellee.

M.D.N.C.

AFFIRMED.

Before WILKINS and LUTTIG, Circuit Judges, and PAYNE, United States District Judge for the Eastern District of Virginia, sitting by designation.

PER CURIAM:

OPINION

Plaintiffs-appellants are former shareholders (the"shareholders") of Mark IV Beverage, Inc. ("Mark IV"), a beer wholesaler in Greensboro, North Carolina. They appeal from a judgment granting Stroh Brewery Company's ("Stroh") motion for summary judgment on their claim that Stroh breached its Wholesaler Agreement with Mark IV by refusing to approve a proposed sale of Mark IV. We affirm.

BACKGROUND

As found by the district court, the relevant undisputed facts are as follows. In March 1984, Stroh and Mark IV entered into a Wholesaler Agreement ("Agreement") giving Mark IV the exclusive right to distribute Stroh brands in Greensboro and the surrounding counties. Section 3 of the Agreement defined it to be a personal service contract, which depended on, among other things, the wholesaler's "dedication" and "commitment" to selling Stroh brands. 1

Section 5 of the Agreement governed the rights and obligations of the parties in the event of changes in the ownership or control of Mark IV. Under that section, Mark IV agreed to notify Stroh in writing of any proposed "control change" and to obtain Stroh's approval of that change. Stroh, in turn, agreed not to unreasonably withhold approval of a proposed control change, but reserved the right to disapprove a control change if, in good faith, it believed the change to be adverse to its overall business interests in the wholesaler's territory. 2

As a result of changing market conditions and Stroh's 1982 acquisition of the Schlitz Brewing Company, Stroh developed a consolidation policy in December 1985 to encourage Stroh wholesalers whose overall market strength was weak to consolidate with other Stroh brands distributors. After learning of this policy, the shareholders and Joe Lillard, who also owned stock in Mark IV, evaluated Mark IV's market position and resolved to sell the distributorship.

In October 1986, Lillard, acting on behalf of Mark IV, met with I.H. Caffey, president of I.H. Caffey Distributing Company, Inc.

("Caffey Distributing"), to discuss the possible sale of Mark IV. Caffey Distributing was a large volume wholesaler in the Greensboro and Winston-Salem area but it distributed primarily Miller Brewing Company brands. Miller is a direct competitor of Stroh nationally and in North Carolina. The parties eventually entered into a Purchase Agreement whereby Caffey Distributing agreed to purchase, among other things, Mark IV's brand distribution rights, including the right to sell Stroh brands. Because this transaction constituted a control change under the Agreement, Mark IV notified Stroh of the proposed sale and requested Stroh to approve it.

As part of its review of Caffey Distributing, Stroh sent Paul Siddle, Stroh's North Carolina state manager, to interview Mr. Caffey on November 12, 1986. By all accounts, the meeting was contentious. The parties do not dispute that, during the meeting, Mr. Caffey told Siddle that he was "not begging for the Stroh's brands"; that without the Stroh brands he would "still make [his] million a year"; that he "was doing Stroh's a favor" by taking the distributorship; that he had "run off" several Miller representatives; and that he did not always cooperate with Miller. After the interview, Siddle sent a memorandum to his superiors summarizing the substance of the meeting and describing Mr. Caffey's attitude.

Although Caffey Distributing subsequently sent Stroh a proposed marketing plan and information describing Caffey Distributing's financial picture in positive terms, Stroh decided not to approve the sale to Caffey Distributing and so notified Mark IV by letter dated December 4, 1986. The bases for this decision were (i) the interview with Mr. Caffey, which raised serious concerns about Caffey Distributing's dedication to Stroh brands; (ii) Caffey Distributing's position as a large volume Miller seller and the attendant fears of sales dilution, which were exacerbated by Mr. Caffey's apparently antagonistic attitude; and (iii) to a lesser extent, Stroh's consolidation policy, which would be furthered if Mark IV were sold to another Stroh distributor. Accordingly, the sale to Caffey Distributing was never consummated. On August 12, 1988, Stroh approved the sale of Mark IV to Lillard, who merged it into his existing beer distributorship and continued doing business as Mark IV.

The shareholders thereafter commenced the underlying action against Stroh in state court, claiming that Stroh had breached the Agreement by unreasonably withholding its approval of the proposed sale to Caffey Distributing. The shareholders alleged that they received less money on the sale to Lillard than they would have received on the sale to Caffey Distributing, and sought damages for the difference.

Stroh subsequently removed this diversity action to the United States District Court for the Middle District of North Carolina, Greensboro Division; filed its answer; and, following discovery, moved for summary judgment. Stroh argued that, according to the undisputed material facts, its decision to withhold consent was not unreasonable, but was made in good faith and for legitimate business reasons.

In response, the shareholders filed a motion for partial summary judgment, claiming that Section 5 of the Agreement was ambiguous because it established an objective standard (consent shall not be withheld unreasonably) and a subjective standard (consent may be withheld for good faith business reasons) to govern Stroh's decision whether to approve a proposed control change. Alternatively, the shareholders argued that the two provisions conflicted and that the reasonableness criterion controlled. Because the shareholder's motion for partial summary judgment was directed only at creating an issue of fact in the interpretation of the Agreement, and not at establishing that they were entitled to judgment under...

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