Clearly Canadian Beverage Corp. v. American Winery, Inc.

• Decision Date: 14 June 2001
• Docket Number: Nos. 00-3873,00-3877,00-3876,s. 00-3873
• Citation: 257 F.3d 880
• Parties: (8th Cir. 2001) CLEARLY CANADIAN BEVERAGE CORPORATION, APPELLEE, v. AMERICAN WINERY, INC. D/B/A BEVERAGE CONCEPTS, AND HIGHLAND COMMUNITY BANK, APPELLANTS TIMOTHY J. RAND, APPELLANT, v. CLEARLY CANADIAN BEVERAGE CORPORATION, APPELLEE. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 880

257 F.3d 880 (8th Cir. 2001)

CLEARLY CANADIAN BEVERAGE CORPORATION, APPELLEE, v. AMERICAN WINERY, INC. D/B/A BEVERAGE CONCEPTS, AND HIGHLAND COMMUNITY BANK, APPELLANTS TIMOTHY J. RAND, APPELLANT, v. CLEARLY CANADIAN BEVERAGE CORPORATION, APPELLEE.

Nos. 00-3873, 00-3877, 00-3876

UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Submitted: June 14, 2001

Filed: July 30, 2001

Appeal from the United States District Court for the Eastern District of Missouri. [Copyrighted Material Omitted] Before Morris Sheppard Arnold and Richard S. Arnold, Circuit Judges, and Bataillon,¹ District Judge.

Bataillon, District Judge

When one company's fortunes take a turn for the worse, entities with whom it contracts are often adversely affected. However, the degree to which an entity is adversely affected will usually depend upon the contractual safeguards bargained for and secured by the entity.

Following a precipitous decline in demand for its product, Clearly Canadian Beverage Corporation ("Clearly Canadian") filed suit in federal district court against American Winery, Inc. ("American Winery") seeking recovery on a promissory note as well as replevin of certain equipment which secured the note. Clearly Canadian amended its complaint, joining Highland Community Bank ("the Bank") as a defendant and requesting a declaratory judgment that its security interest in American Winery's collateral was superior to the security interest of the Bank in the same collateral. American Winery filed counterclaims for breach of contract, breach of the covenant of good faith and fair dealing, and negligent and fraudulent misrepresentation.

Timothy Rand ("Rand"), one of the owners of American Winery, filed a separate action in Missouri state court against Clearly Canadian for fraudulent and negligent misrepresentation. Rand's suit was timely removed to federal court and consolidated with Clearly Canadian's pending federal action against American Winery and the Bank.

Clearly Canadian, American Winery and Rand submitted a series of summary judgment motions, all of which were decided by the district court in favor of Clearly Canadian. The district court entered a Final Judgment and Order of Replevin, entering judgment in favor of Clearly Canadian on all its claims, dismissing American Winery's counterclaims and Rand's claims with prejudice, and ordering that Clearly Canadian was entitled to immediately replevy the collateral of American Winery. American Winery, Rand, and the Bank appeal, and we affirm in part.

I. FACTUAL BACKGROUND

Beginning in 1987, Clearly Canadian, a publicly traded company based in Vancouver, Canada, began to produce, distribute, and market bottled beverages, including flavored carbonated bottled water marketed under the trademark "Clearly Canadian ." Clearly Canadian contracted with distributors and "licensees" (i.e., distributors that also have approved production capabilities) to get its products to retail markets. Clearly Canadian also entered into arrangements with bottlers, also called "co-packers," to produce its products for Clearly Canadian to supply to its distributors. In 1989, Clearly Canadian entered into a non-exclusive bottling agreement with American Winery, a bottling facility whose principal place of business is St. Louis, Missouri.

A. Clearly Canadian's Loans to American Winery

When Clearly Canadian entered into the bottling agreement with American Winery in 1989, Clearly Canadian advanced funds to American Winery for certain capital improvements. The purpose of these capital improvements was to allow American Winery to produce Clearly Canadian products in greater volume. Although American Winery was to repay these advances through a $0.05 per case reduction in the fees Clearly Canadian would owe American Winery for bottling services, the bottling agreement did not require Clearly Canadian to order any specific minimum volume of production from American Winery. Clearly Canadian had similar arrangements with numerous other co-packers at the time.

In 1991, because of adverse financial circumstances, American Winery planned for and filed a Chapter 11 bankruptcy reorganization proceeding. Prior to this filing, the parties had discussed the possibility of Clearly Canadian advancing additional funds to American Winery to facilitate its reorganization. On March 13, 1991, Clearly Canadian entered into a Credit Agreement to advance American Winery funds through two separate loans: a Facility A loan and a Facility B loan.

Under the Facility A loan, Clearly Canadian would make term loans to American Winery in an aggregate amount not to exceed $661,000 so that American Winery could increase its production capacity to meet Clearly Canadian's burgeoning production demands. The parties agreed that American Winery could repay the Facility A loan through the $0.05 per case credit repayment feature established in their original bottling agreement.

Under the Facility B loan, Clearly Canadian would advance working capital equal to $0.20 per case of Clearly Canadian products bottled by American Winery. The Facility A Loans were evidenced by a promissory note entitled "Facility A Note," and the Facility B Loans were evidenced by a promissory note entitled "Facility B Note." The bankruptcy court approved these arrangements. None of the agreements entered into between Clearly Canadian and American Winery on March 13, 1991, required Clearly Canadian to order any particular volume of production from American Winery.

In 1992, Clearly Canadian advanced an additional $650,000 to further increase American Winery's capacity to bottle Clearly Canadian beverages. American Winery used these funds to convert a non-functioning canning line at American Winery's plant into a fully functioning bottling line dedicated solely to Clearly Canadian production. Before this loan, the advances made to American Winery totaled $414,981 under the Facility A loan and $985,678 under the Facility B loan. After all of the loan advances had been made, the parties agreed in the summer of 1992 that all of the loans would be combined and redocumented in the form of an Amended and Restated Credit Agreement (the "Amended Credit Agreement"), effective May 31, 1992.

In connection with the Amended Credit Agreement, American Winery also executed a promissory note in which American Winery promised to pay to Clearly Canadian, on or before the "Facility Termination Date," the principal sum of $2,450,000 or, if less, the unpaid principal amount of the loan, plus interest as specified in the Agreement (the "Promissory Note"). The "Facility Termination Date" was defined in the Amended Credit Agreement as follows: "Facility Termination Date shall mean the earlier to occur of (i) May 31, 1994, and (ii) the date on which the Liabilities shall become due in accordance with Section 9.2." Section 4 of the Amended Credit Agreement provided, "The Loan shall mature and be payable in full on the Facility Termination Date."

Under section 4 of the Amended Credit Agreement, American Winery was required to make mandatory payments to Clearly Canadian prior to the Promissory Note's maturity date of May 31, 1994, in the form of a credit of five cents per case of product produced by American Winery, plus payments from any "Available Funds," as defined in the Amended Credit Agreement, in excess of $500,000. The five cent prepayments per case were offset against amounts Clearly Canadian owed American Winery for bottling its products. American Winery never made any lump sum payments from "Available Funds."

The Amended Credit Agreement further provided that American Winery was to develop a Business Plan using data supplied by Clearly Canadian. Section 1.1 of the Amended Credit Agreement defined the term "Business Plan" as follows:

Business Plan means the projections for the period from the date hereof through May 31, 1994 prepared by Borrower and delivered to Lender prior to the date hereof, including the assumptions used in preparing such projections, provided that such projections may be amended and supplemented . . . by agreement of Borrower and Lender if the volume of production required (or anticipated to be required) by Lender is different from the volume assumed to be required in such projections.

American Winery warranted that "absent circumstances beyond [its] control, [American Winery] expects to be able to achieve the production levels with respect to Cases of Lenders Product specified in the Business Plan." Likewise, American Winery covenanted that it would "use its best efforts to achieve the levels of production of Cases of Lender's Product specified in the Business Plan."

Neither the Amended Credit Agreement nor the Promissory Note contains any provision expressly requiring Clearly Canadian to order any particular volume of production from American Winery. In addition, neither the Amended Credit Agreement nor the Promissory Note provides that American Winery's payment of unpaid principal and interest on the loan was to be based solely on the volume of production produced by American Winery for Clearly Canadian or limited to five cents per case of product produced.

B. Clearly Canadian''s Business Operations

In 1991, Clearly Canadian expected that demand for its products would continue to increase. To meet this demand, Clearly Canadian attempted to locate additional bottling capacity by expanding its production network. To that end, Clearly Canadian entered into relationships with additional co-packers between April 1991 and February 1992. American Winery was aware that Clearly Canadian was entering into new relationships with different co-packers.

None of the relationships Clearly Canadian entered into with co-packers was exclusive. Some co-packers, however, negotiated "take or pay" provisions in their agreements with Clearly Canadian, pursuant to which Clearly Canadian agreed to bottle a specified minimum amount of product with the co-packer....