Eastside Vend v. Pepsi

Decision Date19 December 2006
Docket NumberNo. 33, Sept. Term, 2006.,33, Sept. Term, 2006.
PartiesEASTSIDE VEND DISTRIBUTORS, INC. v. The PEPSI BOTTLING GROUP, INC.
CourtCourt of Special Appeals of Maryland

Benjamin Rosenberg (Andrew H. Baida, David M. Wyand, Hilary B. Ruley, ROsenberg, Martin, Greenberg, LLP, Baltimore, on brief), for petitioner.

James P. Ulwick (Kramon & Graham, P.A., Baltimore, Richard M. Steuer, Mayer, Brown, Rowe & Maw, LLP, New York, NY, Jay S. Brown, Charles A. Rothfeld, Mayer, Brown, Rowe & Maw, LLP, Washington, DC, all on brief), for respondent.

Michael F. Brockmeyer, Frommer Lawrence & Haug, LLP, Washington, DC, amicus curiae.

Argued before Bell, C.J., Raker, Wilner, Cathell, Harrell, Greene and Eldridge, John C. (Retired, Specially assigned), JJ.

CATHELL, J.

This case arises from the denial of a motion for preliminary injunction. On May 7, 2004, Eastside Vend Distributors, Inc. ("Eastside"), petitioner, filed a complaint in the Circuit Court for Baltimore City against Coca Cola Enterprises, Inc. ("CCE"), The Pepsi Bottling Group, Inc. ("PBG"), and Mars Super Markets, Inc. ("Mars"). As relevant to this particular action before the Court, the complaint alleged violation of the Maryland Antitrust Act1 ("the Act") via price discrimination on the part of the two bottling companies, CCE and PBG. It also alleged that Mars, as a supermarket, was complicit by knowingly receiving and inducing the alleged discriminatory prices in violation of the Act.2 On March 30, 2005, Eastside filed a motion for a preliminary injunction seeking to prohibit PBG, respondent, from denying Eastside rebates on the Pepsi products that Eastside purchases from PBG.3 The Circuit Court held a hearing on May 19 and 20, 2005. The Circuit Court denied the motion and issued an order to that effect on May 23, 2005. On May 26, 2005, Eastside timely appealed to the Court of Special Appeals. On March 20, 2006, in an unreported opinion, the Court of Special Appeals affirmed the Circuit Court's denial of Eastside's motion for preliminary injunction. On May 3, 2006, Eastside filed a petition for writ of certiorari with this Court. We granted certiorari on June 14, 2006. Eastside Vend v. Pepsi, 393 Md. 245, 900 A.2d 751 (2006).

Eastside presents in its brief two questions4 for our review:

1. "Does undisputed evidence that a manufacturer or distributor is selling its products to a purchaser at substantially higher prices than the seller charges the purchaser's competitors for the same products satisfy the likelihood of success on the merits factor in a preliminary injunction action under the Maryland Antitrust Act?

2. "Can a plaintiff seeking preliminary injunctive relief establish that it has suffered irreparable harm by showing that the defendant's actions have caused a loss of customers and goodwill, or must the plaintiff demonstrate that its business will be destroyed unless an injunction is issued?"

Our review of this case is predicated upon our determination of whether the trial court abused its discretion in denying Eastside's motion for a preliminary injunction. As part of this review, we analyze the standards for granting interlocutory injunctions. As a preliminary matter, we hold that generally injunctive relief is aimed at protecting a party, in a preventative manner, from future acts. In doing so, such injunctions are to maintain the status quo between parties until the issues in contention are fully litigated.

The facts of the case sub judice, as discussed below, are not sufficient, at this preliminary stage, to support the granting of a preliminary injunction. Therefore, we affirm the trial court's denial of Eastside's motion for preliminary injunction.

I. Facts

Eastside operates a business in Baltimore City, Maryland, that sells beverages and snack food items to vending machine owners and operators5 and other wholesale customers. Eastside has been in business for over 30 years. The company first started out as a vending machine owner and operator and then transitioned into a niche "one-stop shop" distributor to vending machine owners and operators.6 In recent years, however, Eastside has also begun to sell to other wholesale customers, known in the industry as "cash and carry" businesses. The cash and carry businesses that Eastside now sells to act as wholesalers to small "mom and pop" stores. As presently constituted, Eastside is essentially composed of a full-line distribution center, or warehouse. It offers its customers a comprehensive selection of items to stock their vending machines. This includes soft drinks, coffee, cocoa mixes, water, and snack foods, such as potato chips, pretzels, and candy bars. Customers can pick up their products directly from Eastside, or Eastside will deliver them.

PBG is a licensed bottler of Pepsi-Cola ("Pepsi") products, bottling and selling beverage products made under trademark licenses from PepsiCo, Inc. and other companies. The licenses govern how PBG may sell the products that it bottles and how it may license others to sell the products. For example, PBG is authorized to sell only for ultimate resale to end users (i.e., the public retail customer) when those end users are within a specific geographic boundary that composes PBG's territory. The trademark licenses that PBG operates under prohibit PBG from selling to customers that cause its products to be resold to customers outside of PBG's territory. When product from a bottler is shipped and sold to a wholesaler, there is a risk that product may be "transhipped" by that wholesaler into another bottler's territory, thereby causing a bottler to be in breach of its exclusive licensing agreements.7

Eastside, under various agreements, has purchased Pepsi products from PBG for almost 30 years. Eastside's CEO, Theodore DeWald, Jr., testified that the sale of Pepsi products accounts for approximately 40 percent of Eastside's revenues. According to his testimony, in all probability, these sales are also attributable to an even greater net portion of revenue because customers who purchase Pepsi products also end up purchasing other non-Pepsi products. Eastside and PBG's business relationship has traditionally been governed by annual rebate contracts. Depending upon the terms of a particular year's contract, Eastside would receive various rebates based upon the volume of Pepsi product purchased in relation to the volume it had purchased the previous year. PBG asserts that these contracts and the resulting rebate programs associated with them, however, are designed for and offered to PBG's vending customers only. Initially, this did not cause any conflict because from the early 1980's through late 2003, Eastside's customers were only vending machine operators.8 Beginning in October 2003, however, Eastside also began selling to cash and carry wholesale customers in addition to vending machine operators.

On May 7, 2004, as discussed above, Eastside filed a complaint in the Circuit Court for Baltimore City against several parties, including PBG, alleging, in part, that PBG was violating the Maryland Antitrust Act by engaging in unlawful price discrimination. In particular, Eastside alleged that PBG charged Eastside higher prices for Pepsi products than PBG charged other customers such as club stores (Sam's Club)9 and supermarkets (Giant and Mars). During May 2004, Eastside was receiving rebates under a 2004 vending operator agreement. Eastside contended that, notwithstanding the rebates it was receiving, PBG was providing Pepsi products to Eastside's competitors at lower cost than Eastside could purchase the products from PBG.

The 2004 vending operator agreement provided several different base rebates, all of which were based upon Eastside meeting or exceeding the volume of product that it had purchased for the corresponding 2003 Term. Eastside would receive quarterly base rebates of $0.95 for each case of 12-ounce cans and $2.30 for each case of 20-ounce bottles that it purchased. In addition to the base rebates, the 2004 agreement provided for two tiered growth rebate schedules, one for carbonated soft drinks ("CSD") and one for non-carbonated soft drinks ("non-CSD"). For example, the CSD growth rebate schedule provided that a 1 to 5 percent increase in volume of CSD purchased would generate a $0.50 rebate for each case purchased that exceeded the 2003 volume. From 5 to 10 percent provided a $1.00 per case rebate and above 10 percent was a $1.50 rebate. The record indicates that 2004 was a banner year in sales for Eastside. Mr. DeWald testified that total sales for the company were "a little over $16 million" and volume almost doubled from 2003. Therefore, Eastside was paying, with the base rebates, $6.05 per case of cans (base price of $7.00 per case minus $0.95 base rebate) and $11.50 per case of 20-ounce bottles (base price of $13.80 per case minus $2.30 base rebate). Additionally, for all cases purchased above its 2003 volume, Eastside was receiving from $0.50 to $1.50 per case in additional growth rebates. PBG honored the agreement throughout the course of 2004, paying Eastside all of the rebates it qualified for. The price rebates for 2004 "amount[ed] to well in excess of $1 million" for the year. The 2004 vending operator agreement terminated — per its terms — on December 25, 2004.

Early in 2005, Joe Kreft, a Senior Key Account Manager with PBG, met with Mr. DeWald to discuss a proposed 2005 vending operator agreement. This agreement, like the previous years' agreements, was uniform for that segment of PBG's client base. In other words, this was the same agreement offered to all vending operators10 and was the only rebate program in existence for 2005 for that segment of customers. It offered rebates of $0.95 per case of cans and $2.40 per case of 20-ounce bottles. The growth rebate was pared down to a flat $0.50 per case rebate for any case purchased in excess of the prior year's purchases. The agreement also...

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