N. Bottling Co. v. Pepsico, Inc., Case No. 4:15-cv-133

• Decision Date: 13 December 2019
• Docket Number: Case No. 4:15-cv-133
• Parties: NORTHERN BOTTLING CO., INC., Plaintiff, v. PEPSICO, INC., Defendant.
• Court: U.S. District Court — District of North Dakota

427 F.Supp.3d 1106

NORTHERN BOTTLING CO., INC., Plaintiff,

v.PEPSICO, INC., Defendant.

Case No. 4:15-cv-133

United States District Court, D. North Dakota.

Signed December 13, 2019

Rodney E. Pagel, Pagel Weikum, PLLP, Bismarck, ND, Alaina Stedillie, Pro Hac Vice, Welborn Sullivan Meck & Tooley, P.C., Casper, WY, James M. Ragain, Ragain & Cook, PC, Michelle M. Sullivan, Pro Hac Vice, Sullivan Miller Law PLLC, Billings, MT, for Plaintiff.

Patrick J. Ward, John E. Ward, Zuger Kirmis & Smith, Bismarck, ND, Patricia T. Mathy, Pro Hac Vice, Thomas B. Quinn, Pro Hac Vice, Sondra A. Hemeryck, Pro Hac Vice, Riley Safer Holmes & Cancila LLP, Chicago, IL, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

Daniel L. Hovland, District Judge

Before the Court is the Defendant's motion for summary judgment filed on October 19, 2018. See Doc. No. 86. The Plaintiff filed a response in opposition to the motion on November 30, 2018. See Doc. No. 95.

The Defendant filed a reply on December 21, 2018. See Doc. No. 111. The Court granted amici leave to brief the motion. See Doc. No. 106. Pepsi-Cola Bottlers' Association filed an amicus brief in opposition to the motion on December 13, 2018. See Doc. No. 108. Independent Bottlers' Association filed an amicus brief in opposition to the motion on December 14, 2018. See Doc. No. 110. The Defendant filed a response to the amicus briefs on January 9, 2019. See Doc. No. 114. For the reasons set forth below, the motion for summary judgment is granted.

I. BACKGROUND

A. The Parties and Their Contracts

Northern Bottling Co., Inc. ("Northern") is an independent bottler operating out of Minot, North Dakota. Northern sells beverage and snack products to more than 2000 customers in a variety of channels, including convenience and gas outlets, in North Dakota and South Dakota. The beverage products that Northern sells include PepsiCo carbonated soft drinks ("CSDs"), other PepsiCo products such as Gatorade, and non-PepsiCo products, including Dr. Pepper, Klarbrunn Sparkling Water, brewed coffee, brewed tea, cappuccino, and slushies.

PepsiCo is a global food and beverage company. Among other things, PepsiCo distributes and sells PepsiCo CSDs through its own bottling subsidiary, Pepsi Beverages Company ("PBC"), as well as through independent bottlers, such as Northern. PBC accounts for approximately 75-80% of PepsiCo CSD sales in the United States, and independent bottlers account for the remaining 20-25% of such sales.

PepsiCo and Northern are parties to a series of agreements, called Exclusive Bottling Appointments ("EBA" or "EBAs"). See Doc. Nos. 1-1 and 88-5. Each EBA pertains to a certain PepsiCo CSD–specifically, Pepsi, Diet Pepsi, Mountain Dew, and Diet Mountain Dew—but are materially similar otherwise. Each EBA appoints Northern as PepsiCo's "exclusive bottler, to bottle and distribute" a specific PepsiCo CSD in a designated geographic territory (the "exclusivity provision"). Each EBA provides that PepsiCo will sell Northern its requirements of concentrate or syrup for a particular CSD product and protect the trademark for that product. The EBAs require Northern to produce and bottle the finished product from the concentrate or syrup, and then sell the product at its own price in its designated territory. Each EBA also provides a number of terms and conditions with which Northern must comply; however, those are not at issue here. Finally, each EBA provides it "shall be governed by and interpreted under the laws of the State of New York," that the EBA "expresses fully the [parties'] understanding," that "all prior understandings are hereby cancelled," and that "no future changes in the terms of this Appointment shall be valid, except when and if reduced to writing and signed by both" Northern and PepsiCo. Of significance is the undisputed fact that none of the EBAs mention transshipment of PepsiCo CSDs, nor impose an obligation on PepsiCo to prevent transshipment of CSDs into Northern's exclusive territory by third parties.

PepsiCo first issued an EBA to Northern on November 14, 1955, for the designated territory of Wells, Sheridan, Pierce, McHenry, Bottineau, Renville, Ward, Burke, and Mountrail County in the State of North Dakota. See Doc. No. 1-1. The EBA provided in relevant part as follows:

1. That the Bottler will operate a thoroughly clean and sanitary bottling plant at Minot, North Dakota[.] The Bottler will at all times have available sufficient productive capacity at the plant or plants above listed or at other plants in the Territory approved by the Company to enable the Bottler to fully meet his obligations under this Appointment. It is recognized that under the foregoing it may be necessary from time to time for the Bottler to increase the present productive capacity of the plant or plants above listed, or to establish additional plants in the Territory.

The equipment of each plant shall contain such water treatment and other equipment as the Company may prescribe. The Bottler will maintain each plant at all times in good operating condition, and will comply with any and all local, City, County, State and Federal laws and regulations now in effect or which may hereafter be enacted pertaining to the operation of bottling plants, bottling, selling and handling of soft drinks.

2. That the Bottler will not bottle, distribute or sell, directly or indirectly, any other cola beverage or any other beverage with the name Cola and/or any beverage which could be confused with Pepsi-Cola.

....

4. That the Company will sell to the Bottler, and the Bottler will purchase, at the Company's then price or prices therefor at the time of each sale, the Bottler's requirements of Pepsi-Cola concentrate or syrup for the bottling of Pepsi-Cola hereunder, payment for same to be made by the Bottler in advance of shipment; and all Pepsi-Cola concentrate or syrup so purchased will be used by the Bottler for the bottling of Pepsi-Cola in the Territory and for no other purpose.

....

7. That the Bottler will sell the bottled Pepsi-Cola in the Territory at the Bottler's price per case plus the deposit charge for bottles and case. The Company may from time to time suggest to the Bottler the price per case to be charged by him and the deposit charge.

8. That the Bottler will push vigorously the sale of bottled Pepsi-Cola throughout the entire territory in the 12-oz. size bottle and in any other size bottle prescribed by the Company for the Territory. Without in any way limiting the Bottler's obligation under this Paragraph 8, the Bottler must fully meet and increase the demand for Pepsi-Cola throughout the Territory and secure full distribution up to the maximum sales potential therein through all distribution channels or outlets available to soft drinks, using any and all equipment reasonably necessary to secure such distribution; must service all accounts with frequency adequate to keep them at all times fully supplied with Pepsi-Cola; must use his own salesmen and trucks ... in quantity adequate for all seasons; and must fully cooperate in and vigorously push the Company's cooperative advertising and sales promotion programs and campaigns for the Territory. In addition the Bottler will actively advertise, in all reasonable media including adequate point-of-purchase advertising, and vigorously engage in sales promotion of, bottled Pepsi-Cola throughout the Territory at his own cost and expense. The Bottler will carry Products Liability Insurance on his operation in such amounts as the Company may recommend. All advertising copy and media shall be subject to the Company's approval.

....

19. That this Appointment expresses fully the understanding, and that all prior understandings are hereby cancelled, and no future changes in the terms of this Appointment shall be valid, except when and if reduced to writing and signed by both the Bottler and the Company, by legally authorized officials.

20. The failure by the Company to enforce at any time or for any period of time any one or more of the terms or conditions of this Appointment, shall not be a waiver of such terms or conditions or of the Company's right thereafter to enforce each and every term and condition of this Appointment.

21. That this Appointment and all its terms and conditions shall be governed by and interpreted under the laws of the State of New York.

See Doc. No. 1-1.

B. Transshipment and PepsiCo's Policies

Northern alleges in its complaint that PepsiCo breached the EBAs' exclusivity provision by failing to prevent "transshipping," i.e. , the sale of PepsiCo CSDs into Northern's exclusive territory by third-party distributors. PepsiCo denies it has a duty to prevent third-party transshipment of PepsiCo CSDs. PepsiCo alleges, however, that despite the absence of any contractual duty to do so, it created and implemented a program, the PepsiCo Transshipment Enforcement Program ("PTEP"), to deter transshipment and compensate injured bottlers. PepsiCo describes the PTEP in its brief:

Under the PTEP, if a bottler discovers or suspects PepsiCo CSDs have been transshipped into its territory, it can report the transshipment to the PepsiCo Transshipment Department. PepsiCo then assigns an independent investigator to verify the presence of transshipped product in the bottler's territory. The appointed investigator visits the store location, checks the production codes that appear on the PepsiCo CSDs in the store, and identifies the quantity of the potentially transshipped PepsiCo CSDs.

Once PepsiCo identifies the bottler who produced the transshipped product (based on the production codes), a fine is imposed and collected from this "source bottler." The fine amount—which is based on the number of transshipped cases discovered by the investigator—is paid to the bottler in whose territory the transshipped product was discovered. The source bottler is also required to pay the investigation costs. The fine and investigation costs are assessed whether or not the

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