Pepsico, Inc. v. Central Inv. Corp., Inc.

• Decision Date: 11 May 2001
• Docket Number: No. C-1-98-389.,C-1-98-389.
• Citation: 268 F.Supp.2d 962
• Parties: PEPSICO, INC., Plaintiff, v. CENTRAL INVESTMENT CORPORATION, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

Page 962

268 F.Supp.2d 962

PEPSICO, INC., Plaintiff, v. CENTRAL INVESTMENT CORPORATION, INC., et al., Defendants.

No. C-1-98-389.

United States District Court, S.D. Ohio, Western Division.

May 11, 2001.

Stephen Jospeh Butler, Renee S. Filiatraut, Thompson Hine LLP, Cincinnati, OH, Roger Pascal, John C. Martin, Thomas Paul Luning, James A. Clark, Caroline K. Sheerin, Kevin S. Hovis, Annaliese F. Fleming, Anne Hall Burkett, Robin M. Spencer, Thomas B. Quinn, Schiff Hardin & Waite, Chicago, IL, Gerard W. Casey, PepsiCo Inc. Law Dept., Purchase, NY, Robert A. McMahon, Eberly McMahon Hochscheid LLC, Cincinnati, OH, for PepsiCo, Inc.

G. Jack Donson, Jr., Taft Stettinius & Hollister, Cincinnati, OH, James Burdette Helmer, Jr., Helmer Martins & Morgan, Cincinnati, OH, Helen G. Kirsch, Judith L. Harris, William A. Georghegan, Reed Smith Shaw & McClay, Washington, DC, for Central Investment Corp.

James Burdette Helmer, Jr., Helmer Martins & Morgan, Cincinnati, OH, for Pepsi-Cola Bottling Co. of Ft. Lauderdale-Palm Beach, Inc.

ORDER

BECKWITH, District Judge.

This matter comes before the Court on PepsiCo's motion for summary judgment (Doc. No. 201). For the reasons set forth below, PepsiCo's motion for summary judgment is GRANTED IN PART, DENIED IN PART, AND MOOT IN PART.

I. Factual and Procedural Background

In its order of April 26, 2001 (Doc. No. 245), which ruled on motions for summary judgment filed by Central Investment Corporation and Pepsi-Cola Bottling Company of Ft. Lauderdale-Palm Beach (collectively "CIC"), the Court set forth in detail the parties' history and the factual background behind the dispute between them. The Court, therefore, will not repeat that description here. In short, however, the dispute concerns the Bottling and Syrup Appointments the parties have entered into and their respective rights thereunder. The earlier order dealt primarily with PepsiCo's allegations that CIC had breached its duties under the Syrup Appointment to push vigorously and secure full distribution of Pepsi syrup within its territories. The order also addressed CIC's motion for summary judgment on its prayer for a declaration of rights under the Syrup Appointment. In pertinent part, the Court ruled that under the terms of the Syrup Appointment, absent consent from CIC, open commissary delivery is not a permissible means of providing syrup to National Account Customers.

This order addresses PepsiCo's motion for summary judgment on the claims asserted against it by CIC in CIC's counterclaim (Doc. No. 50). CIC generally claims that PepsiCo has taken certain actions which not only breached its duties to CIC under the terms of the Bottling and Syrup Appointments, but that these actions were calculated efforts to eliminate the profit from CIC's syrup business and drive down the value of the company. Count I of the Counterclaim asserts claims for breach of the Syrup Appointment and breach of the duty of good faith and fair dealing under the terms of the Syrup Appointment. Count II asserts a claim for breach of the Bottling Appointments. Count III asserts a claim for breach of contract based on alleged violations of a 1988 settlement agreement entered into by CIC and PepsiCo. Count IV asserted two claims for declaratory judgment. The first claim, which involved whether PepsiCo could provide open commissary delivery in CIC's territories, the Court resolved in its earlier order (Doc. No. 245). The second claim requested a determination of CIC's rights upon making a decision to sell the franchise. CIC now agrees, however, that since there are no plans to sell the business, that claim for relief is now moot, and, therefore, has withdrawn it. Most, if not all, of the facts surrounding CIC's claims appear to undisputed.

As explained in the earlier order, in 1985, CIC and PepsiCo signed an amendment ("the 1985 Amendment") to the original Syrup Appointment which delineated the parties' rights with respect to the provision of closed commissary delivery to National Account Customers. Paragraph 10(f) of the 1985 Amendment provides that PepsiCo will pay to CIC a per gallon fee, called the Store-door Delivery Fee to serve as a manufacturing and delivery agent of syrup to National Account Customers. See Doc. No. 201, Ex. C. This section gives to PepsiCo complete control over setting the Store-door Delivery fee. The section further provides that:

The Company recognizes that the Store-door Delivery fee should provide to the Bottler an adequate margin after ingredient costs. Accordingly, the Company will establish programs from time to time that will protect the Bottler from an exceptionally low margin after ingredient costs caused either by an unusually rapid and sustained escalation in the cost of ingredients used in manufacturing the Beverage Syrup or by an unusual and sustained decrease in the National Account price caused by competitive pressure and which escalation or decrease affects a substantial majority of all other licensed bottlers of the Beverage syrup as well as the Bottler.

See id. PepsiCo not only sets the fee it has to pay to bottlers for store-door delivery, it also controls the price the bottler must pay to obtain the ingredients to manufacture the syrup. PepsiCo, however, has not increased the Store-door Delivery Fee since 1997, the time at which PepsiCo began its initiative to persuade bottlers to allow for the provision of open commissary delivery to National Account Customers. While PepsiCo has not increased the Store-door Delivery Fee in that time, it has increased the cost of ingredients by 21%. The record reflects that every year prior to 1997, there was a corresponding increase in the Store-door Delivery Fee for each increase in ingredients costs. CIC claims that PepsiCo's failure or refusal to increase the Store-door Delivery Fee is a coercive price squeeze calculated to compel it to permit open commissary delivery. CIC also claims that PepsiCo's failure to increase the Store-door Delivery Fee in the face of increased ingredients costs is a violation of the "adequate margin" clause. Pepsico claims that despite the apparent freeze on the Store-door Delivery Fee, CIC has failed to demonstrate that its margins on store-door delivery are inadequate. Furthermore, Pepsico argues, CIC has not demonstrated an "unusually rapid and sustained escalation in the cost of ingredients" or that such escalation affects a substantial majority of all other bottlers. Therefore, PepsiCo contends, the adequate margin clause is not triggered.

Paragraph 10(c) of the 1985 Amendment provides that: "The Company agrees to service National Account Customers through Bottler store-door delivery except for those National Account Customers which operate a self distribution system (hereinafter called a Commissary) [.]" See id. While the parties agree that the Syrup Appointment reserves to PepsiCo the right to sell syrup to National Account Customers on terms of PepsiCo's choosing, CIC claims that PepsiCo's efforts to offer open commissary delivery to National Account Customers within CIC's territories is a violation of the Amendment.

In order to protect the territorial exclusivity of its independent bottlers' territories, PepsiCo has always had in effect a transshipment policy. A "transshipment" occurs when one bottler ships Pepsi products into the territory of another bottler. In order to prevent this practice, PepsiCo set up a system wherein alleged transshipments could be reported. PepsiCo would then investigate the incident, and, if a transshipment had taken place, levy a fine against the guilty bottler. CIC claims that PepsiCo has violated the transshipment policy by refusing or failing to take action against commissaries who have made deliveries into CIC's exclusive territories and by not paying transshipment fees to CIC when PepsiCo causes open commissary deliveries to National Account Customers.

In 1988, the parties entered into a settlement agreement which further refined payment of the Store-door Delivery Fee. In pertinent part, the settlement agreement provides:

For purposes hereof, "Store-door Delivery Fee" shall be defined as it is defined in paragraph 10(f) of the Amendments to Syrup Appointments of January 22, 1985 between the parties ... that is to say the prevailing Store-door Delivery Fee in effect for Pepsi-Cola bottlers at the time, plus when margin protection is in effect, the per gallon amount of any margin protection payments owed by Pepsi-Cola under paragraph 10(f).

See Doc. No. 201, Ex. D, at 2. As the Court noted above, PepsiCo has not increased the Store-door Delivery Fee it pays to bottlers who have not allowed PepsiCo to provide open commissary delivery in their territories since 1997. By contrast, for bottlers who have permitted PepsiCo to provide open commissary service, PepsiCo has increased what it calls the Bottler Delivery Remittance ("BDR") every year. CIC contends that while the Store-door Delivery Fee and the BDR bear different names, they are actually the same thing— the fee that PepsiCo pays to the bottler for producing and delivering syrup. Because the vast majority—approximately 95%—of the independent bottlers have waived the right to prevent open commissary delivery, CIC contends that the BDR is the prevailing fee in effect for all bottlers and that PepsiCo has, therefore, breached the settlement agreement by not paying CIC the equivalent of the BDR. PepsiCo claims that the BDR is not the prevailing Store-door Delivery fee, but rather is simply an additional benefit paid to signers of the 1997 waiver.

PepsiCo has entered into certain agreements with several "Anchor Bottlers"— very large, independent bottling operations. According to the master agreement with these Anchor Bottlers, upon acquisition of another bottler's territories, the Anchor Bottler agrees to eliminate store-door delivery to National Account Customers. CIC claims that by entering into these agreements, PepsiCo has...