S. Glazer's Distribs. of Ohio, LLC v. Great Lakes Brewing Co.

• Decision Date: 23 September 2016
• Docket Number: Case No. 2:16-cv-861
• Parties: Southern Glazer's Distributors of Ohio, LLC, Plaintiff, v. The Great Lakes Brewing Company, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

Southern Glazer's Distributors of Ohio, LLC, Plaintiff, v. The Great Lakes Brewing Company, et al., Defendants.

Case No. 2:16-cv-861

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO EASTERN DIVISION

September 23, 2016

Judge Michael H. Watson

Magistrate Judge Deavers

OPINION AND ORDER

Plaintiff Southern Glazer's Distributors of Ohio, LLC ("Plaintiff") moves for a temporary restraining order ("TRO") and preliminary injunction prohibiting Defendant The Great Lakes Brewing Company ("Great Lakes") from terminating or altering its franchise relationship with Plaintiff, a franchisee that is the exclusive distributor of certain Great Lakes brands in central Ohio. Mot. TRO, ECF No. 3. Following an informal conference with the Court pursuant to S.D. Ohio Civ. R. 65.1, Great Lakes filed a memorandum in opposition to Plaintiff's motion. Resp., ECF No. 9. On September 19, 2016, the Court held a hearing on Plaintiff's motion, Order, ECF No. 13, after which the parties filed closing briefs. ECF Nos. 14 and 15. For the reasons that follow, Plaintiff's motion, ECF No. 3, is GRANTED.

I. BACKGROUND

A. Preliminary Matters

On September 22, 2016, Plaintiff filed an amended complaint, naming three additional manufacturers as defendants: The Boston Beer Company, Inc., Boston Beer Corporation, and Boston Brewing Company, Inc. (collectively, "the new Defendants"). Am. Compl., ECF No. 17. On the same day, Plaintiff filed a a second motion for temporary restraining order and preliminary injunction as to Great Lakes as well as to the new Defendants. Second Mot. TRO, ECF No. 18. To the extent that Plaintiff's second motion relates to Great Lakes, that request for emergency injunctive relief is addressed infra.¹

However, the Court declines to bootstrap the new Defendants to Plaintiff's first motion for emergency injunctive relief, ECF No. 3, without first affording them the procedural rights and protections provided under Federal Rule of Civil Procedure 65. Accordingly, any decision on Plaintiff's second motion, ECF No. 18, will be addressed by separate order.

B. The Franchise Agreement

This action arises out of Great Lakes' decision to terminate (effective September 25, 2016) its franchise relationship with Plaintiff in alleged violation of the Ohio Alcoholic Beverage Franchise Act, O.R.C. §§ 1333.82-1333.87 ("theOhio Franchise Act"), which governs the contractual relationships between beer distributors and manufacturers. In order to understand that franchise relationship as well as the present dispute that arises from a transaction that threatens that relationship, the Court provides the following background. Great Lakes is a family-owned brewing manufacturer with its principal place of business in Cleveland, Ohio. Conway Aff. ¶ 2, ECF No. 9-1.² Great Lakes was the first craft brewer in Ohio and sells beer primarily in the Great Lakes region with 67% of its sales in Ohio. Id. at ¶ 3.

In or before 1999, Robins Wine & Spirits, Inc. ("Robins") distributed beer for Great Lakes in Ohio. Am. Compl. ¶¶ 17-18, ECF No. 17. In 1999, Glazer's Distributors of Ohio, Inc. ("Glazer's Ohio") acquired Robins and began distributing beer for Great Lakes in the Ohio territories in which Robins had previously distributed Great Lakes beer. Id. at ¶ 18. Glazer's Ohio's principal place of business was 4800 Poth Road, Columbus, Ohio ("the Columbus Branch"). Am. Compl. Ex. 1, PAGEID # 15, ECF No. 17-1. Glazer's Ohio was a fully-owned subsidiary of Glazer's, Inc., a multistate wine, spirits, and beer distributor headquartered in Dallas, Texas. Conway Aff. ¶ 4, ECF No. 9-1; Roberts Decl. ¶ 18, ECF No. 3-2.³ In particular, Glazer's, Inc. had a beer distribution business that sold ten million cases of beer each year, which made itone of the largest MillersCoors distributors in the United States. Conway Aff. ¶ 9, ECF No. 9-1.

On or around September 14, 2006, Great Lakes entered into a Sales & Distribution Agreement with Glazer's Ohio for the distribution of Great Lakes beer brands. Am. Compl. Ex. 1, ECF No. 17-1 ("the Franchise Agreement"). Under the Franchise Agreement, Glazer's Ohio was the exclusive distributor of the Great Lakes brands within the Ohio territory described in the agreement. Id. The initial term of the Franchise Agreement was two years but would automatically renew for additional terms of one year unless a party notified the other of its intent not to renew:

1. TERM

This Agreement becomes effective on September 14, 2006 and shall continue in force for two years (the "Initial Term"), or until terminated in accordance with Section 10 below. At the end of the Initial Term, this Agreement shall automatically renew for additional terms of one year each (each a "Renewal Term") unless either party notifies the other of its intent not to renew this Agreement by providing the other with written notice of non-renewal not less than 60 days prior to end of the Initial Term or any Renewal Term.

Franchise Agreement PAGEID # 302, ECF No. 17-1 (emphasis in the original).

Under the Franchise Agreement, Great Lakes must consent in writing to any change in the ownership of Glazer's Ohio:

9. OWNERSHIP CHANGES & ASSIGNMENTS

a. Wholesaler [Glazer's Ohio] must obtain GLBC's [Great Lakes'] prior written consent to any change in the ownership of Wholesaler (an "Ownership Change"), including: (i) any sale or transfer of more than 20% of the outstanding voting shares in Wholesaler or achange in partnership interests representing more than 20% of the business; (ii) any change, whether by one transaction or a series of transactions, having the practical effect of changing or transferring the power to determine Wholesaler's business policies; (iii) a sale of all or a significant portion of Wholesaler's assets, or (iv) a change that would require Wholesaler's notification to TTB [the Alcohol & Tobacco Tax & Trade Bureau] of a change in ownership under the provisions of 27 C.F.R. § 1.42 or a successor regulation.

Id. at PAGEID ## 307-08 (emphasis in the original). Under Section 9(d), Great Lakes "must not unreasonably withhold its consent to an Ownership Change[.]" Id. at PAGEID # 308. Great Lakes may consider certain factors in evaluating a proposed ownership change, including:

i. The alignment of the Territory with the territories of other distributors of the Products.

ii. The record of the proposed owner(s) or assignee(s) in distributing the Products in other places or at other times elsewhere.

. . . .

iv. The business and financial capabilities of the proposed owner(s) or assignee(s) when compared with the capabilities of other distributors capable of serving the Territory. . . .

Id.

Great Lakes "may initiate the termination of this Agreement for cause at any time if Wholesaler fails to substantially comply with any of its obligations under this Agreement[.]" Id. at PAGEID # 309 (Section 10(b) of the Franchise Agreement). Great Lakes may also terminate the Franchise Agreement when a change of ownership occurs without prior written consent by Great Lakes:

10. TERMINATION

. . . .

b. GLBC [Great Lakes] may also terminate this Agreement for cause immediately upon written notice upon the occurrence of certain causes not subject to cure, including any of the following:

. . . .

v. Wholesaler undertakes an Ownership Change or Assignment without the written consent required by Section 9.

Id. at PAGEID ## 308-09 (emphasis in the original).

The Franchise Agreement further acknowledged that, to the best of the signatories' knowledge, its terms complied with all applicable laws:

12. DISPUTES & GOVERNING LAW

. . . .

b. Any and all disputes arising our [sic] of or related to this Agreement shall be resolved under the valid and enforceable laws of the Territory, irrespective of choice-of-law principles. The parties acknowledge and agree that to the best of their knowledge, the terms of this Agreement comply with all applicable laws, regulations and rulings. In the event that any provision of this Agreement is deemed illegal or unenforceable, that conclusion shall not affect the enforceability of the remainder of this Agreement.

Id. at PAGEID # 311 (emphasis in the original).

There is no dispute that the Franchise Agreement remained in effect at the time this action was filed.

C. The Transaction Between Glazer's, Inc. and Southern Wine & Spirits of America, Inc.

In late 2015, the alcohol beverage Industry trade press reported of the possible merger between Glazer's, Inc. and Southern Wine & Spirits of America LLC ("Southern"), which, at that time, was the largest distributor of wine, spirits, and beer in the United States. DeCelle Aff. ¶ 3, ECF No. 9-2.⁴ In January 2016, Glazer's, Inc. and Southern formally announced that they would combine businesses in the second quarter of 2016 ("the Transaction"). Id. at ¶ 4; Am. Compl. ¶ 38, ECF No. 17.

On May 2, 2016, Great Lakes, through Attorney DeCelle, contacted Glazer's, Inc. regarding the plans for Glazer's Ohio in light of the upcoming Transaction. DeCelle Aff. ¶ 6, ECF No. 9-2. Counsel for Glazer's Ohio, Alan Greenspan, confirmed that Glazer's, Inc. and Southern "are moving forward with plans to combine our businesses. The combination of our industry-leading, family-owned organizations will result in the creation of Southern Glazer's Wine and Spirits, LLC ("Southern Glazer's")." Roberts Decl. Ex. 2 PAGEID # 93, ECF No. 3-2. Attorney Greenspan assured Great Lakes that "we expect no change or disruption in service in Ohio. The transaction will not impact the local operations in any significant manner, except to improve them where possible." Id. Attorney Greenspan also explained the structure of the Transaction, including the transfer of membership interests:

In terms of the specific legal steps in Ohio, we expect that Glazer's Distributors of Ohio, Inc., the entity that currently holds the franchise rights with Great Lakes, will convert in late June to an Ohio limited liability company. . . .

Shortly following the conversion, Glazer's, Inc., the parent of the limited

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