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

• Decision Date: 26 June 2017
• Docket Number: No. 16-4235,16-4235
• Citation: 860 F.3d 844
• Parties: SOUTHERN GLAZER'S DISTRIBUTORS OF OHIO, LLC, Plaintiff-Appellee, v. The GREAT LAKES BREWING COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

860 F.3d 844

SOUTHERN GLAZER'S DISTRIBUTORS OF OHIO, LLC, Plaintiff-Appellee,

v.The GREAT LAKES BREWING COMPANY, Defendant-Appellant.

No. 16-4235

United States Court of Appeals, Sixth Circuit.

Argued: May 3, 2017

Decided and Filed: June 26, 2017

ARGUED: Marc E. Sorini, MCDERMOTT WILL & EMERY LLP, Washington, D.C., for Appellant. Pierre H. Bergeron, SQUIRE PATTON BOGGS (US) LLP, Cincinnati, Ohio, for Appellee. ON BRIEF: Marc E. Sorini, MCDERMOTT WILL & EMERY LLP, Washington, D.C., Amy G. Doehring, MCDERMOTT WILL & EMERY LLP, Chicago, Illinois, for Appellant. David W. Alexander, Aaron T. Brogdon, Christopher F. Haas, SQUIRE PATTON BOGGS (US) LLP, Cincinnati, Ohio, for Appellee.

Before: GIBBONS, COOK, and GRIFFIN, Circuit Judges.

OPINION

GRIFFIN, Circuit Judge.

Defendant The Great Lakes Brewing Company sought to end its relationship with one of its distributors, Glazer's of Ohio, Inc., after it executed a corporate merger without seeking Great Lakes' consent, as required by their contract. In response, Glazer's of Ohio's successor corporation, plaintiff Southern Glazer's Distributors of Ohio, LLC, filed suit in the United States District Court for the Southern District of Ohio and moved to preliminarily enjoin the impending termination, arguing that the contract's consent requirement was invalid under Ohio law. The district court agreed and found that the remaining equities weighed in favor of granting the preliminary injunction. The defendant manufacturer now appeals, and we reverse. We hold that the district court erred as a matter of law in ruling that the plaintiff distributor was likely to succeed on the merits. To the contrary, because the parties' consent provision is valid under state law, the distributor has no likelihood of success. This legal error warrants reversal of the preliminary injunction order and a remand for further proceedings.

I.

The Franchise . The Great Lakes Brewing Company is a craft beer manufacturer based in Ohio. According to some, it is the craft brewery in Ohio—the first of its kind in the state. Its products can be found in neighboring states, but Ohio is "its home and most important market," accounting for two-thirds of its sales. Great Lakes is an expert at making beer, not selling it, so it relies on distributors to get its products onto retailers' shelves. Glazer's of Ohio, Inc., ("Ohio Glazer's") was Great Lakes' distributor in the Columbus market. Ohio Glazer's was a subsidiary of a larger company called Glazer's, Inc. Glazer's distributed all variety of alcoholic beverages in several states, but its bailiwick was beer. That expertise was an important factor in Great Lakes' decision to choose Ohio Glazer's as its distributor in the Columbus market.

Great Lakes and Ohio Glazer's memorialized their distribution franchise in a written agreement, and two sections of that agreement are particularly pertinent here: Section 9 and Section 10.

Section 9 deals with "Ownership Changes and Assignments." In Section 9(a), the parties agreed that Ohio Glazer's "must obtain [Great Lakes'] prior written consent to any change in ... ownership." And in Section 9(d), Great Lakes agreed that "[it] must not unreasonably withhold its consent to an Ownership Change ... and shall be guided in its decision by its reasonable business judgment."

In Section 10, the parties set out the conditions under which a party could terminate the franchise agreement. Section 10(b) provides that "[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...." Under this provision, Great Lakes must "explain[ ] the reason(s) for termination" and provide Ohio Glazer's an opportunity to "cure the deficiencies that justify termination." In addition, Section 10(c) provides that "[Great Lakes] may also terminate this Agreement for cause immediately upon written notice upon the occurrence of certain causes not subject to cure," one of which is that Ohio Glazer's "undertakes an Ownership Change ... without the written consent required by section 9."

The Merger . These sections became important when rumors of a "powerhouse" merger between Glazer's and another large distributor, Southern Wine & Spirits of America ("Southern"), went public in January 2016. That announcement set off a series of letters between Great Lakes and Ohio Glazer's.

On May 2, 2016, Great Lakes asked Ohio Glazer's for details of the impending deal "in order to assess their options in the Greater Columbus market."

Ohio Glazer's replied on May 11, 2016, and explained that it would convert into a limited liability company, after which its parent company (Glazer's) would "contribute the membership interests in the converted company to Southern Glazer's."¹ Ohio Glazer's asserted that "the pending transaction does not open the Ohio franchise and Great Lakes' consent is not necessary," citing Ohio Rev. Code § 1333.84(F) and a district court decision, Jameson Crosse, Inc. v. Kendall-Jackson Winery, Ltd. , 917 F.Supp. 520 (N.D. Ohio 1996), as support for its assertion.

That response was not well received. On May 27, 2016, Great Lakes rebuffed Ohio Glazer's assertion that consent was not necessary. It considered the described merger plans as a change of ownership as defined by their agreement. It withheld consent and offered to provide evidence to support its reasonable business judgment in that regard.

The Glazer's-Southern merger went through as planned on June 30, 2016. It created a new parent corporation, Southern Glazer's Wine & Spirits, and Ohio Glazer's became Southern Glazer's Distributors of Ohio ("Ohio Southern Glazer's")—a subsidiary of Southern Glazer's.

Several weeks later, Great Lakes sent written notice that it was terminating the franchise agreement. Citing Section 9 of the franchise agreement, Great Lakes stated that the change in ownership required its prior consent, which Ohio Glazer's did not request. According to Great Lakes, this breach of the franchise agreement constituted just cause for terminating the relationship. Though the agreement authorized Great Lakes to terminate without a notice period, out of an abundance of caution, Great Lakes set the effective termination date for September 25, 2016—sixty days from the date of its notice of termination.

Ohio Southern Glazer's tried to salvage the relationship by way of a letter on September 1, 2016. It responded that, while it did not believe prior consent was required, it "respectfully request[ed] its consent" after the fact, offering to provide any information Great Lakes might need to make that decision.

On September 7, 2016, Great Lakes declined the invitation to retroactively cure the purported breach and sought to implement a mutually agreeable plan to ensure an orderly transition to a new distributor.

The Fallout . The next day, Ohio Southern Glazer's filed a declaratory action in federal district court, seeking to preliminarily enjoin Great Lakes from terminating its franchise agreement. The district court granted the motion for a preliminary injunction. Applying the four traditional preliminary injunction factors—(1) likelihood of success, (2) irreparable harm to plaintiff, (3) substantial harm to others, and (4) the public interest—the court concluded that the first three factors weighed in favor of granting the injunction, and the fourth factor was neutral. Great Lakes now appeals.

II.

The purpose of a preliminary injunction is to preserve the status quo until a trial on the merits. Univ. of Tex. v. Camenisch , 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981). Because they necessarily happen before the parties have had an opportunity to fully develop the record, the movant "is not required to prove his case in full at a preliminary injunction hearing."

Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp. , 511 F.3d 535, 542 (6th Cir. 2007). That does not mean, however, that preliminary injunctions should be granted lightly. "A preliminary injunction is an extraordinary and drastic remedy," Munaf v. Geren , 553 U.S. 674, 689–90, 128 S.Ct. 2207, 171 L.Ed.2d 1 (2008) (internal quotation marks omitted), one that should "only be awarded upon a clear showing that the plaintiff is entitled to such relief," Winter v. Nat. Res. Def. Council, Inc. , 555 U.S. 7, 22, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008).

Four factors guide the decision to grant a preliminary injunction: "(1) whether the movant has a strong likelihood of success on the merits; (2) whether the movant would suffer irreparable injury absent the injunction; (3) whether the injunction would cause substantial harm to others; and (4) whether the public interest would be served by the issuance of an injunction." Bays v. City of Fairborn , 668 F.3d 814, 818–19 (6th Cir. 2012). We have often cautioned that these are factors to be balanced, not prerequisites to be met. Certified Restoration , 511 F.3d at 542. At the same time, however, we have also held that "[a] preliminary injunction issued where there is simply no likelihood of success on the merits must be reversed[.]" Winnett v. Caterpillar, Inc. , 609 F.3d 404, 408 (6th Cir. 2010) (bracketing omitted) (quoting Mich. State AFL–CIO v. Miller , 103 F.3d 1240, 1249 (6th Cir. 1997) ).

Our review of preliminary injunction orders is deferential, but not entirely so. The ultimate decision to grant an injunction is reviewed for an abuse of discretion. Planet Aid v. City of St. Johns , 782 F.3d 318, 323 (6th Cir. 2015). But the district court's legal conclusions, including the movant's likelihood of success on the merits, are reviewed de novo, and its findings of fact are reviewed for clear error. Id . Thus, we reverse a decision granting a preliminary injunction "only if the district court ‘relied upon clearly erroneous findings of fact, improperly applied the governing law, or used an erroneous legal standard.’ " Six Clinics Holding Corp., II v. Cafcomp Sys., Inc. , 119...