South Beach Beverage v. Harris Brands, Inc.

• Decision Date: 11 December 2003
• Docket Number: No. 02-1367.,02-1367.
• Citation: 138 S.W.3d 102,355 Ark. 347
• Parties: SOUTH BEACH BEVERAGE COMPANY, INC., and South Beach Beverage Company, LLC v. HARRIS BRANDS, INC.
• Court: Arkansas Supreme Court

138 S.W.3d 102

355 Ark. 347

SOUTH BEACH BEVERAGE COMPANY, INC., and South Beach Beverage Company, LLC v. HARRIS BRANDS, INC.

No. 02-1367.

Supreme Court of Arkansas.

December 11, 2003.

Appeal from the Circuit Court, Washington County, Kim M. Smith, J Conner & Winters, P.L.L.C., by: Todd P. Lewis and John R. Elrod, Fayetteville, for appellants.

Lax, Vaughan, Fortson & McKenzie, P.A., by: Grant E. Fortson, Little Rock; and Shemin & Hendren, PLLC, by: Kenneth R. Shemin, Fayetteville, for appellee.

ROBERT L. BROWN, Justice.

This appeal is brought by appellants South Beach Beverage Company, Inc., and South Beach Beverage Company, LLC (South Beach), from a judgment in favor of appellee Harris Brands, Inc., in the amount of $993,430. South Beach further appeals an award of attorney's fees in the amount of $250,000. South Beach raises several points on appeal. It first contends that Harris Brands could not recover on its theory of violation of the Arkansas Franchise Practices Act, because Harris Brands failed to present sufficient evidence on whether a warehouse was "contemplated" and whether it met the Act's definition of a "place of business." South Beach also claims that Harris Brands cannot recover future profits purportedly lost in both Arkansas and Oklahoma and that the circuit court erred in awarding Harris Brands $250,000 in attorney's fees. South Beach further raises points for reversal, including a contention that Harris Brands was not entitled to future lost profits on its promissory estoppel claim and that the circuit court erred in its rulings relating to taxation of any jury award and the allocation of fixed expenses against lost profits. We affirm the judgment for violation of the Arkansas Franchise Practices Act, but we reverse the award of attorney's fees and remand for a determination of reasonable fees using the Chrisco factors.

South Beach is a Delaware corporation with its principal place of business in Norwalk, Connecticut. It manufactures new age beverages and juices, including a brand named SoBe, which it began marketing in 1996. Harris Brands was a Delaware corporation with its principal place of business in Tulsa, Oklahoma. Harris Brands was a beverage distributor, and for part of the time in question in the instant case, it distributed beverages in northwest Arkansas.

In April 1998, South Beach and Harris Brands began discussions about Harris Brands distributing SoBe in Oklahoma. In November or December 1998, Joe Harris, founder of Harris Brands, and representatives of South Beach agreed that Harris Brands would begin marketing SoBe in Oklahoma. According to John Bello, President of South Beach, Joe Harris "jumped on the bandwagon." There was no contract signed by the parties.

In April 1999, South Beach asked Harris Brands to distribute SoBe in northwest and central Arkansas. According to Joe Harris, South Beach officials promised him that if Harris Brands did a good job, it would continue operating as the SoBe distributor for the territory. Also according to Joe Harris, Harris Brands then began investing money in advertising and equipment and hiring employees for the purpose of distributing SoBe, all in reliance on South Beach's promise. Harris Brands distributed SoBe in Oklahoma and northwest Arkansas between April 1999 and April 2001. During that time, it spent $141,181.24 promoting SoBe.

In October 2000, Johnny Blevins of South Beach wrote a memorandum called a "Lizardgram" to Joe Harris in which he said:

There is no question that we were only able to see a portion of the N. Arkansas market. Many opportunities still remain for the development of this area, however, if it is all developed to this level, you may need to look for a satellite warehouse for Arkansas.

Joe Harris then contracted with RC/Eagle Distributing, Royal Crown Cola's distributor in Harrison, to be a subdistributor of SoBe, and a South Beach representative agreed to it. Joe Harris considered establishing a satellite warehouse in Arkansas, because he believed there would be enough SoBe sales to warrant having a warehouse out of which retailers could directly buy SoBe beverages.

Also in October 2000, South Beach sold a majority position in SoBe to PepsiCo. At a meeting in Las Vegas, Nevada, in December 2000, John Bello on behalf of South Beach assured SoBe wholesalers, including Joe Harris, that if they performed well, they would keep their SoBe distributorships despite the sale to PepsiCo. On February 16, 2001, South Beach notified Joe Harris that it was terminating its SoBe distributorship agreement with Harris Brands, effective April 23, 2001, due to "planned distributor changes in your area." At the time, SoBe distribution amounted to about fifty percent of Harris Brands' gross profit, which was about $440,000 a year. South Beach offered to pay Harris Brands $3.00 for each case of SoBe sold to retailers during the twelve-month period immediately prior to termination. Joe Harris estimated this buy-out figure to be about $240,000. Harris Brands refused the offer. In November 2001, Harris Brands went out of business.

On June 20, 2001, Harris Brands sued South Beach for damages for violation of the Arkansas Franchise Practices Act due to wrongful termination of the SoBe distributorship agreement and, secondly, on a theory of promissory estoppel. It sought damages in the form of lost profits in both its Oklahoma and Arkansas distributorships as well as reasonable attorney's fees, interest, and costs. In an amended complaint, Harris Brands added an allegation that South Beach had perpetrated a fraudulent scheme under the Franchise Act and asked for punitive damages and treble damages.

Trial began in July 2002 and lasted three days. At trial, Joe Harris described the Harris Brands distributorship arrangement with South Beach relative to SoBe and the multiple promises South Beach made to him about keeping the distributorship if his company performed well. He testified that South Beach did not have good cause to terminate the arrangement. Cheryl Shuffield testified as Harris Brands' economic expert for damages. She offered four different calculations for future lost profits. Two calculations were based on lost profits for six years, and two were based on ten years. One six-year study and one ten-year study reduced projected lost profits by fixed costs, and the remaining studies did not.

South Beach presented testimony that Harris Brands never contemplated establishing a place of business in Arkansas, as required by the Franchise Practices Act, and, furthermore, failed to show reasonable reliance, which is a necessary component of promissory estoppel. South Beach argued that damages for any of Harris Brands' claims should be limited to out-of-pocket expenses incurred by Harris Brands, which totaled $141,181.24.

The jury returned two verdict forms: one for violation of the Franchise Practices Act with damages of $993,430, and a second on the claim of promissory estoppel with damages also in the amount of $993,430. The circuit court limited damages to $993,430 on the basis that the two verdicts amounted to double recovery. In response to a subsequent motion to tax costs, including attorney's fees, the circuit court awarded attorney's fees of $250,000 to Harris Brands' counsel. Later, the court denied South Beach's motions for a new trial and judgment notwithstanding the verdict.

South Beach has now appealed. We note as an initial matter that the judgment entered awards Harris Brands $993,430 based on two distinct theories: violation of the Franchise Act and promissory estoppel. This is similar to a situation we have recognized in the past involving general verdicts where we cannot determine upon which theory the damage award was premised. See, e.g., Hyden v. Highcouch, Inc., 353 Ark. 609, 110 S.W.3d 760 (2003) (this court will not reverse an award of damages without indication of how the jury reached its award of damages and without evidence that the jury members did not follow the trial court's instructions). Thus, if Harris Brands can prevail on either theory, the judgment must be affirmed.

I. Arkansas Franchise Practices Act

a. Contemplated Place of Business

South Beach first contends that Harris Brands cannot recover for violation of the Franchise Practices Act, because it established no place of business in the state, as the Act requires, but merely thought it might do so in the future. We turn then to the relevant statutory language.

The Arkansas Franchise Practices Act is found at Ark.Code Ann. §§ 4-72-201 through 4-72-210 (Repl.2001). Section 4-72-202 defines the following terms:

(1)(A) "Franchise" means a written or oral agreement for a definite or indefinite period in which a person grants to another person a license to use a trade name, trademark, service mark, or related characteristic within an exclusive or nonexclusive territory or to sell or distribute goods or services within an exclusive or nonexclusive territory at wholesale or retail, by lease agreement, or otherwise.

. . . . .

(6)"Place of business" means a fixed geographical location at which the franchisee displays for sale and sells the franchisor's goods or offers for sale and sells the franchisor's services.

Section 4-72-203 states in part that the Franchise Act "applies only to a franchise entered into, renewed, or transferred after March 4, 1977, the performance of which contemplates or requires the franchise to establish or maintain a place of business within the State of Arkansas."

In support of its argument, South Beach points out that Harris Brands utilized only two physical structures in Arkansas — a storage facility in Fort Smith and RC/Eagle Distributing in Harrison. Neither qualifies as a place of business, according to South Beach. For example, it emphasizes that RC/Eagle Distributing sold a minimal amount of SoBe, and neither structure had "displays for sale," as the Act requires.

South Beach cites two cases to...