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Roetzel Andress wins 6th Circuit case against large breweries

Legal News Reporter

Published: October 15, 2012

In a battle of small businesses versus giant manufacturing companies, Roetzel and Andress’ Stephen W. Funk and fellow plaintiff’s lawyers have successfully led the Davids of local beverage distributors against the Goliaths of some of the country’s largest breweries.

The U.S. 6th Circuit Court of Appeals recently upheld a lower court decision that held in favor of several Ohio beverage distributors and against major beer breweries, including the Miller Brewing Company and the Coors Brewing Company.

In the case, Beverage Distributors Inc., et. al. v. Miller Brewing Company, et al., 2012 WL 3517378, the court confirmed the lower court ruling that protects Ohio beer distributors from unilateral contract terminations by breweries under the Alcoholic Beverages Franchise Act.

The five plaintiffs included local beverage distributors Esber Beverage Company of Canton, which was represented by Funk and Tramonte Distributing Company of Akron.

The case arose from a business deal between two of the largest breweries in the country,as they tried to compete with the largest.

In 2008, both the Miller and Coors brewing companies were facing a problem. Added together, the two giant American brewing companies were still smaller than the mega huge Anheuser Busch, which the court described as the “dominant beer manufacturer in the United States.”

Miller, said Funk, “was the second-largest brewing company and Coors was the third-largest.”

At the time, both Miller and Coors ––which also included the Molson brand under the Molson Coors Brewing Company name –– had a network of distributors across the state of Ohio.

In July of 2008, following six years of trying to build a partnership between the two companies, Miller and Coors entered into a business agreement and formed MillerCoors LLC. The purpose of that organization was to band the two companies together to better compete against Anheuser Busch.

It may have had another purpose, as well.

“Our position in this case was that the agreement (at least, in part) was an attempt to consolidate distributorships.,” Funk said.

Miller and Coors each had a 50 percent voting interest in the new company, Funk said. Miller had a 58 percent economic interest and Coors had a 42 percent economic interest.

The board of the new company was staffed exclusively from the ranks of board members or employees of the two breweries, with each seating half of the board members. The company’s executive officers were also comprised of people who worked for one or the other of the founding breweries.

As with many beer distributors, that new company did not need separate local distributors for the product. MillerCoors acted to terminate the distributorship agreements that five Ohio distributors, including Tramonte and Esber, had with the single breweries.

But unfortunately for the new macrobrew company, Funk said, that attempt ran afoul of Ohio law, particularly the Alcohol Beverages Franchise Act, R.C. 1333.85.

Under that act, a manufacturer or distributor must have either prior consent or just cause, plus 60 days’ notice to terminate a distribution agreement.

Funk said the law treats the business of alcohol manufacturing and distribution and the contracts in that field differently from the way that it treats most other businesses—except, perhaps, the automobile industry, which also has its own set of laws.

This is because, he said, “these are laws that go back to the repeal of prohibition. The 21st Amendment recognized the special functions of state governments in regulating the sale and distribution of alcoholic beverages.”

There is an exception to the rule, Funk said, that a brewery-distributor contract cannot be nullified by one party acting on its own.

When a manufacturer is purchased by another entity, he said, the purchaser can cancel distributor contracts under the statute’s “successor manufacturer” clause, R.C. 1333.85(D).

In its case, MillerCoors took the position that it was a “successor manufacturer.” The distributors opposed this position by arguing that a simple merger of two companies, even though the product of that merger may be another company, does not constitute a “successor manufacturer,” Funk said.

He said that the case revolved around the court’s definition of both the terms “successor manufacturer” and “exercise control.”

The court sided with the distributors in defining “successor manufacturer,” especially noting in great detail that the corporate officers of MillerCoors were also corporate officers of either Miller or Coors separately.

Because of this, the parent companies, which had originally entered into these distribution agreements with the plaintiffs, still exercised control over the actions of MillerCoors.

The time has run out for the manufacturers to appeal this case to the Supreme Court.