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LLC v. The Great Lakes Brewing Co.

United States Court of Appeals, Sixth Circuit

June 26, 2017

Southern Glazer's Distributors of Ohio, LLC, Plaintiff-Appellee,
v.
The Great Lakes Brewing Company, Defendant-Appellant.

          Argued: May 3, 2017

         Appeal from the United States District Court for the Southern District of Ohio at Columbus. No. 2:16-cv-00861-Michael H. Watson, District Judge.

         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 ...


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