Ohio’s Alcoholic Beverages Franchise Act: Nothing watered down about a successor manufacturer’s right to terminate a franchise agreement

The Supreme Court of Ohio recently held that R.C. 1333.82, Ohio’s Alcoholic Beverages Franchise Act, permits a successor manufacturer to terminate any existing distributor’s franchise without just cause. Esber Beverage Co. v. Labatt USA Operating Co., L.L.C., Slip Opinion No. 2013-Ohio-4544. This type of termination must be preceded by 90 days’ notice and certain fair compensation. But a written franchise agreement may be terminated without just cause.

In Esber, the beverage company had a written franchise agreement with Labatt USA Operating Co.’s predecessor manufacturer, a subsidiary of InBev N.V./S.A. The franchise agreement provided that Esber was to be the exclusive distributor of Labatt-brand products in 10 Ohio counties for an indefinite period. Esber at ¶2. Two years after the agreement, InBev N.V./S.A. sold to Labatt Operating the exclusive right to sell Labatt-brand products. Esber at ¶4.

Labatt Operating decided not to retain Esber as a distributor and sent a letter within 90 days of the acquisition notifying Esber of the termination. The letter also informed Esber that upon termination of the franchise, as statutorily required by R.C. 1333.82, Labatt Operating would compensate Esber for the diminished value of the distributor’s business and would repurchase all of its Labatt-brand inventory.

Despite the statutory compensation and buy-back protections under such a termination, Esber still asserted that “the Ohio Alcoholic Beverage Franchise Act does not permit a successor manufacturer to terminate a distributor’s franchise without just cause within the 90-day period when the successor manufacturer has itself entered into or assumed a written contract with the distributor.” Esber at ¶14.

The Court held that the statute’s language is plain and unambiguous. R.C. 1333.82(D) certainly allows a successor manufacturer to terminate a written franchise agreement without cause, “as long as the successor manufacturer provides written notice of the termination to the distributor within 90 days of the sale, merger, or acquisition, and as long as compensation for the lost value of the franchise is provided.” Esber at ¶14.

Additionally, pursuant to the statute, the parties are unable to restrict this right to terminate a contract. As for the outcome in Esber, Labatt Operating was permitted to terminate the franchise agreement and Esber was entitled to compensation as specified under R.C. 1333.85(D).

Justice O’Neill authored the opinion, with Justices O’Connor, Lanzinger, Kennedy and French concurring. Justice O’Donnell concurred in judgment only. Justice Pfeifer dissented without an opinion.