Many states, including California and Ohio, have laws protecting beer and wine distributors from the arbitrary termination of their distribution agreements by their manufacturers. Ohio’s Alcoholic Beverage Franchise Act (the “Act“) allows a successor manufacturer that acquires all or substantially all of the stock or assets of another manufacturer to terminate a distribution agreement upon 90 days written notice without “just cause” or the franchisee’s consent. The Act does not define successor manufacturer, which was the central issue in Beverage Distributors, Inc. v. Miller Brewing Co.
In late 2007, the parent companies of Miller Brewing Company (“Miller“) and Coors Brewing Company (“Coors“) formed MillerCoors as a joint venture to better compete against their main competitor, Anheuser Busch. Miller and Coors transferred their U.S. brands to the newly formed company and agreed to share management and control of MillerCoors jointly and equally. In early 2008, MillerCoors notified several Ohio distributers (the “Franchisees“) that it was terminating their franchise agreements. The Franchisees filed suit in district court, which held that MillerCoors was not a successor manufacturer because Miller and Coors never relinquished control over their brands.
On appeal, MillerCoors argued that neither predecessor, Miller nor Coors, controlled MillerCoors since neither owned/controlled a majority interest in the new company. The 6th Circuit Court of Appeals rejected this argument because the MillerCoors operating agreement provided that each board member owed a fiduciary duty to the company that had appointed him/her, and not to MillerCoors, which, it said, provided each company with “a veto right over the operating decisions of MillerCoors.” Accordingly, the court held MillerCoors failed to qualify as a successor manufacturer under the Act and could not terminate the franchise agreements without “just cause.”Click here to see the case.