Who is a “Manufacturer” Under Ohio Beer Franchise Law?
A recent Ohio case dealt with the question of who is a “manufacturer” under Ohio Beer Franchise Law. In Cavalier Distributing Company, Inc. v. Lime Ventures, Inc. USDC SD Ohio Case No.: 1:22-cv-121, the Plaintiff, Cavalier, sought a preliminary injunction against successor importer Lime to prohibit Lime from distributing certain Belgium sour beers in Ohio.
The case involves two Belgium breweries’ beer and the right to distribute the beer in Ohio. The Belgian breweries, Brouwerij 3 Fonteinen and De La Senne, produce small quantities of a sour beer referred to as a “lambic.” These beers were part of the Shelton Brothers Portfolio for many years. As we all know Shelton Brothers went bankrupt in late 2020, and in its wake left many brands without distributors, and in limbo in franchise states – including Ohio.
Before 2020, Cavalier distributed the Breweries’ beers in Ohio. Cavalier acquired the Breweries’ products through Shelton Brothers, an importer. Shelton Brothers, rather than the Breweries, selected Cavalier to distribute the products in Ohio. Once Shelton Brothers went bankrupt, its relationship with the Breweries ceased. Sometime thereafter, Lime became the American importer of the Breweries’ beers. After acquiring the rights to import the Breweries’ products, Lime explored a potential relationship with Cavalier to distribute for Lime in Ohio but it did not happen, and Lime chose another distributor for the Products. Cavalier then brought this case, arguing that it had a franchise relationship with the Breweries under O.R.C. 1333.83. Cavalier then argued that Lime’s termination of the franchise was a violation of O.R.C. 1333.85, which prohibits termination of a beer franchise without “just cause.”
Lime’s primary argument was that Shelton Brothers’ bankruptcy constituted “just cause” and relieved Lime of any obligation to sell the Breweries’ products to Cavalier under O.R.C. 1333.85. Cavalier argued that the bankruptcy provision of 1333.85 provided Cavalier with the right to terminated the franchise with Shelton Brothers, but not the other way around. In the end, the Court concluded, the case largely came down to whether, under the Ohio Alcoholic Beverages Franchise law, Shelton Brothers was “a manufacturer” or “the manufacturer.” The Court considered whether the Breweries were independent of their importer, Shelton Brothers, for purposes of the franchise relationship. That is, if the franchise relationship was between Cavalier and Shelton Brothers, and not Cavalier and the Breweries, the Breweries would likely not be bound to the franchise agreement.
So, what happened? The Court concluded that Cavalier had not established a strong likelihood of success on the merits -remember, this was a ruling on a request for a preliminary injunction- and denied the request. The Court reasoned that Ohio’s Alcoholic Beverages Franchise Act could be understood as creating franchise obligations only against the party or parties that select(s) the Ohio distributors, here Shelton Brothers. Under that interpretation, if a brewery takes part in the selection of an Ohio distributor, the brewery has franchise obligations to that distributor. And in that circumstance, a brewer cannot avoid those obligations by interjecting another party, like an importer, into the shipping process. But where, as here, the brewery relinquishes its say over all distribution decisions and the importer takes exclusive control over those decisions, the brewer would not incur franchise obligations under Ohio law.
Again, this was a ruling on a request for a preliminary injunction, so the case is in its infancy. In my opinion the Court’s analysis is somewhat off with respect to the position of the Breweries and Shelton Brothers. Shelton Brothers was importer and presumably the sole source or primary source of the Breweries’ products in the USA, therefore the Breweries have no involvement in the analysis. (Indeed, while named, the Breweries were not served with the lawsuit and the Court found it lacked personal jurisdiction over them.) Almost certainly, the Breweries have no legal ability to sell the products in the USA, let alone Ohio, and therefore, no ability to enter into a franchise relationship in Ohio. It seems the beer franchise relationship with Cavalier, unless terminated for just cause, would apply to those products, and bind the successor manufacturer (importer), here, Lime (this of course is a very simple analysis with limited facts).
One other note, its odd to me why the Court has subject matter jurisdiction over the case. The Court specifically states: “Cavalier alleges that Lime, acting as an agent of the Breweries, terminated the Breweries’ franchise relationship with Cavalier. Cavalier claims this violated § 1333.85.” Under § 1333.87, “An action to recover such damages [for a violation of § 1333.85] and for other relief may be brought only in the common pleas court in the county in which the distributor’s principal place of business in this state is located.” This case was brought in the USDC SD Ohio.
In any event, we’ll keep an eye on this one.
Cavalier has appealed the Court’s Order denying a preliminary injunction to the Sixth Circuit. Case No. 23-3283, Cavalier Distributing Company, Inc. v. Lime Ventures, Inc., et al
What is a Beer Franchise in Ohio?
Under the Ohio Beer Franchise Law a “franchise” is any “contract or any other legal device used to establish a contractual relationship between a manufacturer and a distributor.” O.R.C § 1333.82. A “manufacturer” is “a person … that manufactures or supplies alcoholic beverages to distributors in this state.” Importantly, the Court said, that definition does not limit the term “manufacturer” to those entities that actually brew the “alcoholic beverages.” Rather, “manufacturer” can also refer to those who supply such beverages to distributors.
O.R.C. § 1333.83 requires a manufacturer and distributor to enter a written franchise agreement identifying the specified brands or products that will be sold in specific territories in Ohio. If the parties do not execute a written franchise agreement, and the distributor distributes the beer for ninety days or more without a written
contract, a franchise relationship is established by statute. Once a franchise relationship is created, the manufacturer
cannot give distribution rights to another distributor for the products in the same territory. The parties are locked into the franchise relationship and the manufacturer cannot cancel or fail to renew a franchise without the prior consent
of the other party for other than just cause and without at least sixty days’ written notice,” unless a specific statutory
exception applies. See O.R.C. § 1333.85.
If you have questions about Ohio Beer Franchise Law, the liquor lawyers at LaszloLaw can help, and provide counsel on a wide range of legal needs including state liquor licensing, complex liquor licensing, federal TTB licensing, outside general counsel, distribution agreements, trademarks, contracts, risk management, and litigation. Contact our liquor lawyers online or at 303-926-0410 to discuss your legal needs.