please the court my name is david alexander my colleague chris haas and i represent the appellate tri county distributing in iron city distributing in granting a stay of its own judgment on summary judgment the district court made two very important observations one i must confess it's not been my typical experience that a judge will often stay his own order particularly in a declaratory judgment action but he did he said this case presents serious novel questions of statutory rape case and the ruling at issue has the irrefutable potential to change dramatically the landscape for beer distribution in ohio he was right on both fronts the franchise act provisions at issue here we respectfully submit should be interpreted and applied according to their plain language and fundamentally the purpose of the statute so why did the judge say novel and potential for dramatic change very simply because this is the first time in twenty three years of the existence of this statute where it has been applied where the statutory manufacture which is here labatt usa operating did not change as a result of the transaction there was no change that was a first and secondly as the court recognized with respect to the potential for as he put it irrefutable potential for dramatic change in the industry again the answer is straightforward he was keenly aware because after the summary judgment ruling he heard the evidence in the diminished value proceeding on what this likely would result in in the industry in ohio and that was an accelerated and immediate consolidation of the industry so that a statute that had been drafted by everyone's admission as a protective tool for distributors would become a sword to force consolidation quickly would be a sword would take the shield away and leave  but is that plausibly reconcilable with the purpose of this statute and we respectfully suggest it is not was to help the ohio beer distributors that's right and if this court has previously recognized in the miller coors decision that was clearly the purpose of the statue to put two questions first do you think that means that we ought to for example certified the ohio courts or should we go ahead and decide we believe you should exercise your discretion to certified we ask judge marbury to do so he'd say he declined to do so and you might wonder what side agree to that or no the other side did not agree to that there is by the way another case pending in the same district before judge watson in which we've also sought certification let me ask you this is just an intuition i haven't thought it through those i mean it's true that you know your argument is well there's hierarchies upon hierarchies and they only dealt with that at the top but i don't see why and explain to me it would have been all that difficult if it turned out oh argument fine you know we will simply take labatt usa and sell it intact to some to the other side is there a corporate law reason that this has to be done this way not to my knowledge your honor ok so then all of your arm waving about the rights of the of the great heigho distributors it is just a matter of corporate drafting now maybe that would be something that you could prevail on but it doesn't seem to undercut the policy argument if we were to to buy your argument soley on that basis then all of these people that you say want to consolidate the ohio beer industry would just get better corporate reasons i don't know your honor but what i do know is that the ohio legislature knew how to speak broadly when it wanted to for example in this very statute in another provision it talked about either the manufacturer or its subsidiaries or persons with financial affiliation to it but there's no such broad language in this provision at issue eight five d here it used the defined term instead shoot from a to b and that theorem was manufacture and all we are saying is the plain language of the statute calls for a look at what a to b says about what a manufacturer is and eight to be both in its own terms and a three in a providing it's imposition of the duty by the manufacturer to offer a contract all of those provisions read together quite clearly show that the manufacture as that term is used in eight five d means one straightforward thing it's the entity doing business in ohio the entity that has to enter into under point eight three is required by law to enter into a contract with the law distributors coasta rica can't do that here and it hasn't done that either for our clients or for any other distributor in the state of ohio even though point eight three imposes that duty on the manufacture kosta rica's never done  reka has never filed a single designation of territory form as required by law close to reka had has never filed the appropriate permits under all of those duties that are required of the party in ohio by their own admission that party has not changed how can that be reconciled with a statutory provision that on its face contemplates a manufacturer acquiring in the words of the statute another main factor if the manufacturer does not change by their own admission how can we have the two manufacturers contemplated by the statute we don't have them in this case it's novel as judge marley said because it's the first time it's ever been tried  se but it is under control well that's their position but the only thing that arises whether one of the courts said they are how courts have with some consistency said said two things one because the word successor manufacture isn't defined in d what does it mean in the statute otherwise so that some several have looked to the definition in a to b what is a manufacture me what i've called the statutory manufacture but more importantly what most courts have said is in order to understand d and what it means there you have to look at the before or be two those are the so called shield provisions so that even if you have a transaction that fits under eighty five d you still have to look at the shield provisions if the first manufacture transfers to a second manufacturer in the words of the statute over which it exercises control then even though as judge graham put it on paper there may be a a d transaction it can't be a successor manufacture because it would directly contradict what was provided for in before sometimes  b too so those shield provisions in b two and before have been looked to to understand what the word successor might mean in the fall of that you're saying  because of those provisions a supplier can't get out of its obligations by simply shifting it to another shell that it controls that's what before says i understand that but that's not what's happening here it's not there is real control being changed but the entity at the bottom of the chain isn't changing that the difference that's right there it controls change you never disputed that we never suggested that it was a before transaction that it went to a party who control that what we've consistently said is it's not a successor manufacture i mean let me shift to something else which is is there a reason that you brought this in federal court if you think maybe the ohio courts the state courts would would get it more right your honor i've been doing this work for probably fifteen years and probably half the cases in ohio and the other half might have gyms name on them you guys about it what are we even at this bar and we're good friends but what what we know is that these cases often end up in federal court because there's did their diversity of citizenship and because i'm often seeking an injunction i don't want to get hung up on remained it got to state court you think you would have been in disagree with judge marbling on a few things and one is that this is so novel it really isn't as far as what is the definition of success or manufacture it's not in the statute but the courts have addressed it in fact this this court addressed it in the beverage distributors case where it said section thirteen thirty three eighty five d identifies the successor manufacture as one who acquires all or substantially all of the stock or assets of another manufacturer through merger or acquisition or acquires or is the ass any of a particular brand or product or brand of alcoholic beverage from another manufacturer they refer to that is the definition they define success or manufacture is the entity that acquires now an interesting part the they quoted the statutory language in that sentence fragment that this court quoted in the beverage distributors case the word or appears six times i mean the legislature tried to draft the language very broadly to encompass all manners of transactions that corporate lawyers could dream up because the legislature wanted all different types of transactions brought into the this part of the statute and that's because they wanted to make sure that distributors were going to be compensated when they lose the brands now the statute has been interpreted as one designed to protect but when the house supreme court was asked to interpret section eighty five d it said it's clear and unambiguous it allows the successor manufacture the new owner to come in and assemble its own team of distributor if you know the or how supreme court at a had a chance in that case to say oh no no we're going to we're going to interpret this narrowly but they didn't they interpreted broadly when you wen or manufacturer there is there any requirement or understanding that it be a manufacturer previously or does it become a successor manufacturer by the fact that it's an element that manufacture it becomes a successor manufacturer and the company can can buy the beer company and it take over the beer company and it becomes now a manufacturer exactly and that was the court of appeals this case as were versus law back where in that case the bat usa was formed specifically for the purpose of acquiring assets the  distribution rights for the bat brands in the u s it was not a manufacturer as argued in the trial court agreed because labatt usa was not a manufacturer when acquired the brands it couldn't be a successor manufacture the court of appeal said no you know yes if you read the language it strictly but that results in a logical outcome statute it talks about an entity that manufactures or supplies so for example an importer can be a manufacturer even though never manufacturers a distributor who sells brands to another distributor in ohio under the statute becomes the manufacture even though it's also a distributor the definition of manufacture is pretty broad includes not just those w actually manufacturing because the back usa doesn't manufacture it buys the the actual product the actual product that it sells in ohio is manufactured some of it et case where the district court judge had abstained saying this issue should be decided by state courts and this court said that we have a duty to decide the case we can decide and that's what judge martley side we can decide we can make this decision just as easily as a state court can make the decision and you know this court did address it in the beverage distributors case another state appellate court decision that has addressed this issue is the as perverse as heineken case in that case the  entity from whom as bar was buying the beer was a company called the acronym was s and i see smith a newcastle importer it was an import company  that never changed but for corporate levels up heineken acquired smith a new castle from a different manufacture the courts both the trial court and the court of appeals in that case said that acquisition four levels up by heineken was the successor manufacturer transaction and what happened in that can change to the importer from smith a newcastle to another one they said well that was that's where control changed and the court said no control changed in the original heineken acquisition and that was the successor manufacture transaction the notice was too late in their case another appellate court decision which just came down in january of this year premium versus brew cattle in that case the distributor argued that brew cattle could not be a manufacture because brew cattle did not have the licenses this is very argument being made here that c c r doesn't have the licenses in ohio so it can't be the manufacture the court in that case you know we reject that argument so i think you know the issue of whether c c r is a success or manufacture valon that is clear in our favor i would like to move on to the diminish value the three and that boils down essentially to did the district court select the right discount averaged the two experts discount rate if you are what you want a high equity capital structure because equity has a higher discount rate and therefore you end up with a lower value is that right that that's one way of articulating it yes my question is at page fifty eight or so of your brief you have to my mind a very persuasive argument that the method of financing a purchase is irrelevant to the value of the asset being purchased but if i buy that then why does any of this fight  why should we use your ninety three in seven as opposed to any other because you have an expert that picks one why shouldn't we look to you know external market rates or he died  value or something different well the ninety three seven range is an external that is a market rate that is the one our expert calculated to be the industry average well but it is still an industry average capital structure so in other words if if the capital the method of financing is irrelevant as to the right discount rate why is it important that the industry average is that when you buy the piece of i b m stock it doesn't matter what your capital structure is it doesn't matter with me as the buyer doesn't matter what my capital structure is and it also doesn't matter what the sell scapel structure is but the capital structure of i b m does matter because that that tells me what the risk is of i b m if i'm going to buy a company that is one hundred percent financed that it then its capital structure is one hundred percent debt i know i'm buying a much riskier investment than if i'm buying a company that's one hundred percent  if it's one hundred percent debt then by what we just said the discount rate is lower the present value is greater so you're paying more for this quote riskier company except you have to adjust in your calculation of the discount rate for the far riskier nature of the company they're in putting together the discount rate might have ok what you thought right but you're going to flip the argument so i lost you there ok when you're putting together discount rate you look at a number of factors not just the weighting of the cost of capital you going to look at the size of the company you're going to look at the type of business it's and you know those are all factors that go into assembling the discount rate in this case the two experts agreed on many of those factors were they disagreed on was the weighting of the debt and equity portions of of the capital structure may well help me there then because and maybe i just missed it in the math i thought you had a projected stream of future benefits or revenues you discounted that at a percentage that if i if we did the math right it was like you know the equity part was twenty percent roughly the de chart was something like three percent and you crunch it in our are you saying that all of those other factors are what created the twenty percent and three percent yes when you're calculating what is debt portion what percent do you put on the debt portion you have to look at the size of the company and as well as some other fact aust of debt would be for i b m than it is for joe's startup exactly the cost of debt for i b m when i b m goes into the market to borrow money i follow that and i take it that that wasn't the major source of disagreement no kirshner had come up with a cost of equity of about twenty five percent mr sackman had calculated the cost of equity to be between twenty one and twenty five percent so they were fairly consistent i  understand the statement then as to why those factors would it would affect the numbers but going back to your original statement when you buy a company that's one hundred percent debt that is far riskier i'm saying but why would you pay a lot more for such a company i don't think you would pay a lot more for such a company if you're buying a highly risky company your discount rate is going to be higher because of the risk of the company well but that's that that's factored into the number that you assign for debt it's factored in not only the number you sign for debt as well as the number you sign for equity but you said one hundred percent that company has no equity correct so it is always going to be higher than debt isn't it i mean twenty and three is a monstrous difference i can imagine that the experts would say that would swing or are you telling me it would well i'm not an expert in developing discount rates so i can't tell you exactly why but as the amount of debt goes up you know you're it does you know once you've established the discount rate based upon a weighting of a lot of equity in a little that as the debt goes up the risk level of the company is going to go up and mr second admitted that in cross examination you're not objecting to the qualifications of either expert or y opining as to an industry average capital structure the district court said i'm going to use an industry average capital structure then he took dr kirsch's industry average capital structure and averaged it with mr seconds which was a buyer's capital structure which was erroneous and averaging the to reduce the discount rate the result was that the district court by lowering the discount rate in that way amount ultimately awarded for tri county two point seven million dollars in diminished value exceeds the amount that mr second calculated tri county was worth in total he had calculated try townie in total the whole company was worth two point three million dollars and the district courts award a two point seven and diminished value or did more than the value of the entire company they thank you if you reserve any time for rebuttal which would be only on the cross appeal i did not good alexander last last thing very briefly your honor the i want to address the question you asked judge box on the candy store analogy can the statute be satisfied if you become a manufacture the answer under the case law is yes we don't dispute that point what we say here and the record shows coast to reka has never become a manufacture under any of the definitional requirements of the statute it has never offered as a three requires a contract to distributors it has never filed a district distributor designation for those stipulations of fact are in paragraphs thirty thirty one and thirty two to this day it cannot meet the requirements of a statutory manufacture and therefore it cannot be the party under d which has the right to use the terminations provision in all the prior cases it's been used by a new manufacture who did all the things that the law requires that's point one point t niehaus argued at length about that as per case in the supreme court a while two points number one that case could not be more different on the facts and the law why because there the court the supreme court itself wrote it is on display it is not disputed that the new manufacture was a menu fracture it was not disputed not even an issue in th referring to the one that the c three ne third eleven seventy three ok that's right so there it was undisputed that there was a real successor manufacture under the statute that's what the court said here it's the central issue in the case is there a successor manufacture and in that case the second manufacture did everything that the statute requires offered contracts filed designation forms got a permit all of those elements are required of somebody who's going to do business in ohio highly control area in order to constitute a manufacture a coaster rican company that has none of those relationships cannot possibly be the kind of manufacture that has ohio has regulatory authority over on the i'm almost out of time so i want to ask and let me do you have questions of me on the discount rate i want to address what's most important or i can just go ahead and respond to a few points that were raised a take your best shot briefly all right dr k acknowledged on cross examination which the supreme with which judge marbled pointed out that it would be unusual to use the seller's capital structure that makes common sense if you're going to buy a house why do you care what the seller's capital structure is it doesn't have anything to do with the value of that property now the other point on the so called average industry capital capital approach respectfully i would ask the court if it could take the time to read the transcript of dr kirshner on cross examination there this so called theory was largely based not on data which he acknowledged there in fact is no published data on industry average there is no published data on it he had strapped elated from some limited data made a series of assumptions and then came to his theory on so called industry average in sharp contrast second took a different entirely different approach second as a deal guy he represents byron sellers he's not an academic he testified about what kind of capital structure he was seen in the industry in actual transactions by people doing these deals and with interest rates as low as they are unsurprisingly they're  as highly levered as the buyer can make them you're not complaining about the qualifications of either expert no no i'm just saying that you want sixty five sixty five debt thirty five equity which gives you a low percentage and therefore a high present value and surprisingly where you want these different views you have a sort of short answer though as to if we're looking at the value of an entity why does it matter the buyer or either side but especially the buyers structure i'm looking at a piece of farmland and we've got five buyers one of them is one hundred percent debt one of the hundred percent deck whitty the value of the farm is the market value of the farm it's got nothing to do with the structure of any of these buyers your honor i couldn't agree with you more but what and that's why we emphasized in the district court for city in that what it ought to use is the multiple approach which which is what people doing deals in the industry actually is a multiple of gross profits wrap this up so the multiple approach help me here we've got a stream of future profits and if i say ok i want twelve times future profits that's going to be something like the full value of this year ninety percent of next year eighty percent some implicit discount rate right can i do the math if my bottom line number is twelve times profits that's going to look a lot like the stream of profits at x discount rate if i want fifteen times profits i can back out a different discount rate is that is that a fair statement i think it is or as dr kirshner conceded on cross examination he often uses multiples  test will read the d c area hearses cross examination that's a fair point and the other questions thank you johnny very much based will be submitted