Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca6-15-03710/USCOURTS-ca6-15-03710-0/pdf.json

Nature of Suit Code: 196
Nature of Suit: Franchise
Cause of Action: 

---

1 

RECOMMENDED FOR FULL-TEXT PUBLICATION 

Pursuant to Sixth Circuit I.O.P. 32.1(b) 

File Name: 16a0154p.06 

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT 

_________________ 

TRI COUNTY WHOLESALE DISTRIBUTORS, INC.; THE 

BELLAS COMPANY, 

Plaintiffs-Appellants/Cross-Appellees, 

v. 

LABATT USA OPERATING CO., LLC; CERVECERIA 

COSTA RICA, S.A., NORTH AMERICAN BREWERIES 

HOLDINGS, LLC, 

Defendants-Appellees/Cross-Appellants. 

┐

│

│

│

│

│

│

│

│

│

│

┘

Nos. 15-3710/3769 

Appeal from the United States District Court 

for the Southern District of Ohio at Columbus. 

No. 2:13-cv-00317—Algenon L. Marbley, District Judge. 

Argued: March 17, 2016 

Decided and Filed: July 6, 2016 

Before: BOGGS, SILER, and BATCHELDER, Circuit Judges. 

_________________ 

COUNSEL 

ARGUED: David W. Alexander, SQUIRE PATTON BOGGS (US) LLP, Columbus, Ohio, for 

Appellants/Cross-Appellees. James B. Niehaus, FRANTZ WARD LLP, Cleveland, Ohio, for 

Appellees/Cross-Appellants. ON BRIEF: David W. Alexander, Larry J. Obhof Jr., Christopher 

F. Haas, SQUIRE PATTON BOGGS (US) LLP, Columbus, Ohio, for Appellants/CrossAppellees. James B. Niehaus, Christopher C. Koehler, FRANTZ WARD LLP, Cleveland, Ohio, 

for Appellees/Cross-Appellants. 

>

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 1
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 2 

_________________ 

OPINION 

_________________ 

BOGGS, Circuit Judge. After Prohibition ended in 1933 when the Twenty-First 

Amendment was ratified, most states adopted a system for distributing alcoholic beverages that 

consists of three tiers: suppliers, distributors, and retailers. Suppliers manufacture or import 

alcoholic beverages, and they must sell their products to state-licensed distributors. Those 

distributors then sell the products to retailers, who sell them to consumers. While many 

economists are skeptical about the public benefits of this regulatory scheme, Ohio continues to 

operate under a three-tier system. 

 One feature of Ohio’s three-tier system is that when a supplier and a distributor enter into 

a franchise agreement, the agreement is protected from termination without just cause. Ohio 

Rev. Code § 1333.85. That protection, however, is subject to an exception for when “a successor 

manufacturer acquires all or substantially all of the stock or assets of another manufacturer 

through merger or acquisition.” Id. § 1333.85(D). If such an acquisition occurs, the successor 

manufacturer may terminate the franchise if it repurchases the distributor’s inventory of the 

products and “compensate[s] the distributor for the diminished value of the distributor’s business 

that is directly related to the sale of the product or brand terminated or not renewed by the 

successor manufacturer.” Ibid. In this case, we consider the scope of transactions covered by 

§ 1333.85(D) and the proper method for calculating the diminished value of a distributor’s 

business. We also consider whether the Takings Clauses of the federal and Ohio constitutions 

protect distributors’ franchises from termination under § 1333.85(D). 

I 

 The plaintiffs in this case—Tri County Wholesale Distributors and Iron City Distributing 

(“the distributors”)—are distributors of alcohol in Ohio that entered into franchise agreements 

with a supplier—Labatt USA Operating Co., LLC (“Labatt USA Operating”). The franchise 

agreements allowed the distributors to sell several prominent brands of beer in their respective 

territories: Labatt, Genesee, Dundee, Honey Brown Lager, and Seagram’s Escapes. 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 2
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 3 

 Labatt USA Operating is 100% owned and controlled by North American Breweries 

Holdings, LLC (“NAB Holdings”) through a series of five intermediate nested holding 

companies: 

North American Breweries Holdings, LLC 

 | 100% Ownership 

North American Breweries Intermediate Holdings, LLC 

 | 100% Ownership 

North American Breweries, Inc. 

 | 100% Ownership 

NAB Holdco, LLC 

 | 100% Ownership 

North American Breweries Operating Holdco, LLC 

 | 100% Ownership 

Labatt USA Operating Holdings, LLC 

 | 100% Ownership 

Labatt USA Operating Co., LLC 

 Before December 11, 2012, the membership interests in NAB Holdings were owned by 

several investors (“KPS entities”). On December 11, the KPS entities sold their interests in NAB 

Holdings through a complex transaction that resulted in CCR American Breweries, Inc. (“CCR”) 

owning 100% of NAB Holdings. About three months later, on March 7, 2013, Tri County 

received a letter from CCR purporting to terminate Tri County’s right to distribute the brands 

supplied by Labatt USA Operating. On March 11, 2013, Iron City received a similar letter. The 

letters claimed that CCR was entitled to terminate the franchise agreements because CCR’s 

acquisition of NAB Holdings qualified under Ohio Revised Code § 1333.85(D) as a transaction 

in which “a successor manufacturer acquire[d] all or substantially all of the stock or assets of 

another manufacturer through merger or acquisition.” 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 3
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 4 

 The distributors responded by suing Cerveceria Costa Rica, S.A. (the owner of CCR), 

Labatt USA Operating, and NAB Holdings (“the suppliers”) for: (1) a declaratory judgment 

stating that the franchises cannot be terminated under § 1333.85(D) and an award of any 

damages resulting from the suppliers’ attempted termination of the franchises; (2) in the 

alternative, a declaratory judgment stating that the suppliers may not terminate the franchises 

under § 1333.85(D) because doing so would violate the Takings Clauses of the federal and Ohio 

constitutions; or (3) in the alternative, if the suppliers may terminate the franchises under 

§ 1333.85(D), the diminished value of the distributors’ businesses. 

 The district court granted the suppliers judgment on the pleadings on the Takings Clause 

claim and summary judgment on the claim regarding the scope of § 1333.85(D). The court then 

held a bench trial to determine the diminished value of the distributors’ businesses, the details of 

which will be discussed below. The court determined that the diminution of the values of Tri 

County and Iron City was $2,756,459 and $302,720, respectively. 

 The distributors now appeal the district court’s rulings, raising four issues: (1) whether 

the suppliers were entitled to terminate the franchises under § 1333.85(D); (2) whether the 

terminations, if allowed under § 1333.85(D), violate the Takings Clauses of the federal and Ohio 

constitutions; (3) whether the district court should have included in the distributors’ awards the 

net operating losses they were expected to incur after the termination of the franchises; and 

(4) whether the district court should have relied solely on the distributors’ expert’s proposed 

capital structure in calculating the diminished value of the distributors’ businesses. The suppliers 

raise two additional issues in their cross-appeal: (1) whether the district court should have 

deducted profits earned by the distributors after the valuation date of the brands from the court’s 

calculation of the diminished value of the distributors’ businesses; and (2) whether the district 

court should have relied solely on the suppliers’ expert’s proposed capital structure in calculating 

the diminished value of the distributors’ businesses. 

II 

 The first issue is whether the suppliers were entitled to terminate their franchise 

agreements with the distributors under § 1333.85(D), a question of law that we review de novo. 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 4
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 5 

Lavado v. Keohane, 992 F.2d 601, 605 (6th Cir. 1993). Under Ohio Revised Code § 1333.85, 

suppliers cannot terminate franchise agreements without just cause, but § 1333.85(D) provides 

an exception for when “a successor manufacturer acquires all or substantially all of the stock or 

assets of another manufacturer through merger or acquisition or acquires or is the assignee of a 

particular product or brand of alcoholic beverage from another manufacturer.” The question here 

is whether § 1333.85(D) covers CCR’s acquisition of NAB Holdings from the KPS entities. 

 The distributors argue that the suppliers are not entitled to terminate the franchise 

agreements because the statute requires “a successor manufacturer” to acquire the stock or assets 

of “another manufacturer.” According to the distributors, when a supplier is owned by a parent 

company, which itself may be owned by several layers of parent companies, transfers of 

ownership at the upper levels do not trigger § 1333.85(D), because the upper-level companies are 

not “manufacturers.” The distributors claim that only a company directly registered with Ohio’s 

Division of Liquor Control can be a “manufacturer.” Thus, the distributors contend that neither 

NAB Holdings nor CCR is a manufacturer; only Labatt USA Operating is a manufacturer. 

 The district court rejected the distributors’ argument because a strict reading of the word 

“manufacturer” as excluding parent companies would lead to a conclusion “that is illogical and 

could not have been the intent of the drafters,” quoting Esber Beverage Co. v. Labatt USA 

Operating Co., Nos. 2011CA00113, 2011CA00116, 2012 WL 983171, at *6 (Ohio Ct. App. 

Mar. 12, 2012), aff’d, 3 N.E.3d 1173 (Ohio 2013). In that case, the Ohio Court of Appeals 

considered Labatt USA Operating’s acquisition of the Labatt brands from InBev, and its 

subsequent attempt to terminate a franchise agreement that gave Esber the right to distribute the 

brands in ten Ohio counties. Id. at *1–2. Esber argued that “because Labatt USA Operating Co. 

was created for the purpose of supplying the Labatt brands and it was not supplying anything to 

anyone until it acquired the Labatt brands . . . Labatt USA Operating Co. was not a ‘successor 

manufacturer’ at the time it acquired the Labatt brands.” Id. at *6. The court disagreed with 

Esber’s reading of § 1333.85(D), writing: 

 While we acknowledge that a strict reading of the statutory language leads to the 

position argued by appellee [Esber], we find such a strict reading of the definition 

of “manufacturer” also leads to a conclusion that is illogical and could not have 

been the intent of the drafters. We do not find that the statutes intended to treat a 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 5
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 6 

business’s right to terminate a franchise differently based on whether the business 

was created for the purpose of supplying a brand of alcohol to distributors or 

whether the business which acquired the brand was an existing supplier. In either 

situation, the entity [acquiring the brands] would be faced with making business 

decisions on how to operate most efficiently. 

 . . . . 

 . . . [I]n the instant case, it is clear that there was a transfer of ownership 

and control of the Labatt brands from InBev to Labatt USA Operating Co., 

effective March 13, 2009. There is no evidence that InBev and Labatt USA 

Operating Co. are under common control. . . . [T]he evidence is undisputed that 

there was in fact a complete sale of all assets related to the Labatt brands. The 

trial court therefore erred in finding that Labatt USA Operating was not a 

successor manufacturer within the meaning of R.C. 1333.85(D). 

Id. at *6–7. Thus, even though Labatt USA Operating in that case did not sell any alcohol at the 

time it acquired the brands, it was a “successor manufacturer” because it received complete 

ownership and control of the brands from InBev. 

Esber rejected a strict reading of “manufacturer” that is similar to the one proposed by 

the distributors in this case. Hence, the district court rejected the distributors’ argument: 

[T]he Esber Court determined that the dispositive inquiry in determining whether 

an entity was a “manufacturer” within the meaning of “successor manufacturer” 

was whether it was in the business of manufacturing or supplying alcoholic 

products or brands, and thus would be faced with making business decisions 

regarding how to operate most efficiently in the sale of products or brands. 

 . . . [T]estimony confirms that in addition CCR’s complete acquisition of 

Labatt USA Operating, it also is tasked with making ultimate business decisions 

concerning the operations of Labatt USA Operating. Thus, it is a “manufacturer” 

within the meaning of the term “successor manufacturer.” 

 We agree with the district court’s application of Esber. Such a functional, control-based 

approach has been used consistently by courts in significant cases involving the applicability of 

§ 1333.85(D). In Superior Beverage Co. v. Schieffelin & Co., Möet-Hennessy’s wholly owned 

subsidiary, Schieffelin Partner, was a 50% partner in S & S, which had the distributorship rights 

to the Möet-Hennessy brands. Nos. 1:05 CV 0834, 4:05 CV 0868, 2007 WL 2756912, at *1–2 

(N.D. Ohio Sept. 20, 2007). S & S then transferred those distributorship rights to Schieffelin & 

Co., which was 100% owned by Möet-Hennessy. Id. at *3–4. In effect, Möet-Hennessy went 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 6
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 7 

from having 50% control over business decisions relating to the brands to having 100% control. 

Because there was “another separately owned player” that controlled S & S before the transfer of 

the brands, id. at *10, the transaction was not one in which an “intra-corporate restructuring took 

place entirely within the same corporate family,” and the court held that Schieffelin & Co. was 

“a successor manufacturer under the Act as a matter of law,” id. at *11. 

Schieffelin is not identical to this case, as Schieffelin did not involve a transfer of 

ownership at the parent-company level. Unlike CCR, Schieffelin & Co. itself “obtained a license 

from the State of Ohio to distribute the brands” that it acquired from S & S. Ibid. But Schieffelin

did hold that the applicability of § 1333.85(D) turns on whether there has been a change in 

control of the business decisions regarding the brands. In Schieffelin, a change from 

50% ownership to 100% ownership was enough to trigger § 1333.85(D). Here, there was a 

100% change in ownership, with a complete change in control of the business decisions relating 

to the brands. This is not a situation in which the right hand sells to the left hand. Under a 

functional, control-based analysis, § 1333.85(D) applies. 

 There have also been state and federal cases using a control-based inquiry to conclude 

that § 1333.85(D) did not apply. In Hill Distributing Co. v. St. Killian Importing Co., No. 2:11–

CV–706, 2011 WL 3957255 (S.D. Ohio Sept. 7, 2011), a Danish company, Carlsberg, allowed 

Beverage Alliance to import its beer brands into the United States. Id. at *1. St. Killian 

subsequently acquired the importation rights from Beverage Alliance, id., while Carlsberg 

continued to own and market the brands, id. at *3. In deciding whether St. Killian could 

terminate Carlsberg’s franchise agreement with the plaintiff, Hill Distributing, the district court 

applied a functional, control-based test: 

Effectively, what has occurred is a restructuring of Carlsberg’s business. It 

maintains control of its Brands, but those brands now have a different importer 

into the United States. Carlsberg continues to brew the beers, own the intellectual 

property, and approve the marketing campaigns. Additionally, it may terminate 

St. Killian under various circumstances and obtain a new importer. In essence, 

this is a restructuring of Carlsberg’s importation arrangement, although its 

ownership and control of the Brands has never wavered. 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 7
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 8 

Ibid. Because Carlsberg controlled the brands before and after the transaction, it was the sole 

“manufacturer.” Therefore, the transaction was not an acquisition by a “successor manufacturer” 

covered by § 1333.85(D). In Belvino L.L.C. v. Empson (USA) Inc., No. 97305, 2012 WL 

2580758 (Ohio Ct. App. July 5, 2012), the Ohio Court of Appeals quoted St. Killian for the 

proposition that § 1333.85(D) applies only “when there is a change in ownership and control of 

brands through an arms-length merger or acquisition,” id. at *7, and reached the same conclusion 

in a case with similar facts: 

 In the instant case, when Empson took over as il Molino’s exclusive 

importer in February 2010, Empson did not acquire any ownership rights in il 

Molino. The record demonstrates that il Molino continues to maintain control 

over its brands and can terminate its relationship with Empson at any time. 

 il Molino’s reasoning for the change was that it was effectively 

reorganizing its business structure. Because the wine remains under the ownership 

and control of il Molino, Empson does not qualify as a “successor manufacturer” 

under R.C. 1333.85(D). . . . . 

Ibid.; cf. Esber Beverage Co. v. Heineken USA, Inc., No. 2011CA33, 2011 WL 5626592, at *2, 

*5 (Ohio Ct. App. Nov. 14, 2011) (upholding trial court decision that § 1333.85(D) did not apply 

because “the transfer of import rights in the Brand . . . was merely a transfer from one Heineken 

controlled entity, NFB, to another Heineken controlled entity, HUSA”). 

 Following in the footsteps of these earlier cases, the district court in this case applied a 

control-based test. It concluded that because CCR exercised its newly acquired control over the 

business decisions of Labatt USA Operating after acquiring NAB Holdings from the KPS 

entities, it was a “successor manufacturer,” and could terminate the franchises under 

§ 1333.85(D). Such a functional approach is in line with Ohio case law and provides a sensible 

reading of the statute, in contrast to the distributors’ hyperliteral approach, which excludes all 

transactions at the parent-company level. 

 The distributors’ counsel suggested at oral argument that this approach would undermine 

the statute’s protectionist purposes and result in an “accelerated and immediate consolidation of 

the industry.” As an initial matter, we see no reason to read § 1333.85(D) as having a 

protectionist purpose because that provision is clearly designed to provide successor 

manufacturers with the flexibility to “assemble their own team of distributors so long as the 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 8
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 9 

successor manufacturers provide timely notice and compensate those distributors who are not 

being retained.” Esber Beverage Co. v. Labatt USA Operating Co., 3 N.E.3d 1173, 1174 (Ohio 

2013). 

 Furthermore, even under the distributors’ interpretation of the statute, CCR could still 

have terminated the franchises if it had only structured the transaction differently. Instead of 

acquiring NAB Holdings, CCR could simply have set up a new entity, which would then take 

control of the brands directly from Labatt USA Operating. As we have already discussed, this 

sort of transaction would clearly trigger § 1333.85(D) under Esber, 2012 WL 983171, at *6. 

Therefore, the distributors’ interpretation of § 1333.85(D) would do little to stop any 

consolidation that allegedly might occur if successor manufacturers were allowed to terminate 

franchise agreements. The distributors’ policy-based arguments are unpersuasive. We agree 

with the district court’s interpretation of § 1333.85(D) and hold that the suppliers were entitled to 

terminate the franchise agreements. 

III 

 The distributors argue in the alternative that, if the suppliers are allowed to terminate 

their franchises under § 1333.85(D), such a termination would amount to an unconstitutional 

governmental taking for private purposes under the federal and Ohio constitutions. The district 

court rejected the distributors’ argument and granted the suppliers judgment on the pleadings, a 

decision that we review de novo. Lavado, 992 F.2d at 605. Before diving into the doctrinal 

thicket, it is worth pausing for a moment to consider the bigger picture. 

 The distributors are the beneficiaries of an anticompetitive statute that deprives suppliers 

of their freedom to terminate contracts with distributors. Cf. Letter from C. Steven Baker, 

Director, Chicago Regional Office, Federal Trade Commission, to Illinois Senator Dan Cronin 

(Mar. 31, 1999) (“[A similar statute in Illinois] would shield the business of liquor distribution 

from market forces. . . . The likely result of such a static distribution system will be increased 

consumer prices. . . . We are unaware of any evidence establishing the need for this type of 

legislation.”). Under § 1333.85, suppliers may not “cancel or fail to renew a franchise or 

substantially change a sales area or territory without the prior consent of the other party for other 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 9
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 10 

than just cause.” Any provision of a franchise agreement that waives or fails to comply with this 

requirement “is void and unenforceable.” § 1333.83. 

 The provision involved in this case, § 1333.85(D), provides an exception to this 

anticompetitive scheme when “a successor manufacturer acquires all or substantially all of the 

stock or assets of another manufacturer through merger or acquisition.” In that case, the supplier 

may end the franchise by repurchasing the distributor’s inventory of the product or brand and 

“compensat[ing] the distributor for the diminished value of the distributor’s business that is 

directly related to the sale of the product or brand terminated or not renewed by the successor 

manufacturer.” The distributors’ argument, in essence, is that the Takings Clauses of the federal 

and Ohio constitutions require Ohio to grant them the anticompetitive benefits of § 1333.85 

without the exception provided by § 1333.85(D). 

 While that is the essence of the distributors’ argument, they frame their case a little 

differently. The distributors claim that their franchises are property that has been taken for a 

solely private purpose in violation of the federal and Ohio constitutions. That argument fails 

because, even if we assume that their franchises are property, the Takings Clauses of the federal 

and Ohio constitutions deal with government takings of property. See Armstrong v. United 

States, 364 U.S. 40, 49 (1960) (“The Fifth Amendment’s guarantee that private property shall not 

be taken for a public use without just compensation was designed to bar Government from 

forcing some people alone to bear public burdens which, in all fairness and justice, should be 

borne by the public as a whole.”). In this case, the suppliers are private actors who were not 

exercising the power of eminent domain under a delegation of authority from the government. 

Cf. Nat’l R.R. Passenger Corp. v. Two Parcels of Land, 822 F.2d 1261, 1265 (2d Cir. 1987) 

(discussing a statute that allowed Amtrak to exercise the “delegated power of eminent domain”). 

 The distributors try to tie the suppliers’ termination of the franchises to the government 

by arguing that the termination was sanctioned by the state under § 1333.85(D). That argument 

is incorrect. At common law, businesses have the freedom to enter into a contract that allows for 

termination, and contracting parties also have an inherent right to breach a contract that is no 

longer advantageous, committing what economists call an efficient breach. That common-law 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 10
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 11 

norm is abrogated by § 1333.85, with an exception for situations falling under § 1333.85(D). To 

the extent that the distributors have a right to protection from termination, it is a statutory right 

created by the state, which the state is free to take away. Cf. Minneapolis Taxi Owners Coal., 

Inc. v. City of Minneapolis, 572 F.3d 502, 509 (8th Cir. 2009) (holding that there is no property 

interest in taxi licenses because the benefits of participating in a “highly regulated” market are 

subject to a “general expectation of regulatory change”). The distributors’ claims under the 

federal and Ohio constitutions fail, and the district court correctly granted the suppliers judgment 

on the pleadings. 

IV 

 We now consider the proper method for calculating the diminished value of a 

distributor’s business under § 1333.85(D). Both parties argue that the district court erred in its 

calculation. We review the district court’s rulings on questions of law de novo and questions of 

fact for clear error. See Max Trucking, LLC v. Liberty Mut. Ins. Corp., 802 F.3d 793, 803 (6th 

Cir. 2015). Mixed questions of law and fact are reviewed de novo. Williams v. Mehra, 186 F.3d 

685, 689 (6th Cir. 1999) (en banc). 

 The parties identify three issues pertaining to the district court’s calculation of the 

diminished value of the distributors’ businesses: (1) whether the court’s calculation should have 

included the value of the distributors’ assets that were projected to be depleted during the time 

they attempted to acquire replacement brands to distribute; (2) whether the district court 

miscalculated the discount rate used to determine the value of the brands by averaging the capital 

structures put forth by the two parties’ experts; and (3) whether the district court should have 

subtracted from the award the profits that the distributors derived from continuing to distribute 

the brands after the date of valuation. 

A 

 The distributors argue that the district court miscalculated the diminished value of their 

businesses because it failed to include the cash they were projected to lose in net operating losses 

while attempting to acquire replacement products. They claim to be entitled to those costs in 

addition to the fair market value of the lost brands. The district court declined to award these 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 11
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 12 

costs on the basis that they were already included in the court’s calculation of the lost brands’ 

fair market value. The suppliers agree, arguing that the distributors are essentially asking for a 

double recovery on a portion of their lost profits. 

 The distributors present no persuasive rebuttal to the double-recovery argument. They 

first point to the testimony of witnesses asserting that the depletion of their assets is a separate 

and independent loss from the value of the lost brands. But witness testimony cannot resolve the 

legal question of what constitutes “the diminished value of the distributor’s business that is 

directly related to the sale of the product or brand terminated or not renewed by the successor 

manufacturer.” Ohio Rev. Code § 1333.85(D). 

 The distributors’ second argument is that: 

[S]everal times throughout its decision, the District Court unambiguously stated 

that the DCF valuation which formed the basis for its diminished value award was 

not actually an award of Distributors’ projected profits on the NAB Brands. 

Rather the court used those projected profits as a tool to calculate the value of 

NAB Brands as a distinct, intangible asset. 

The problem with this argument is that the only reason the distributors would be having net 

operating losses after losing the brands is that they are no longer able to earn profits from them. 

But when the district court awarded the distributors the value of the lost brands, they received a 

sum of money equal to the discounted present-day value of the projected future profits from 

those brands. The district court’s award therefore compensates the distributors wholly for the 

“diminished value” of their companies. Perhaps if the district court’s calculation of the value of 

the brands did not include lost profits, the distributors would have a point. But here, the 

projected profits were included in the district court’s calculation. As the district court reasoned: 

[T]he values of the terminated franchises are equal to an estimate of lost profits 

the Distributors would have reaped from such contracts for some reasonable time 

into the future. This number should, theoretically, fully compensate the 

Distributors for the diminished value of their businesses, and put them in the place 

they would have been, from a profit perspective, but for the termination of the 

contracts. . . . It is for this reason that this Court declines to add onto the value of 

the lost franchise contracts any depletion of assets . . . . Such theoretical losses are 

better viewed as lost profits, for which Distributors will be compensated fully 

through a DCF accounting of the Brands’ values. 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 12
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 13 

The district court was correct to deny the distributors additional money equal to their projected 

net operating losses. 

B 

 Both parties argue that the district court used the wrong capital structure in calculating 

the discount rate used to determine the diminished value of the distributors’ businesses—that is 

to say, the value of the lost brands. To calculate the value of the lost brands in this case, the 

experts of both parties used discounted-cash-flow analysis. That procedure measures the 

present-day value of an asset based on the income it is expected to generate in the future, 

discounted to present-day value. Discounting allows for the final valuation to take into account 

the time value of money (money today is worth more than money tomorrow) and the uncertainty 

that exists about whether the projected future cash flow will actually materialize. 

 The formula used by the district court to calculate the discount rate requires the input of a 

capital structure. The parties dispute whether the appropriate capital structure should be that of a 

typical buyer or that of the entire industry over the long term. The distributors ask us to use the 

capital structure of a typical buyer, which their expert Lamont Seckman testified was 35% equity 

and 65% debt. The suppliers ask us to use the long-term industry capital structure, which their 

expert Samuel Kursh testified was 93.2% equity and 6.8% debt. The district court below 

averaged the two experts’ figures in order to arrive at a capital structure of 64.1% equity and 

35.9% debt. 

 Upon reviewing the parties’ briefs, we conclude that their arguments raise issues of fact, 

not law. This court reviews factual questions for clear error, and we must affirm the district 

court’s decision unless it leaves us with a “definite and firm conviction that a mistake has been 

committed.” Max Trucking, 802 F.3d at 808. 

 The distributors raise two arguments for why the district court erred in relying in part on 

Dr. Kursh’s long-term industry capital structure. First, they argue that Dr. Kursh “conceded that 

the usual valuation methodology does not consider the capital structure of the seller.” But that 

testimony from Dr. Kursh must be read in context. The distributors’ counsel asked Dr. Kursh 

whether it is typical to consider the seller’s capital structure in determining the discount rate 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 13
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 14 

under “the classical definition of discount rate . . . [which is] the rate necessary to attract . . . the 

buyer.” Dr. Kursh acknowledged that, in determining the rate necessary to attract a buyer, the 

seller’s capital structure was not relevant. However, Dr. Kursh also testified that he did not use 

that approach to calculating the discount rate for a reason: “In the diminished value scenario, 

because you’re valuing the brands . . . in the place that they reside, you would look at the seller.” 

Thus, contrary to the distributors’ characterization, Dr. Kursh did not testify that his own 

methodology was unsuitable for the task at hand. Rather, he acknowledged that the distributors’ 

counsel accurately described a different methodology, but disputed whether that methodology 

was applicable to this case. 

 Second, the distributors argue that Dr. Kursh “conceded that there is actually no reported 

‘industry average’ capital structure, and that he calculated his figures using many assumptions 

for which there is no evidence in the record, and applying a methodology that has never been 

published or peer-reviewed.” Dr. Kursh did acknowledge that his calculation of the long-term 

industry capital structure required him to “interpre[t] the data” and “make some assumptions.” 

But as the district court noted, “[n]either expert presented the Court with foundational data or 

evidence showing how they arrived at their respective capital structures,” and “both witnesses 

are qualified to produce estimations of the average capital structure used in the beer distribution 

industry.” The few excerpts from Dr. Kursh’s testimony cited by the distributors are hardly 

sufficient for us to conclude that the court committed clear error when it relied on Dr. Kursh’s 

long-term industry capital structure. 

 The suppliers argue in their cross-appeal that the district court erred equally in relying in 

part on the capital structure put forth by Seckman. Their primary criticism of Seckman’s capital 

structure is that it focuses on the typical buyer’s capital structure, when “the method of financing 

a purchase is irrelevant to the value of the asset being purchased.” The suppliers provide no 

citation to the record to support this assertion. Furthermore, the suppliers seem to contradict this 

argument in their reply brief: 

Appellants incorrectly state that Dr. Kursh’s long term industry capital structure 

was based on the seller’s capital structure. . . . The district court chose to use . . . 

the long term industry average [which was] based on NWBA data for all market 

participants – it was not limited to either buyers or sellers. Dr. Kursh’s testimony, 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 14
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 15 

therefore, was the only reliable evidence on which the District Court could rely to 

calculate the WACC. 

By arguing in their reply brief in favor of considering both buyers’ and sellers’ capital structures, 

the suppliers undercut their initial argument against considering the typical buyer’s capital 

structures. To avoid this problem, the suppliers try to shift their argument in their reply brief by 

emphasizing that the district court contradicted itself when it relied on Seckman’s buyer-focused 

capital structure while simultaneously finding that “the appropriate discount rate is one that uses 

the average industry capital structure.” We decline to consider this argument because the 

“general rule is that appellants cannot raise a new issue for the first time in their reply briefs.” 

Bendix Autolite Corp. v. Midwesco Enters., Inc., 820 F.2d 186 (6th Cir. 1987) (quoting 

Thompson v. C.I.R., 631 F.2d 642, 649 (9th Cir. 1980)). 

 The parties’ factual arguments essentially relitigate the “battle of the experts” that 

occurred at the trial court. After reviewing their arguments and the record, we are not left with a 

definite and firm conviction that a mistake has been committed. We affirm the district court’s 

calculation of the discount rate. 

C 

 The suppliers argue in their cross-appeal that the district court should have subtracted 

post-valuation-date profits from its calculation of the diminished value of the distributors’ 

businesses. While this litigation was pending in the district court, the suppliers were not allowed 

to transfer the brands in question to new distributors. Furthermore, after the court held the 

terminations valid and calculated the value of the brands, it granted the distributors’ motion for a 

stay pending appeal, which again prevented the transfer of the brands. The distributors have 

therefore been allowed to reap profits from the brands throughout the course of this litigation. 

The suppliers claim that these profits should be deducted from the court’s calculation of the 

diminished value of the distributors’ businesses, because that calculation already includes 

projected future profits. They argue that allowing the distributors to keep the profits they earned 

would result in the distributors receiving a windfall. 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 15
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 16 

 As an initial matter, we address two arguments by the distributors that we find to be 

unpersuasive. First, the distributors argue that the suppliers’ position is at odds with their prior 

argument at the preliminary-injunction stage, during which they argued that a preliminary 

injunction was unnecessary because: 

[T]he termination cannot effectively take place until [the suppliers] have 

compensated the Distributors for the diminished value of their businesses caused 

by the termination. . . . [A]bsent further order of this Court, the Distributors will 

be able to continue distributing Labatt Brands and Genesee Brands without 

interruption. In short, the Distributors face no harm that is either actual or 

imminent. 

This passage does show that the suppliers previously said that the distributors could continue to 

distribute the brands while the litigation was pending. But that position is not inconsistent with 

the suppliers’ claim in this case. The suppliers were simply stating the distributors could 

continue to distribute the brands until the court ruled on whether the termination was valid, and if 

the distributors happened to win the case, they could keep the profits. The above-quoted passage 

says nothing about whether the distributors would get to keep the profits if they lost the case. 

 The distributors also argue that the suppliers forfeited their argument about postvaluation-date profits because they did not appeal the district court’s ruling on their motion for 

an order allowing them to transfer the brands to a new distributor under § 1333.851. The district 

court denied that motion because the procedures set forth in § 1333.851 are only available when 

it is clear that § 1333.85(D) applies, and in this case, the key question is whether § 1333.85(D) 

applies. The distributors claim that the suppliers’ failure to appeal this decision by the district 

court constitutes a forfeiture of their argument for deducting post-valuation-date profits. That 

argument fails for the simple reason that this appeal concerns the proper method for calculating 

the “diminished value” of the distributors’ businesses under § 1333.85(D), which has nothing to 

do with the procedures set forth in § 1333.851. 

 Having dispensed with these two arguments, we now turn to the district court’s analysis. 

The district court gave several reasons for why it rejected the suppliers’ argument for deducting 

post-valuation-date profits. First, the court noted that nothing in the statute specifically calls for 

a deduction of post-valuation-date profits. But it is unsurprising that no such provision exists, 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 16
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 17 

because if a supplier successfully uses the statute to terminate a franchise agreement, the 

distributor would obviously be unable to earn additional profits after the termination. The 

absence of such an express provision does not definitively answer the question raised by the 

suppliers, which is whether refusing to deduct post-valuation-date profits is consistent with the 

court’s obligation to calculate the “diminished value” of the distributors’ businesses under 

§ 1333.85(D). The suppliers argue that when the termination is delayed beyond the rightful date 

of termination, which in this case corresponds with the valuation date, profits earned during that 

delay cannot be a part of the “diminished” value of the distributors’ businesses. 

 The court’s second reason for rejecting the suppliers’ argument was that “[a]lthough the 

DCF method [of calculating the franchises’ present-day value] is based conceptually on future 

cash flows, it is not, in actuality, merely a representation of future cash flows, but is, instead, an 

estimate of the total value of the intangible asset.” This position is at odds with the district 

court’s earlier holding regarding the distributors’ net-operating-loss argument, which was 

premised on the fact that the experts’ calculations of the franchises’ present-day value already 

included projected future profits. If that is so, then awarding the distributors the present-day 

value of the franchises in addition to letting them keep post-valuation-date profits would give 

them a windfall. The distributors would be profiting from the brands for several years beyond 

the date on which the franchise agreements should have been terminated, and such profits are 

already included in the experts’ calculations of the “diminished value” of the distributors’ 

businesses. 

 To be more specific, the suppliers attempted to terminate the franchise agreements on 

March 7, 2013. As of the date of this decision, it has been over three years since the suppliers 

should have been able to terminate the agreements. The special masters’ calculations show that 

the first three years of projected profits after discounting make up $976,834 of the $2,757,459 

awarded to Tri County and $106,891 of the $302,720 awarded to Iron City—roughly 35% of the 

total awards. If we did not account for the profits earned by the distributors during the pendency 

of this litigation, the distributors would receive a major windfall through this litigation that 

delayed the suppliers’ lawful exercise of their termination rights. 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 17
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 18 

 The court’s third reason for rejecting the suppliers’ position was that the suppliers 

themselves made a profit from their transactions with the distributors. The court reasoned: “By 

Defendants’ argument, if Plaintiffs are to disgorge their profits, so should Defendants for the 

same period. What is more apparent is that both parties have benefitted financially from the 

status quo and such post-termination benefits should not enter into this Court’s calculus.” 

However, the suppliers’ profits are not relevant to the inquiry prescribed by the statute, 

§ 1333.85(D), which states that the supplier must “compensate the distributor for the diminished 

value of the distributor’s business.” The statute’s language focuses on the distributors’ losses 

and says nothing about the suppliers’ profits. Therefore, granting the distributors an award that 

reflects lost future profits from the terminated franchises while also allowing them to earn profits 

from those franchises for several years gives them more than they are entitled to under the 

statute. Furthermore, it is not entirely fair to say that the suppliers benefited from the status quo. 

There is no evidence that the suppliers’ profits from the brands distributed by the plaintiffs were 

meaningfully superior to the profits that they would have earned from their desired distributors. 

While they may have made some profits from their transactions with the distributors, they were 

harmed, perhaps even more, by their inability to negotiate new franchise agreements with new 

distributors that may have been more profitable. 

 The court’s final reason for rejecting the suppliers’ argument for post-valuation-date 

profits was that it “sensed hypocrisy” in the suppliers’ argument, because: 

On the one hand, they stand firmly by the principle that this Court must assess the 

value of the NAB Brands as of the date of termination. As such, this Court is 

prohibited from considering post-termination conditions or events. On the other 

hand, by their demand to deduct post-termination benefits, Defendants 

ask this Court to look to post-termination events. Further, rather than estimating 

post-termination profits based on the conditions of the businesses as of 

March 2013—which is the date from which Defendants determine diminished 

value—Defendants ask this Court to deduct actual profits from March 13 through 

January 2015. This inconsistency, too, goes against deducting post-termination 

benefits. 

This analysis would be fair if the suppliers had actually terminated the franchise agreements on 

March 7, 2013, and been allowed to negotiate new agreements while this litigation was pending. 

But given that the distributors have been allowed to retain the brands for over three years beyond 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 18
Nos. 15-3710/3769 Tri County Wholesale Distributors, et al. v. 

Labatt USA Operating Co., et al. 

Page 19 

the termination date, letting them keep the profits derived from those brands while also awarding 

them a sum of money that includes projected profits for that time period would give them more 

than the “diminished value” of their businesses. 

 The district court raised an important point in criticizing the suppliers’ proposed 

deduction of actual profits rather than projected profits. The projected profits used in calculating 

the diminished value of the distributors’ businesses were discounted substantially in order to 

arrive at their value in 2013. Subtracting the actual profits earned by the distributors in 2014, 

2015, and 2016 without discounting them would be unfair to the distributors. We agree with the 

district court that it would be improper to deduct actual profits. Therefore, we instead hold that 

the profits that the distributors were projected to earn during the period of time leading up to the 

final resolution of this litigation—that is to say, the date when the franchise agreements are 

actually terminated—must be deducted from their award. 

V 

 We REVERSE the district court’s calculation of the diminished value of the distributors’ 

businesses and REMAND with instructions to deduct the profits projected to be earned by the 

distributors during the period of time leading up to the date when the franchise agreements are 

finally terminated. We AFFIRM the remainder of the district court’s decision. 

 Case: 15-3710 Document: 41-2 Filed: 07/06/2016 Page: 19