United States District Court, D. North Dakota
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY
L. Hovland, District Judge United States District Court
the Court is the Defendant's motion for summary judgment
filed on October 19, 2018. See Doc. No. 86. The
Plaintiff filed a response in opposition to the motion on
November 30, 2018. See Doc. No. 95. The Defendant
filed a reply on December 21, 2018. See Doc. No.
111. The Court granted amici leave to brief the motion.
See Doc. No. 106. Pepsi-Cola Bottlers'
Association filed an amicus brief in opposition to the motion
on December 13, 2018. See Doc. No. 108. Independent
Bottlers' Association filed an amicus brief in opposition
to the motion on December 14, 2018. See Doc. No.
110. The Defendant filed a response to the amicus briefs on
January 9, 2019. See Doc. No. 114. For the reasons
set forth below, the motion for summary judgment is granted.
The Parties and Their Contracts
Bottling Co., Inc. (“Northern”) is an independent
bottler operating out of Minot, North Dakota. Northern sells
beverage and snack products to more than 2000 customers in a
variety of channels, including convenience and gas outlets,
in North Dakota and South Dakota. The beverage products that
Northern sells include PepsiCo carbonated soft drinks
(“CSDs”), other PepsiCo products such as
Gatorade, and non-PepsiCo products, including Dr. Pepper,
Klarbrunn Sparkling Water, brewed coffee, brewed tea,
cappuccino, and slushies.
is a global food and beverage company. Among other things,
PepsiCo distributes and sells PepsiCo CSDs through its own
bottling subsidiary, Pepsi Beverages Company
(“PBC”), as well as through independent bottlers,
such as Northern. PBC accounts for approximately 75-80% of
PepsiCo CSD sales in the United States, and independent
bottlers account for the remaining 20-25% of such sales.
and Northern are parties to a series of agreements, called
Exclusive Bottling Appointments (“EBA”or
“EBAs”). See Doc. Nos. 1-1 and 88-5.
Each EBA pertains to a certain PepsiCo CSD-specifically,
Pepsi, Diet Pepsi, Mountain Dew, and Diet Mountain Dew-but
are materially similar otherwise. Each EBA appoints Northern
as PepsiCo's “exclusive bottler, to bottle and
distribute” a specific PepsiCo CSD in a designated
geographic territory (the “exclusivity
provision”). Each EBA provides that PepsiCo will sell
Northern its requirements of concentrate or syrup for a
particular CSD product and protect the trademark for that
product. The EBAs require Northern to produce and bottle the
finished product from the concentrate or syrup, and then sell
the product at its own price in its designated territory.
Each EBA also provides a number of terms and conditions with
which Northern must comply; however, those are not at issue
here. Finally, each EBA provides it “shall be governed
by and interpreted under the laws of the State of New York,
” that the EBA “expresses fully the
[parties'] understanding, ” that “all prior
understandings are hereby cancelled, ” and that
“no future changes in the terms of this Appointment
shall be valid, except when and if reduced to writing and
signed by both” Northern and PepsiCo. Of significance
is the undisputed fact that none of the EBAs mention
transshipment of PepsiCo CSDs, nor impose an obligation on
PepsiCo to prevent transshipment of CSDs into Northern's
exclusive territory by third parties.
first issued an EBA to Northern on November 14, 1955, for the
designated territory of Wells, Sheridan, Pierce, McHenry,
Bottineau, Renville, Ward, Burke, and Mountrail County in the
State of North Dakota. See Doc. No. 1-1. The EBA
provided in relevant part as follows:
1. That the Bottler will operate a thoroughly clean and
sanitary bottling plant at Minot, North Dakota[.] The Bottler
will at all times have available sufficient productive
capacity at the plant or plants above listed or at other
plants in the Territory approved by the Company to enable the
Bottler to fully meet his obligations under this Appointment.
It is recognized that under the foregoing it may be necessary
from time to time for the Bottler to increase the present
productive capacity of the plant or plants above listed, or
to establish additional plants in the Territory.
The equipment of each plant shall contain such water
treatment and other equipment as the Company may prescribe.
The Bottler will maintain each plant at all times in good
operating condition, and will comply with any and all local,
City, County, State and Federal laws and regulations now in
effect or which may hereafter be enacted pertaining to the
operation of bottling plants, bottling, selling and handling
of soft drinks.
2. That the Bottler will not bottle, distribute or sell,
directly or indirectly, any other cola beverage or any other
beverage with the name Cola and/or any beverage which could
be confused with Pepsi-Cola.
. . . .
4. That the Company will sell to the Bottler, and the Bottler
will purchase, at the Company's then price or prices
therefor at the time of each sale, the Bottler's
requirements of Pepsi-Cola concentrate or syrup for the
bottling of Pepsi-Cola hereunder, payment for same to be made
by the Bottler in advance of shipment; and all Pepsi-Cola
concentrate or syrup so purchased will be used by the Bottler
for the bottling of Pepsi-Cola in the Territory and for no
. . . .
7. That the Bottler will sell the bottled Pepsi-Cola in the
Territory at the Bottler's price per case plus the
deposit charge for bottles and case. The Company may from
time to time suggest to the Bottler the price per case to be
charged by him and the deposit charge.
8. That the Bottler will push vigorously the sale of bottled
Pepsi-Cola throughout the entire territory in the 12-oz. size
bottle and in any other size bottle prescribed by the Company
for the Territory. Without in any way limiting the
Bottler's obligation under this Paragraph 8, the Bottler
must fully meet and increase the demand for Pepsi-Cola
throughout the Territory and secure full distribution up to
the maximum sales potential therein through all distribution
channels or outlets available to soft drinks, using any and
all equipment reasonably necessary to secure such
distribution; must service all accounts with frequency
adequate to keep them at all times fully supplied with
Pepsi-Cola; must use his own salesmen and trucks . . . in
quantity adequate for all seasons; and must fully cooperate
in and vigorously push the Company's cooperative
advertising and sales promotion programs and campaigns for
the Territory. In addition the Bottler will actively
advertise, in all reasonable media including adequate
point-of-purchase advertising, and vigorously engage in sales
promotion of, bottled Pepsi-Cola throughout the Territory at
his own cost and expense. The Bottler will carry Products
Liability Insurance on his operation in such amounts as the
Company may recommend. All advertising copy and media shall
be subject to the Company's approval.
. . . .
19. That this Appointment expresses fully the understanding,
and that all prior understandings are hereby cancelled, and
no future changes in the terms of this Appointment shall be
valid, except when and if reduced to writing and signed by
both the Bottler and the Company, by legally authorized
20. The failure by the Company to enforce at any time or for
any period of time any one or more of the terms or conditions
of this Appointment, shall not be a waiver of such terms or
conditions or of the Company's right thereafter to
enforce each and every term and condition of this
21. That this Appointment and all its terms and conditions
shall be governed by and interpreted under the laws of the
State of New York.
See Doc. No. 1-1.
Transshipment and PepsiCo's Policies
alleges in its complaint that PepsiCo breached the EBAs'
exclusivity provision by failing to prevent
“transshipping, ” i.e., the sale of
PepsiCo CSDs into Northern's exclusive territory by
third-party distributors. PepsiCo denies it has a duty to
prevent third-party transshipment of PepsiCo CSDs. PepsiCo
alleges, however, that despite the absence of any contractual
duty to do so, it created and implemented a program, the
PepsiCo Transshipment Enforcement Program
(“PTEP”), to deter transshipment and compensate
injured bottlers. PepsiCo describes the PTEP in its brief:
Under the PTEP, if a bottler discovers or suspects PepsiCo
CSDs have been transshipped into its territory, it can report
the transshipment to the PepsiCo Transshipment Department.
PepsiCo then assigns an independent investigator to verify
the presence of transshipped product in the bottler's
territory. The appointed investigator visits the store
location, checks the production codes that appear on the