United States District Court, D. New Jersey
June 3, 2005.
NASH DISTRIBUTORS, INC., Plaintiff,
GUINNESS BASS IMPORT COMPANY, Defendant.
The opinion of the court was delivered by: JOHN BISSELL, Chief Judge, District
This matter comes before the Court on plaintiff Nash
Distributors, Inc. ("Nash") appeal from Magistrate Judge G.
Donald Haneke's April 15, 2004 Order denying plaintiff's motion
to compel discovery. The Court has jurisdiction over this matter
pursuant to 28 U.S.C. § 1332.
FACTUAL and PROCEDURAL HISTORY
Plaintiff Nash is a New Jersey corporation with its principal
place of business in Carlstadt, New Jersey. (Plaintiff's Facts,
¶¶ 1-2). Nash is a fourth generation, family-run, multi-brand
beer wholesaler and distributor licensed under the laws of the
State of New Jersey. (Id., ¶¶ 3-4).
Defendant Guinness Bass Import Company ("GBIC") is a Delaware
corporation with its principal place of business in Stamford,
Connecticut. (Defendant's R. 56.1 Statement ("Defendant's
Facts"), ¶¶ 1-2). GBIC imports into the United States certain
brands of beer and malt beverages, including but not limited to,
Guinness Stout, Draught Guinness, Harp Lager, Bass Ale, Keliber
Non-Alcoholic Brew, Red Stripe, Caffrey's Irish Ale, Smirnoff Ice
and all varieties of such brands (the "Guinness Brands"). (Id.,
This case arises from the termination of the 1994 Distribution Agreement (the "Agreement") between the parties in
January 2001. Defendant GBIC was obligated by paragraph 10(b) of
that Agreement to pay plaintiff Nash an amount equal to
plaintiff's "pre-tax net income" from the sale of GBIC brands
during Nash's most recently completed fiscal year. Specifically,
paragraph 10(b) of the Agreement provides for a Termination
Payment as follows:
In the event [Guinness] terminates this agreement
pursuant to subparagraphs (a) or (c) of paragraph 9
hereof, [Guinness] shall pay Distributor an amount
equal to Distributor's pre-tax net income
attributable to the sale of the Products for
Distributor's most recently completed fiscal year.
For purposes of determining the amount payable to
Distributor hereunder, `pre-tax net income' shall
mean the proceeds realized from the sale of the
Products during Distributor's most recently completed
fiscal year, less all direct and indirect costs
associated with the sales promotion and marketing of
the Products including post-off and quantity
discounts, sales incentives, promotional and local
advertising expenditures. This amount shall be
determined in accordance with generally accepted
accounting principles and practices. . . .
(Nash Aff., Exh. 1 at 9). Nash contends that its pre-tax net
income is $4,224,099.21; GBIC asserts that Nash was entitled to
approximately $660,000.00 under that clause. Nash contested this
amount and refused to release its claims against GBIC. GBIC
asserts that Nash has therefore forfeited its right to any
The parties filed cross-motions for partial summary judgment and the Court heard oral argument on October 15, 2002. The Court
determined that the central issue of this case is the
interpretation of the contractual formula of GBIC's option to
exit the distributorship for any reason or no reason, and then to
move its beer brands elsewhere as contained in Paragraph 10(b) of
the Agreement. ("Wettre Decl., Exh. A at 42:18-25; 43:1-25;
44:1-2). Specifically, the Court stated that Nash presented "what
I would consider a truly literal reading of the language" of the
Agreement. (Id. at 42:24-25). On the other hand, the Court
noted that Guinness offered "essentially a two-fold argument."
(Id. at 43:1-2). One that the Agreement does not "necessarily
have to be read that way, but even more so than that, there
really just isn't any inherent sense, commercial sense in the
outcome achieved by the plaintiff's suggestion." (Id. at
4:3-6). Thus, in denying the parties' motions for summary
judgment, the Court found that the definition of the "pre-tax net
income" in the Agreement is ambiguous. The evidence before the
Court of lack of commercial sense was the drafting history, the
evidence of industry custom, and the multiple at which GBIC
distribution rights historically have changed hands in a forced
"sale," when the distributor has been terminated or threatened
with termination. GBIC demonstrated that Nash's calculation
yielded a payment higher than that at which GBIC distribution
rights historically have changed hands in jurisdictions permitting terminations without cause, and higher
than the amount Nash's successor paid to acquire Nash's
distribution rights from GBIC.
In an effort to demonstrate that its calculation makes
"commercial sense," on July 31, 2003 Nash served plaintiff's
Third Request for the Production of Documents (the "Request").
(Bartkus Cert., Exh. 5). Particularly, Nash requested documents
that would demonstrate that its calculation yields a termination
payment equivalent to what its valuation expert calculates to be
the fair market value of its distribution rights. GBIC responded
by serving Defendant's Responses and Objections to Plaintiff's
Third Request for the Production dated September 19, 2003 (the
"Objections"). (Id.) Counsel for the parties entered into
negotiations regarding the Request; however, they were unable to
resolve GBIC's Objections to requests 1-3, 12, 17-21, 23-25 and
32-34. (Id.) Nash contends that all but one of the Requests
address the issue before the Court, the inherent sense and
commercial reasonableness of Nash's computation or the economic
value of the distribution rights Nash contractually relinquished.
Nash further asserts that GBIC's Objections ignore the Court's
reasoning for denying both parties' summary judgment motions.
On April 15, 2004 Judge Haneke denied Nash's motion to compel
in its entirety for the reasons provided in GBIC's letter
opposing the motion dated February 9, 2004. Nash Distributors, Inc. v. Guinness Bass Import Co., No. 01-250 (D.N.J. Apr. 15,
2004) (order denying motion to compel).
I. Standard of Review
A United States Magistrate Judge has broad discretion in
deciding a discovery motion. Fed.R.Civ.P. 72(a). "Where a
magistrate judge is authorized to exercise his or her discretion,
the decision will be reversed only for an abuse of discretion."
Cooper Hospital/University Med. Ctr. v. Sullivan,
183 F.R.D. 119, 127 (D.N.J. 1998); Lithuanian Commerce Corp. v. Sara Lee
Hosiery, 177 F.R.D. 205, 214 (D.N.J. 1997). "This test displays
considerable deference to the determination of magistrates in
such matters." 7 Moore's Federal Practice ¶ 71.03(7.-3) at
On appeal from such an order, the scope of this Court's review
is narrow. Local Rule 72.1(c)(1)(A) governs appeals from
non-dispositive orders of United States Magistrate Judges. It
directs the Court to consider an appeal from a non-dispositive
Magistrate's order and set aside any portion of it found to be
"clearly erroneous or contrary to law." 28 U.S.C. § 636(b)(1)(A);
Fed.R.Civ.P. 72(a); Cipollone v. Liggett Group, Inc.,
785 F.2d 1108, 1120 (3d Cir. 1986), cert. denied, 484 U.S. 976
(1987). A finding is "clearly erroneous" when, "although there is
evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction
that a mistake has been committed." Anderson v. City of
Bessemer, 470 U.S. 564, 573 (1985); Republic of Philippines v.
Westinghouse Elec. Corp., 132 F.R.D. 384, 387 (D.N.J. 1990)
(quoting United States v. United States Gypsum Co.,
333 U.S. 364, 395 (1948).
II. Magistrate's Decision is not Clearly Erroneous or an Abuse
A. Request Seeking Valuation Documentation
As stated above, Judge Haneke denied plaintiff's motion to
compel discovery for the reasons set forth in GBIC's opposition
letter dated February 9, 2004. That letter asserted that Nash's
motion to compel is based on its argument that the Request
contains information that Nash's valuation expert needs to
calculate the fair market value of Nash's distribution rights.
GBIC's letter contended that the fair market value is irrelevant
to the issues before the Court and it would be burdensome for
GBIC to locate and provide copies of the documents.
Nash asserts that Magistrate Judge Haneke's Order is "contrary
to law and an abuse of discretion." (Plaintiff's Br. at 13).
Specifically, Nash argues that "there can be no serious dispute"
that the present value of the lost future earnings as calculated
by its economist is relevant to the issue of whether Nash's
interpretation of the pre-tax net income "makes commercial
sense." (Id. at 15). There is, however, a dispute about that because Nash's argument is based on the premise that the present
value of lost earnings, the long term value of distribution
rights, is relevant to measure the "commercial reasonableness" of
the termination payment. Moreover, Nash has not demonstrated or
provided evidence that the definition of the "pre-tax net income"
used for the purpose of calculating the termination payment was
intended to indicate the present value of lost future earnings at
anytime. The evidence indicates that the termination payment
conformed with the standard industry practice in 1994 of GBIC's
distribution rights changing hands at a profit multiple of one
times net income from the preceding year.
The Court, in denying the parties' summary judgment motions,
did not frame the issue as to what the long term distribution
rights would be worth; rather, the Court inquired as to what the
parties intended the amount of the termination payment to be at
the time they agreed to the Agreement. In other words, the
central issue is whether Nash's interpretation of the amount of
the termination payment is "commercially reasonable" as of the
time the parties entered into the Agreement.
Nash argues that the Request relates to information that a
credible valuation analyst must consider to develop an appraisal
of the value of the lost distribution rights. Nash contends that
an appraised value is the fair market value of the distribution
rights. Nash's economist defines the fair market value "as the cash equivalent price at which property would change hands
between a willing seller and a willing buyer when neither is
acting under compulsion and when both have reasonable knowledge
of the relevant facts." (Bartkus Cert., Exh. 5, ¶ 5). Nash,
however, did not voluntarily give up its distribution rights
because it was terminated pursuant to a contract that allowed
termination without cause. GBIC has produced files of forced
terminations that did not involve a willing buyer or seller.
Therefore, the Court concludes that documents regarding the
present value of the lost earnings of the distribution rights is
B. Request Seeking Transshipping Documents
The disputed Request that does not seek valuation documents
seeks documents regarding the transshipping of GBIC's products
from the territory of one or more distributors to that of others.
Transshipping was prohibited by paragraph 1 of the Agreement and
provided grounds for immediate termination under paragraph
9(b)(vii). GBIC alleged in its counterclaim that Nash breached
the Agreement by selling to customers in its territory who it
knew would sell the product outside the territory. Nash contends
that the transshipping documents are relevant because similar
activity by other contracted distributors would be a defense to
GBIC's breach of contract claim. In other words, Nash argues that
the transshipping documents will demonstrate that GBIC knew that other distributors engaged in the same conduct and gave its
express approval or waived any claim. GBIC's failure to enforce
the restriction, however, would not be relevant because paragraph
9(b) of the Agreement states that either party's failure at any
time to enforce a provision shall not be construed as a waiver or
affect the right of either party to enforce it at a later time.
(See Raineult Decl., Exh. A). Therefore, the Court concludes that
the transshipping documents indicating the performance of other
distributors contracted by GBIC is irrelevant.
Based on the foregoing reasons, Nash's appeal of Judge Haneke's
April 15, 2004 ruling is denied.
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