Berlinger Foods Corporation V. the Pillsbury Company

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                      ALI-ABA Course of Study
                  Product Distribution and Marketing


                          March 8 - 10, 2007
                         Coral Gables, Florida




Why Pay "Shampoo Boy?" And Other Hair-Raising M&A Distribution Tales

                                  By

                          Richard J. Wegener
                        Fredrikson & Byron, PA
                        Minneapolis, Minnesota
794
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                                                                 OVERVIEW

I. COMMON M&A DISTRIBUTION SCENARIOS..........................................................................1

   A. Supplier Level Transactions ...........................................................................................................2
   B. Distributor Level Transactions .......................................................................................................3

II. SUPPLIER LEVEL DISTRIBUTION ISSUES ................................................................................3

   A. Duty to Inform Distribution System of Sale ..................................................................................4
   B. Transferability of Supplier’s Distribution Relationships ..............................................................4
   C. Channel Conflicts............................................................................................................................5
   D. Rebranding ......................................................................................................................................6
   E. Postacquisition Territorial Conflicts...............................................................................................6
   F. Distributor Consolidation and the Clayton Act – “It’s Not Over Until the ‘Fat
      Distributor’ Sings” ..........................................................................................................................7
   G. Exclusive Dealing Clause as an Anti-Merger Vehicle..................................................................9
   H. Duty of Good Faith and Fair Dealing.............................................................................................9

III. DISTRIBUTOR LEVEL DISTRIBUTION ISSUES.................................................................11

   A. Background....................................................................................................................................11
   B. Supplier’s Consent ........................................................................................................................11
      1. Common Law ...........................................................................................................................11
      2. Franchise Registration/Relationship Statutes..........................................................................12
      3. Other State Laws ......................................................................................................................13
      4. Contract Provisions ..................................................................................................................14

IV. DRAFTING CONSIDERATIONS..............................................................................................15

   A. Background....................................................................................................................................15
   B. Distribution Agreement—Selected Provisions............................................................................16
   C. Acquisition Agreement—Key Provisions ...................................................................................21
      1. Form of Transaction.................................................................................................................21
      2. Seller’s Residual Liability........................................................................................................22
      3. Buyer’s Residual Liability .......................................................................................................22
      4. Third-Party Interests.................................................................................................................23
      5. Indemnification From Claims Made by Seller’s Former Distribution Partners....................23
      6. Cooperation in Defending Post-Acquisition Claims ..............................................................23
      7. Walk-Away Rights in the Event of Significant Litigation .....................................................24
      8. Competing Brands....................................................................................................................24




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                                                           TABLE OF AUTHORITIES

                                                                   FEDERAL CASES

      Barnes v. Gulf Oil Corp. et. al., CCH Bus. Fran. Guide ¶ 8616, at 61,528 (4th Cir. 1986) .................5

      Baxter Healthcare Corp. v. D.R. Concepts, Inc., CCH Bus. Fran. Guide ¶ 10,684 (D. Ill.
             1995).................................................................................................................................5, 12, 13

      Berliner Foods Corp. v. Pillsbury Co., 633 F. Supp. 557 (D. Md. 1986)............................................11

      Burger King v. Austin, 805 F. Supp. 1007 (S.D. Fla. 1992)..................................................................6

      Call Ford, Inc. v. Ford Motor Co., 48 F.3d 201 (6th Cir. 1995) ..........................................................11

      Carlock v. Pillsbury, 719 F. Supp. 791 (D. Minn. 1989) .......................................................................6

      Carrozza v. Webber Chevrolet Co., 1978-1 Trade Cas. (CCH) ¶ 61,982 (D.R.I. 1978) ....................11

      Clark v. America's Favorite Chicken Co., 110 F.3d 295 (5th Cir. 1997) ..............................................6

      Diesel Machinery, Inc. v. B.R. Lee Industries, Inc., 418 F.3d 820 (8th Cir. 2005) ..........................1, 5

      Guiness Import Co. v. Mark VII Distributors, Inc., 75 BNA ATRR 223 (8th Cir. 1998)..................13

      Hamro v. Shell Oil Co., 674 F.2d 784 (9th Cir. 1982) .........................................................................11

      Hawkins v. Holiday Inns, Inc., 634 F.2d 342 (6th Cir. 1980), cert. denied, 451 U.S. 987
            (1981) .........................................................................................................................................11

      Kestenbaum v. Falstaff Brewing Corp., 575 F.2d 574 (5th Cir. 1978) cert. denied, 440 U.S.
             909 (1979)..................................................................................................................................11

      Lee v. Flintkote Co., 593 F.2d 1275 (D.C. Cir. 1979)............................................................................6

      Lucas Automotive Engineering v. Bridgestone/Firestone, Inc., 74 BNA ATRR 362 (9th Cir.
             1998).............................................................................................................................................7

      Marc’s Big Boy Corp. v. Marriott Corp., Bus. Fran. Guide (CCH) ¶ 9100 (E.D. Wis. 1988).............5

      McKinney v. Anheuser-Bush, Inc., 951 F.2d 360 (9th Cir. 1991) ......................................................23

      Midwestern Machinery Co. v. Northwest Airlines, Inc., 392 F.3d 265 (8th Cir. 2004).......................9

      Ocean Spray Cranberries, Inc. v. Pepsico, Inc., 160 F.3d 58 (1st Cir. 1998)........................................9




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Pecan Shoppe v. Stuckey's, Inc., C.A. No. C85-3710A (N.D. Ga. 1987), aff'd, 851 F.2d
       1422 (11th Cir. 1988) ..................................................................................................................5

Rosenberg v. The Pillsbury Company, 718 F. Supp. 1146 (S.D.N.Y. 1989)......................................15

Sally Beauty Co., Inc. v. Nexus Products Co., Inc., 801 F.2d 1001 (7th Cir. 1986)...........................11

Scheck v. Burger King Corp., 798 F. Supp. 684 (S.D. Fla. 1992).......................................................15

Schwartz v. Pillsbury, 969 F.2d 840 (9th Cir. 1992) ............................................................................22

Verson Corp. v. Verson International Group PLC, 899 F. Supp. 358 (N.D. Ill. 1995) ........................5

Vidal Sassoon v. Procter & Gamble Company, Case No. CV03-2243 MMM (Ex)
(C.D. Calif., Aug. 9, 2004).....................................................................................................................10

                                                               STATE CASES

Dayan v. McDonalds Corp., 466 N.E.2d 958 (Ill. App. 1984) ..............................................................6

Hartford Accident & Indemnity Co., Inc. v. Canron, Inc., 43 N.Y.2d 823, 373 N.E.2d 364,
       402 N.Y.S.2d 565 (1977) ..........................................................................................................22

Sade Shoe Company v. Oschin and Snyder, 162 Cal. App. 3d 1174 (1984) ......................................23

Sanders v. Robertson American Corporation, 698 S.W.2d 480 (Tx. Ct. App. 1985)...........................4

Teeters & Associates, Inc. v. Eastman Kodak Co., 836 P.2d 1034 (Ariz. App. 1992).......................22

                                                        FEDERAL STATUTES

15 U.S.C. §§ 15, 26 ..................................................................................................................................7

15 U.S.C. § 18 .........................................................................................................................................7

                                                           STATE STATUTES

Neb. Rev. Stat. § 87-405 ........................................................................................................................12

N.J. Rev. Stat. § 56:10-6 ........................................................................................................................12

                                                           MISCELLANEOUS

David J. Kaufmann, Duty to Disclose Purchase or Sale Activity, 18 FALL - Franchise L.J.
       39, 40 (1998)................................................................................................................................4




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