N. Bottling Co. v. PepsiCo, Inc.

5 F.4th 917

NORTHERN BOTTLING CO., INC., Plaintiff - Appellant

v.PEPSICO, INC., Defendant - Appellee

Independent Bottlers Association ; Pepsi-Cola Bottlers’ Association, Amici on Behalf of Appellant(s)

No. 20-1065

United States Court of Appeals, Eighth Circuit.

Submitted: March 17, 2021

Filed: July 22, 2021

Kyle Anne Gray, HOLLAND & HART, Billings, MT, Rodney E. Pagel, WEIKUM LAW, PLLC, Bismarck, ND, James Michael Ragain, RAGAIN & CLARK, Billings, MT, Alaina Stedillie, WELBORN SULLIVAN, Casper, WY, Michelle M. Sullivan, SULLIVAN MILLER LAW, Billings, MT, for Plaintiff - Appellant.

Sondra Hemeryck, Thomas Bernard Quinn, RILEY & SAFER, Chicago, IL, John E. Ward, Patrick J. Ward, ZUGER & KIRMIS, Bismarck, ND, for Defendant - Appellee.

Webster Cofield Cash, III, Hugh Q. Gottschalk, WHEELER & TRIGG, Denver, CO, Peter W. Herzog, III, WHEELER & TRIGG, Saint Louis, MO, for Amicus on Behalf of Appellant Independent Bottlers Association.

Marcia V. Andrew, TAFT & STETTINIUS, Cincinnati, OH, for Amicus on Behalf of Appellant Pepsi-Cola Bottlers' Association.

Before COLLOTON, GRUENDER, and GRASZ, Circuit Judges.

GRASZ, Circuit Judge.

Northern Bottling Co., Inc. ("Northern") brought claims against Pepsico, Inc. ("PepsiCo"), alleging that PepsiCo failed to protect Northern's interests under their exclusive bottling contracts. The district court¹ granted summary judgment to PepsiCo, concluding that the contracts between the parties did not expressly require PepsiCo to protect against certain shipments of PepsiCo's products into Northern's territory. We affirm.

I. Background

PepsiCo sells carbonated beverages. For many years, PepsiCo has relied on a network of local, independent bottlers tasked with purchasing syrup from PepsiCo, manufacturing and bottling the carbonated beverages, and selling and distributing the carbonated beverages to retail purchasers.

Each independent bottler executes a generic bottling contract with PepsiCo, outlining the bottler's territory and PepsiCo's specifications for production. The bottling contracts require the bottler to purchase syrup for the carbonated beverages from PepsiCo and give the bottler exclusive rights to distribute PepsiCo products within its assigned geographic territory.

Northern joined PepsiCo's network of independent bottlers in 1955. Northern's original territory included several counties in North Dakota, but was later expanded to include additional counties in both North and South Dakota. Northern estimates that it services more than 2,000 customers.

Northern's initial bottling contract was for Pepsi-Cola; however, over the course of Northern's more than sixty-five-year relationship with PepsiCo, Northern has acquired bottling contracts for additional PepsiCo products. Each product is governed by its own bottling contract, and the bottling contracts at issue on appeal are Northern's contracts pertaining to Pepsi-Cola, Diet Pepsi, Mountain Dew, and Diet Mountain Dew. The bottling contracts contain choice-of-law provisions stating that disputes arising from the contracts are governed by New York law.

"Transshipping" in this context occurs when carbonated beverage products from one bottler's territory are transported and sold in another bottler's exclusive territory. Transshipment often occurs when, after the initial delivery of product from a bottler to a retailer, the retailer re-sells the product to a separate distributor. That distributor might then transport and sell the products in another bottler's territory. This problem often negatively impacts an independent bottler's bargained-for rights under its bottling contracts. PepsiCo has faced decades of litigation over its efforts to battle transshipping. However, none of the bottling agreements mention transshipment or include any language requiring PepsiCo to prevent transshipment of competing products into Northern's territory.

In 1980, Congress passed the Soft Drink Interbrand Competition Act, which reinforced soft drink companies’ ability to control the manufacture, sale, and distribution of their products. See 15 U.S.C. § 3501 et seq . In response to the Soft Drink Act, PepsiCo developed the "PepsiCo Transshipment Enforcement Program" ("TEP"), which created a process by which PepsiCo investigated and fined bottlers whose product had been transshipped. Under the TEP, if a bottler suspects that products have been transshipped into its territory, it can report the offense to PepsiCo. PepsiCo then assigns an independent investigator to verify the presence of transshipped products in the complainant's territory. If a violation is discovered, the TEP requires the offending bottler to pay a fine, which would then be credited to the victim bottler, as well as the costs of the investigation. A customer that is the source of transshipped product could face penalties ranging from a warning to suspension or termination of its ability to purchase PepsiCo products.

Northern claims its problems with transshipping greatly increased in 2010 when PepsiCo purchased many of its independent bottlers and created the Pepsi Bottling Company, a subsidiary of PepsiCo. After this vertical integration, PepsiCo owned approximately 80% of its own bottling and sales capacity. This altered the interests of the market participants, which Northern claims impacted PepsiCo's enforcement of the TEP.

Northern alleges that since the formation of the Pepsi Bottling Company, PepsiCo has been causing or allowing transshipment to take place without protecting the interests of its independent bottlers. Northern also alleges the PepsiCo product transshipped into its territory increased from fewer than 1,000 transshipped cases of product between 2008 and 2010 to 6,500 cases in 2015. Northern admits that around 2015, it had pricing disputes with some of its customers. And, around that time, a company named Core-Mark, who obtained Pepsi Bottling Company products from brokers, began selling PepsiCo products to its own customers within Northern's territory. During the pricing dispute, four of Northern's customers stopped purchasing products from Northern and began purchasing products from Core-Mark.

Northern reported Core-Mark to PepsiCo on multiple occasions. In response, PepsiCo investigated, determined the identity of the source bottlers, assessed and collected fines from each such bottler, and then credited those payments to Northern. PepsiCo also sent a cease-and-desist letter to Core-Mark regarding its unauthorized sales in Northern's territory. PepsiCo also tracked down the customers who were the source of the product that eventually ended up in Core-Mark's hands, and PepsiCo sanctioned them.

Northern sued PepsiCo in 2015, alleging causes of action for breach of the bottling contracts and tortious interference with the bottling contracts, among other claims. PepsiCo moved for summary judgment. The district court granted PepsiCo's summary judgment motion. The district court reasoned that since the express terms of the bottling contracts did not create a duty for PepsiCo to take any steps to prevent transshipping, Northern's claims failed as a matter of law. Northern appeals.

II. Discussion

We review de novo a district court's grant of summary judgment. Guardian Fiberglass, Inc. v. Whit Davis Lumber Co. , 509 F.3d 512, 515 (8th Cir. 2007). Summary judgment is appropriate when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Id . "When reviewing a grant or denial of summary judgment, we consider the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor." Id . (cleaned up) (quoting Mettler v. Whitledge , 165 F.3d 1197, 1200 (8th Cir. 1999) ).

A. New York Common Law

We must first decide what law governs Northern's breach of contract claim: New York common law or New York's Uniform Commercial Code ("UCC"). "Federal district courts sitting in diversity ... must apply the forum state's substantive law, including its conflict of law rules." Guardian , 509 F.3d at 515. North Dakota law "honor[s] choice-of-law provisions" in contracts, and it is undisputed that the terms of the bottling contracts state that New York law governs any conflict arising from the contracts. Chapman v. Hiland Partners GP Holdings, LLC , 862 F.3d 1103, 1108 (8th Cir. 2017) ; accord Am. Hardware Mut. Ins. Co. v. Dairyland Ins. Co. , 304 N.W.2d 687, 689 n. 1 (N.D. 1981) ("Parties may stipulate as to choice of law.").

The analysis of whether PepsiCo owed a duty to prevent transshipping differs depending on whether New York common law or the UCC applies. In short, if New York common law applies to this dispute—as the district court believed—then PepsiCo did not breach the bottling agreements. Alternatively, if we conclude that the UCC applies to the bottling agreements, then Northern has a stronger argument that PepsiCo had a contractual duty to prevent transshipping.

PepsiCo asserts that Northern has waived its argument regarding the applicability of the UCC because Northern did not raise it before the district court. We agree.

It is well settled that a party's failure to raise an argument before a trial court typically waives that argument on appeal. Heuton v. Ford Motor Co. , 930 F.3d 1015, 1022 (8th Cir. 2019) ("Absent exceptional circumstances ... we cannot consider issues not raised in the district court." (quoting Platte Valley Bank v. Tetra Fin. Grp., LLC , 682 F.3d 1078, 1086 (8th Cir. 2012) )). Here, Northern failed to argue for application of the UCC before the district court. Not only that, but when PepsiCo attacked the Tenth Circuit's application of New York's UCC in a case involving nearly identical PepsiCo bottling agreements, Northern responded by arguing that New York common law allowed the same result implicated by the UCC even in a contract not governed by the UCC. Pepsi-Cola Bottling Co. of Pittsburg v. PepsiCo, Inc. , 431 F.3d 1241, 1256 n. 7 (10th Cir. 2005).

Northern...