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India Breweries, Inc. v. Miller Brewing Co.

July 21, 2010


Appeal from the United States District Court for the Eastern District of Wisconsin. No. 05 C 467-Charles N. Clevert, Jr., Chief Judge.

The opinion of the court was delivered by: Tinder, Circuit Judge.

ARGUED MAY 21, 2010

Before EASTERBROOK, Chief Judge, and BAUER and TINDER, Circuit Judges.

India Breweries, Inc. ("IBI") and Miller Brewing Co. ("Miller") entered into a license agreement that would have permitted IBI to brew and distribute three Miller-branded beers in India. Miller executives visited India to inspect two breweries IBI wanted to use to brew the beer and rejected them as unsanitary and lacking in equipment. Miller refused to return to India to inspect more breweries until IBI assured it that the breweries had the minimum equipment necessary to brew Miller beer. IBI brought suit for breach of contract, alleging that Miller had a contractual duty to inspect any brewery it proffered and failed to act in good faith in refusing to make inspections. Miller counterclaimed, alleging that IBI fraudulently induced it into entering the license agreement and misrepresented its financial status. The district court granted summary judgment to Miller on IBI's claims, and IBI appealed. Miller (belatedly) agreed to dismiss its counterclaims with prejudice, giving us jurisdiction over the case, and we now affirm.

I. Background

IBI is a Canadian company that acts as a "virtual brewer"-it acquires rights to various beers and enlists or partners with other entities to actually brew and dis-tribute the beers. In 1997, IBI entered into a joint venture with Indian brewery and distillery Mohan Meakin, Ltd. ("Mohan") to brew and distribute beer in India. The joint venture company was known as International Breweries Pvt., Ltd., or "IBP," and was incorporated in India.

In 1998, IBI approached Miller, the manufacturer of popular beers such as Miller Genuine Draft, Miller Lite, and Milwaukee's Best and at that time a Wisconsin-based company, to seek the rights to brew Miller beer as part of the IBP joint venture. Miller provided IBI with a list of the minimum equipment necessary for the production of its beers, and IBI informed Miller that it and Mohan planned to upgrade Mohan's brewery in Delhi, India, to meet Miller's specifications. After some lengthy back and forth, Miller and IBI entered into a formal license agreement on September 22, 1999.

IBI initially proposed manufacturing Miller beer at two Mohan breweries, one in Delhi and one in Madras (Chennai). Miller sent a team of executives, headed by Giorgio Sega, its Director of International Operations, to inspect the two breweries in October 1999, pursuant to paragraph 2.5 of the license agreement, the pertinent language of which reads:

With respect to each brewery where a Licensed Beer is to be brewed, IBI (after consultation with and inspection by Miller) will conduct (or cause to be conducted) commercial scale test brews of each Recipe that is to be used at that brewery. Prior to beginning commercial brewing of each Licensed Beer at the brewery in the Territory, IBI will obtain Miller's written approval of the brewery and the Licensed Beer(s) made at that brewery. As defined herein, "commercial brewing" shall mean production of Licensed Beer(s) for sale. Where brewing is to be performed by a sublicensee or a contract brewer, no such sublicensed or contract brewing-brewing [sic] may take place unless Miller has approved in writing the brewer, the brewery, the confidentiality protection relating thereto, and the terms of the sublicensing/contract brewing relationship....

Sega concluded that both the Delhi and Madras breweries were "rudimentary in technology and lacking minimum standards of process; quality assurance; basic food plant hygiene; and Good Manufacturing Practices." He advised IBI that it would probably take seven to ten months and significant capital outlays to upgrade the Delhi and Madras breweries. IBI ultimately concluded that rehabilitating the breweries would be impracticable, and began exploring other brewing options.

On January 11, 2000, IBI wrote to Miller that it was "seriously investigating the possibility of upgrading" another Mohan-owned brewery, Artos, and was "considering" an unnamed brewery in "Western India." IBI provided Miller with some of Artos's technical specifications at that time, and informed Miller that it would be in touch to arrange an inspection visit "[o]nce we have completed the purchase agreement."

No purchase agreement for Artos was ever signed, and there is no evidence indicating that IBI formally requested an inspection of the facility, though it contends that it made several oral requests to that effect. Instead, on March 1, 2000, IBI told Miller that it had completed a purchase agreement for a non-Mohan brewery, Rajasthan, the brewery in western India to which it had previously alluded. (IBI maintains that it shifted its focus to Rajasthan at Miller's request.) In the March 1 e-mail to Miller, IBI emphasized that Rajasthan was "being purchased specifically for producing the Miller brands [so] it is important that you approve the plant before we proceed any further." Miller responded by forwarding IBI information about its brewing standards and the minimum equipment that would be required to meet them. In that response, Sega also explained that he would schedule a visit to the Rajasthan brewery only after receiving IBI's "assurance that systems; equipment; hygiene; process and packaged product procedures and specifications can be met at your prospective brewer, and that there is a total commitment to purchase and install what is missing." IBI told Miller it would forward the equipment guidelines to Rajasthan's brewmaster and would wait for him to make an assessment of the brewery before making arrangements for another Miller inspection.

Six months later, in September 2000, IBI was still having problems finalizing the Rajasthan deal. It wrote to Miller and explained that it was now trying to enter into a contract brewing arrangement rather than a purchase agreement with Rajasthan. Under such an arrangement, Rajasthan would remain independent and would brew beer for IBI (or IBP) pursuant to a negotiated contract. IBI noted that Rajasthan was "the best brewery in South Asia according to Ernst & Young," but nonetheless expressed some uncertainty as to whether it could meet Miller's standards. To that end, IBI further informed Miller that it was "in discussion with several other breweries in India (in Himachal Pradesh, Haryana, and Karnatka states) for contract brewing or purchase deals." It did not provide further details about those other breweries-such as names or technical specifications-at that time.

By November 2000, IBI had not yet entered into a formal contract to purchase a brewery or otherwise produce beer in India. But IBP (the IBI-Mohan joint venture) had entered into two memoranda of understanding ("MOUs"), one with Rajasthan and another with one of the "other breweries" it referenced in September, Him Neel, pursuant to which it pledged to work in good faith toward purchasing assets from those breweries. Both MOUs also envisaged contract brewing between IBP and the respective breweries, though the Rajasthan arrangement was conditioned on the brewmaster's approval and was never executed, and the Him Neel MOU was by its terms "neither a commitment nor binding." Neither MOU contemplated the terms of these possible contract brewing relationships. Nevertheless, on November 7, IBI told Miller that it had entered agreements with both Rajasthan and Him Neel for the immediate production of Miller beer. Miller responded by asking IBI for copies of the contracts, as well as equipment lists ...

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