Federal Court Dismisses Diageo’s Complaint in Franchise Law Case

Earlier this week, Missouri distributor Major Brands, Inc. won the most recent round in its year-long franchise law litigation with Diageo Americas, Inc. The federal district court in Connecticut has dismissed Diageo’s complaint, and the parties dispute appears to be gearing up for a trial in Missouri state court this summer.

Last March, Diageo brought suit in federal district court in Connecticut seeking declaratory relief to allow Diageo to terminate its relationship with Major Brands. In its complaint, Diageo argued that the parties’ contract included a clause that stated that their agreement would be construed under Connecticut law. Enforcement of such a clause would avoid the application of Missouri franchise law. Even though Connecticut also has a franchise law, Diageo argued that it only applied to franchise agreements that would require the distributor to maintain a place of business in that state. Since Major Brands was not required to establish a business in Connecticut, then the Diageo-Major Brands agreement falls outside the scope of Connecticut’s franchise laws, according to Diageo’s complaint.

Major Brands brought its own suit in Missouri state court against Diageo and its new Missouri distributor, Glazer’s, and filed a motion to dismiss in Diageo’s federal court case. In that motion, Major Brands argued that the forum selection clause did not apply and also argued that the federal court should abstain given the parallel state court litigation and Missouri’s strong interest in regulating and enforcing its own alcohol beverage laws:

“The heart of this suit is the applicability of Missouri’s Franchise Act to the relationship between Plaintiff, a supplier of liquor in Missouri, and Defendant, a licensed liquor distributor and wholesaler doing business in Missouri. The Twenty-first Amendment recognizes each State’s sovereign interest in regulating and enforcing its own liquor distribution laws….”

On March 19, 2014, the federal court granted Major Brands’ motion, finding that the forum selection clause that Diageo relied on did not apply to the products at issue in the immediate case. The court did not address Major Brands’ abstention argument.

But this does not bring an end to the Diageo-Major Brands battle. Major Brands’ state court suit in Missouri continues, and the parties have engaged in extensive discovery in that forum. A trial date is set for July 21, 2014.

For more information on distributor termination or franchise law issues, please contact John Trinidad at [email protected].