Diageo and Major Brands Settle Franchise Law Dispute
This is the way most franchise law litigation ends: not with a bang, but with a whimper. After over a year of legal jostling, Diageo and Major Brands have apparently reached settlement, according to Missouri news outlets.
Suppliers trying to terminate their relationship with a Missouri distributor should closely review a state court opinion issued in the same case in response to Major Brands’ preliminary injunction motion. In that opinion, the court found that Missouri’s franchise law does not necessarily apply to all alcohol beverage distribution agreements. Instead, the court concluded that, “A liquor distributor who seeks to invoke the protections of [Missouri’s Franchise Law] must show (1) an arrangement, (2) in which a person grants to another a license to use a trade name, trademark, service mark, ‘or related characteristic,’ (3) in which there is a community of interest in the marketing of goods, and (4) which involves a relationship of liquor wholesaler and liquor supplier.” See also Missouri Beverage Co. v. Shelton Bros., Inc., 669 F.3d 873 (8th Cir. 2012).
Smaller producers trying to get out of a franchise relationship may be able to argue that no “community of interest” exists, so long as they make up only a small portion of the distributor’s portfolio. Major Brands successfully argued (in the preliminary injunction stage) that because Diageo brands accounted for 23% of Major Brand’s total revenue, a community of interest existed, and Missouri’s franchise law applied. There is, however, no clear minimum threshold that would consider sufficient to prove the existence of a community of interest.
Franchise Law Trial Begins in Missouri
After 18 months of discovery and motion practice, Diageo and Missouri distributor Major Brands will have their day in court to determine if state franchise law prevents Diageo from terminating its Missouri distribution agreement.
In March 2013, Major Brands brought suit in Missouri state court against Diageo and its new Missouri distributor, Glazer’s, claiming that the alcohol beverage producer’s attempt to terminate the distribution agreement violated state’s franchise law. At the time of the attempted termination, according to Major Brands, Diageo products accounted for 23% of the distributor’s gross revenues.
Jury selection began on Monday, September 15. We will continue to provide updates as the case unfolds.