Five Key Points for Alcohol Beverage Distribution Agreements

Recently, Bahaneh Hobel, Senior Alcohol Beverage Attorney from Dickenson, Peatman & Fogarty, provided the Beverage Trade Network with some insights on the “5 Key Points You Must Cover in Your Distribution Agreements.”  To review her article and learn more about important issues to consider in drafting distribution agreements.  View Article

For more information or assistance on any alcoholic beverage law matters, contact Bahaneh Hobel

Diageo Americas v. Major Brands: Franchise Law Litigation and Forum Selection

Wineries big and small face difficulties in trying to terminate distribution ageements in franchise law states.  We posted an article a few weeks ago about a lawsuit filed by Diageo Americas, Inc. against its Missouri distributor, Major Brands, Inc.  Diageo has asked the federal district court in Connecticut to issue a declaratory judgment allowing the company to terminate its Missouri  distribution agreement.  The court will first have to determine which state (Connecticut or Missouri) is the proper forum to hear the parties’ dispute.
Diageo filed its complaint in federal district court in Connecticut pursuant to a “forum selection” clause in the agreements stating that jurisdiction and venue for any litigation between the parties would be in the State of Connecticut.
Major Brands wants this dispute heard in Missouri state court, and has taken numerous steps to take the case out of Connecticut.  First, Major Brands filed its own lawsuit in Missouri (Cause No. 1322-CC00534) shortly after Diageo filed its complaint, claiming that Diageo’s attempted termination of the parties’ agreement violated Missouri franchise law.  The Missouri lawsuit also names Mid-Continent Distributors, Inc. d/b/a Glazer’s Midwest as a co-defendant.
In addition, Major Brands filed a motion to dismiss Diageo’s federal court case in Connecticut earlier this month, arguing in part that the court should deem the forum selection clause unenforceable because of Missouri’s strong public policy interest in liquor control and protection of a Missouri franchisee.  “Because of Missouri’s complex and specific regulations regarding both liquor control and termination of Missouri franchisees, a ruling by this Court would disrupt the State’s attempt to establish a coherent policy regarding these important concerns….”  It is not surprising that Major Brands is attempting to keep the dispute in state court.  Distributors in franchise states may believe that a state court provides a friendlier forum for their claims than federal court.
The Federal District Court’s ruling on Major Brand’s motion will be closely watched by suppliers and distributors in franchise law states.  If the court denies the motion and concludes that the forum selection clause is enforceable, then alcohol beverage suppliers may be well served by including similar forum selection clause provisions in any agreement governing distribution in franchise states.
For more information on distributor termination or franchise law issues, please contact John Trinidad at [email protected].

Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Franchise Laws and Diageo’s Recent Distributor Termination Action in Missouri

Ohio,New Jersey,North Carolina,Virginia, and a number of other states restrict a winery’s ability to terminate distributors in that state through “franchise laws.” The Virginia Wine Franchise Act, for example, prevents a winery from unilaterally amending, cancelling, terminating or refusing to renew anyVirginia distribution agreement absent good cause, and good cause is very narrowly defined.  A winery wishing to end its distributor agreement in violation of franchise laws may face stiff penalties.  InNorth Carolina, violation of state franchise laws may lead to the suspension of sale of the alcohol beverage supplier’s products in that state or revocation of a winery’s permit. In Missouri, Missouri Revised Statutes Sec. 407.413, an alcohol beverage supplier is prohibited from “unilaterally terminat[ing] or refus[ing] to continue or change substantially the condition of any franchise with the wholesaler unless the supplier has first established good cause for such termination, non continuance or change.”  Good cause is limited to failure by the wholesaler to comply with the provisions of the supplier-wholesaler agreement, bad faith or failure to observe reasonable commercial standards of fair dealing, or revocation or suspension of the wholesaler’s federal permit or state/local licenses.

We usually see this alleged “breach  of franchise agreement” used as the basis for a counter-claim by the purchaser of our client’s wine. Typically, XYZ Winery sells its wine to a retail establishment in a franchise state, which then doesn’t pay for the wine. When our client sues the purchaser in California state court, the purchaser counter sues  for breach of the alleged franchise agreement, and will sometimes remove the case to federal court. The purchaser will then use the cost of litigation of its counter-claim to negotiate a discount on the amount owed, or a complete “walk-away” settlement.

In a recent Missouri case, however, Diageo sued its distributor in the state to terminate its distribution agreement. Diageo argues thatMissouri state law should not apply to the two distribution contracts in question.  Diageo relies on language in its distribution contract with Major Brands that states that the contract’s terms are to be governed by Connecticut law for certain products, and New York law for certain other products.  In the alternative, Diageo argues that it has good cause to terminate the agreement should Missouri law apply, claiming that Major Brands failed to devote sufficient resources to the promotion of Diageo’s products, among other things.

We will be watching this case and will report on its outcome.

For more information or assistance on distributor termination issues contact David Balter ([email protected]) or John Trinidad ([email protected]).
Copyright Dickenson Peatman & Fogarty at www.lexvini.com

Can Expanding Your Wine Distribution Expose You to Lawsuits in Other States?

Attorneys, and particularly litigation attorneys such as me, get excited when the U.S. Supreme Court issues new “jurisdiction” proclamations.  The Court did just that in late-June, and the Court’s recent rulings have some impact on wineries.
First, I will explain “jurisdiction” and outline prior law regarding jurisdiction.  Then, I will address the Supreme Court’s new opinions.
“Jurisdiction” is equivalent to the reach of the Court.  For example, if a person sues a California winery in a New Jersey State court, that winery might argue that the New Jersey court has no jurisdiction or authority to issue any rulings regarding the California winery.  In 1987, the Supreme Court, in a case called Asahi Metal Ind. Co. v. Sup. Ct. (480 U.S. 102), explained that a defendant (and even a defendant residing outside the U.S.), could be subject to a state court’s jurisdiction if that defendant placed a product into the “stream of commerce” with some intent that the product would reach that state.  In the case of our California winery, that winery might be subject to the jurisdiction of that New Jersey State court if it sold its wine to a nation-wide distributor who, in turn, marketed that wine in New Jersey (even if a sub-distributor did the actual marketing of the wine in New Jersey).  In such a case, the New Jersey State court might have jurisdiction if the California winery had some level of intent that its wines reach New Jersey.
The question, however, has always been – what level of intent is required for jurisdiction?  This is the issue that the Supreme Court addressed in two cases in late June: J. McIntyre Machinery, Ltd. v. Nicastro and Goodyear Dunlop Tires Operations, S.A. v. Brown.  In short, these two cases make it more difficult for plaintiffs to sue defendants who are physically outside the court’s geographic jurisdiction.  These two new cases explain that putting a product into the “stream of commerce” with an expectation that it might reach a particular state might not be enough to give the courts’ in that state jurisdiction over the person or entity that placed the product into the stream of commerce.  In our example, the California winery could sell wine to a nation-wide distributor with an expectation that the wine would reach New Jersey, but that might be enough to give the New Jersey State court jurisdiction over the California Winery.  (These two recent opinions, however, raise new questions and leave certain issues unanswered.  In fact, the Court in the J. McIntyre Machinery case issued three differing opinions with no single opinion commanding the majority.)
A May 27, 2011 ruling from the District Court for the Northern District of California offers a further example.  There, defendant, who was based in Massachusetts, imported wine and sold it to three nation-wide distributors based in New York, Massachusetts, and Connecticut.  The wine ended up in California stores, but this was not enough to establish jurisdiction over the defendant in California.  (One True Vine, LLC v. Liquid Brands LLC, Case No. C 10-04102 (N.D.Cal. 2011)).
In any specific case, questions of jurisdiction are complicated and involve a detailed review of all the specific facts.  However, these two recent cases from the U.S. Supreme Court raise the jurisdiction bar.  In very simple terms, they make it even more difficult (but certainly not impossible!) for the California winery in our example to face a lawsuit in New Jersey, or, from our other example, a California winery to sue a Massachusetts importer in California federal court.
For more information or assistance on litigation issues, contact us.
Copyright Dickenson Peatman & Fogarty at www.lexvini.com