Forum Selection Clauses in Agreements Governed by the Beer Industry Fair Dealing Act – A Specific Example

The helicopters are hovering over Chicago today, a mob of people is moving down the street chanting, and while I’d like to think it’s in anticipation of Chicago’s Craft Beer Week, I’m pretty sure it’s got more to do with our Beer Industry Fair Dealing Act Thursday.

This week’s edition examines a case that found no support for forum selection clauses in a malt beverage distribution agreement that stated the forum for dispute resolution would be California rather than Illinois.  Specifically, the agreement at issue in this case for distribution of the malt beverage products had two operative clauses:

A.  This Agreement is entered into under the laws of the State of California and must be construed thereunder.  Any cause of action between the parties, whether under this Agreement or otherwise, must be brought online in a court having jurisdiction and venue at the home office of Winery.  Winery and Distributor each hereby designates CT Corporation System, 800 South Figueroa, Los Angeles, California 90017 as Agent for Service of Process in any cause of action between them.

B.  If, and only to the extent that the Beer Industry Fair Dealing Act, Illinois Compiled Statutes, Chapter 815, Act 720, or an any equivalent law or regulation govern the sale of malt beverage products by Winery to Distributor, then the terms of this Agreement are deemed modified to conform to those provisions.  If any of those provisions are repealed or are otherwise not governing or applicable in whole or in part, then the terms of this Agreement govern the sale of Winery malt beverage products by Winery to Distributor.

The complaint in E&J Gallo Winery v. Morand Bros. Bev. Co., along with copies of the operative distribution agreement can be found here.  The Court’s opinion can be found here.  E&J Winery supplied malt beverages (Bartles & Jaymes Premium Malt Coolers) to the distributor in Illinois and when the distributor wanted to sell the business to a different distributor, the Winery said no and told the distributor that if the sale happened, they would cancel the agreement and find a new distributor.  The Winery filed suit in Illinois over the Malt Beverage Distribution Agreement seeking, among other things, a determination that the termination of the Agreement was proper.

The distributor brought a counter-suit and the Winery moved, pursuant to the forum selection clause, to have the whole case transferred to California where another related case was pending.  The Court noted that the parties agreed that the Beer Industry Fair Dealing Act was applicable to the malt beverages distribution agreement.  It went on to state that the Act and the public policy behind the Beer Industry Fair Dealing Act placed venue in Illinois – the Act stated:

“If the brewer or wholesaler who is a party to an agreement pursuant to this Act fails to comply with this Act or otherwise engages in conduct prohibited under this Act, the affected party may maintain a civil suit in court if the cause of action directly relates to or stems from the relationship of the individual parties under the agreement, provided that any such suit shall be filed in a State or federal court of competent jurisdiction located in Illinois.”

The Court found that:

“The Illinois legislature further enacted the Beer Act “to promote the public’s interest in fair, efficient and competitive distribution of malt beverage products by regulation and encouragement  of brewer and wholesaler vendors to conduct their business relations toward these ends.” It is clear that the Illinois Beer Act embodies Illinois’ strong public policy in favor of having these issues litigated within its borders. Allowing a privately contracted forum selection clause to supersede the Beer Act and its policies would frustrate the intention of the statute. The forum selection clause, therefore, is unenforceable …”

And with that, the dispute was decided.  Despite the two parties agreeing in their contract to place venue in California, the Agreement didn’t allow them to opt-out of the statute’s mandatory venue provision.  We’ll be writing about another opinion in this case next Thursday.

One of my favorite things about the opinion is the Court’s response to an argument of legal sophistry that the Plaintiff made.  The argument was that the Act just stated that the suit had to be “filed” in Illinois, not that the suit be “litigated” in Illinois.  The Court responded with:

“This argument is not compelling. The State’s interest is in having these type of actions litigated within its borders. Plaintiff’s hyper-technical reading of the statute would render the mandatory venue provision of the statute meaningless. Indeed, such an interpretation would lead to lawsuits filed in Illinois and then transferred elsewhere, which could hardly be what the legislature intended when it enacted the statute. The actual filing of complaints within Illinois is merely the step that begins the litigation here. The venue provision in the Illinois Beer Act and the public policy behind that Act trump any contractual agreement between the parties. Accordingly, the California forum selection clause is unenforceable in this case.”

So, the lesson here is that an attempt to write the forum selection clause of the statute out of your distribution agreements is futile when you’re talking about lawsuits.