Illinois has held no written notice is required to terminate a beer distribution agreement for a distributor’s failure to timely pay for beer upon demand in accordance with the Illinois Beer Industry Fair Dealing Act.
Every once in awhile we like to post about a throw-back case that’s important to brewer/distributor relationships. This opinion in Central Imports v. Dortmunder from the Illinois’ appellate court is one of those important cases interpreting Illinois’ Beer Industry Fair Dealing Act. Back in 1991, Central Imports, Inc., an Illinois beer wholesaler (distributor) brought an action against Dortmunder Actien-Brauerei AG, a brewer, for wrongful termination of its distributorship alleging that it was entitled to “written notice” of termination for its failure to pay Dortmunder for beer prior to Dortmunder’s termination.
The salient facts are that Central Imports owed Dortmunder for $63,210.75 in beer shipped to Central Imports. Under the terms of invoices sent for the beer, payment was due on January 18, 1989. Payment was not made on that date. Dortmunder called Central Imports’ bookkeeper on January 24, 1989 to say the brewery was “upset” that it had not received payment when it was due. Dortmunder continued to call the bookkeeper through the remainder of January and into February of 1989 regarding payment “without any favorable result.” The subject of at least one of the calls was acknowledged by the bookkeeper to be that “payments were overdue, and they [Dortmunder] want their money.”
On March 8, and again on the 13th, 1989, Dortmunder again called Central Imports’ bookkeeper and was told that the check was made out and in the mail.
Then on March 17, 1989, Central called Dortmunder and told them that Dortmunder should stop dealing with the bookkeeper and instead deal with Central’s general manager. So it did, and was told by the general manager on March 20, 1989, that the GM did not have good knowledge of the complete situation and the GM asked if he could call Dortmunder back the “next day to respond to that.”
The next day the GM called Dortmunder and told them that he understood the payment was long overdue and that Central’s controller had suggested paying the bill in four equal installments over the next four weeks.
Dortmunder testified it told Central that stretching out the payments was “totally unacceptable” and that it demanded payment in full. But the GM testified at a hearing that the Dortmunder’s treasurer had told him in response to the proposed payment schedule “If that’s what you have to do, that’s what you have to do. Any payment is better than no payment.”
Again on March 23, 1989, Dortmunder called the GM and was was told that not even a partial payment had been sent, but that such payment would be mailed. Central alleged in its briefs in the case that it did send a $15,000 payment on March 27, but Dortmunder testified that when it called on March 28, it was told a payment hadn’t been sent. To compound Central’s claims that it was never informed about late payments by Dortmunder, it had another person testify that they had multiple conversations with Dortmunder’s secretary but claimed they were never told about late payments by Dortmunder.
On March 28, 1989, the brewery sent a letter by snail mail to Central terminating the distribution relationship (it sent the notice by snail mail so it would arrive later and would give Dortmunder’s treasurer time to try and collect on the monies owed.) In early April, Dortmunder’s treasurer was successful in a few meetings with Central’s personnel and managed to obtain several checks for payment in full. Two officers for Central testified at a hearing that it was only at these April meetings that they learned the payment was past due. On April 7, 1989, after paying the invoices in full, Central received the termination letter from the brewery.
Central brought suit in May of 1989 and obtained a temporary restraining order against Dortmunder to keep it from moving the brand to a new distributor. Then in October of 1989, Central obtained a preliminary injunction for the same relief after a hearing at which the testimony above was given.
The brewery filed an appeal of the preliminary injunction and the appellate court ruled in the brewery’s favor.
In reviewing the facts, and the law, the appellate court found the salient question about whether Central Imports would ultimately prevail in a trial on the matter was “whether the Beer Industry Fair Dealing Act provided adequate grounds for [Dortmunder’s] termination of Central Imports’ distributorship.”
The version of BIFDA in place back then is the same as today. Section 3 of the Act provides:
(1) Except as provided in subsection (3) of this Section, no brewer or beer wholesaler may cancel, fail to renew, or otherwise terminate an agreement unless the brewer or wholesaler furnishes prior notification to the affected party in accordance with subsection (2).
(3) A brewer may cancel, fail to renew, or otherwise terminate an agreement without furnishing any prior notification for any of the following reasons:
(A) Wholesaler’s failure to pay any account when due and upon demand by the brewer for such payment, in accordance with agreed payment terms.
Illinois Beer Industry Fair Dealing Act 815 ILCS 720/3(1) and (3)(A).
Importantly, the appellate court noted that the trial court found “there were several demands … made on Central Imports and that the payment performance was poor and late payments have been made.”
The appellate court also noted that the trial court concluded that although the brewery made several demands, that a manufacturer’s intention to terminate the distributor must be in writing and that the manufacturer must provide the distributor with a “reasonable opportunity to pay” after receiving such notice.
The brewery argued on appeal that the trial court’s interpretation of Section 3 of the Beer Industry Fair Dealing Act was wrong and that the statute does not require written notice by its very plain language. The brewery also argued that it had made several demands starting in January of 1989 and that Central Imports’ payment in full in April was therefore not “payment on demand” and the appellate court agreed. Central Imports argued to the appellate court that the legislative intent of the statute recognized commercial reasonableness and good faith – which meant a written notice – and argued that it would be unfair to terminate a distributorship in which $2,000,000 of purchases had been made because the distributor was late in making a $63,000 payment – but the appellate court held that Central’s argument overlooked the trial court’s specific findings that several demands for payment had been made on Central imports and that its “payment performance was poor” and that it had made late payments.
The appellate court ultimately found no notice was required for termination based upon a failure by a distributor to make payment on demand:
Neither Central Imports nor the trial court has pointed to anything in the legislative history of the Act indicating that the legislature considered it unfair for a brewery to terminate a distributor when it ignores oral requests for payment for over two months. On the contrary, as noted above, the statute clearly and unmistakably provides that a brewer or wholesaler need not previously notify “the affected party” in any way of a cancellation or failure to renew an agreement in cases where the distributor fails “to pay any account when due and upon demand by the brewer for such payment, in accordance with agreed payment terms.” We conclude therefore, that the Fair Dealing Act does not require written notice or any warning that termination will result from a failure to make payment on demand. Accordingly, we hold that the Act allowed the brewery to terminate Central Imports without prior notice thereof for failure to pay for the November 8, 1988 shipment when it was due and upon demand being made therefor.
An important piece of precedent upholding the letter of Illinois’ Beer Industry Fair Dealing Act. And a lesson to today’s breweries and distributors that including specific payment terms in your distribution agreements and abiding by them shouldn’t be overlooked.