MillerCoors Bonanza Part 2 – A state statute admits economic protectionism is the justification for its alcohol distribution laws and some other lessons from the District Court’s opinion
Recently, we wrote about this decision out of Nevada where a Federal Court judge steadfastly refusing to countenance an inane and oft-made argument from a beer distributor seeking to read language out of a commonplace beer franchise statute provision.
There are some other enlightening points/issues from the case that are worth noting:
1. The court did not agree that property rights and goodwill would be lost in a manner sufficient to justify and injunction.
The distributor in this case, Bonanza Beverage, argued that the court should grant an injunction against MillerCoors’s assertion of its contractual rights to have the distributor negotiate exclusively with MillerCoors’s appointed agent (Breakthru Beverage). Claiming that if it were forced to engage exclusively for the contractually agreed time (90 days) and not allowed to just sell to the buyer it wanted, the distributor would “lose valuable and unique property rights, goodwill, and other intangibles.” In addressing this argument, the court did not agree.
It found that pleading “other intangibles” was meaningless – “fatally vague” – and therefore unprotectable. It found that “goodwill” (an oft-cited and claimed (and sometimes statutorily referenced) boogeyman that distributors claim to have title to – even though a brand’s goodwill is seldom generated by distribution activities and nearly always fostered solely through the various advertising and sponsorship opportunities undertaken by the brewery, winery, or distillery making the product) was not connected to the activities the distributor wanted to enjoin (a 90-day lock-up to keep it from selling to another distributor (Southern Glazer’s) e.g., that the inability to sell the brands to another distributor for 90 days would not affect the goodwill). It also found that the “property rights” were described by the brewer as simply the right to control its business in the “Manner it deems best for itself and its employees” which the Court rejected as having no statutory basis or support.
2. Craft brewers were able to terminate thanks to less restrictive provisions placed on smaller breweries.
The exhibits to one of the motions contains distribution rights termination letters from Modern Times, Alesmith, Big Sky Brewing and others.
3. The state’s franchise statutes are admittedly created to treat in-state interests different than out-of-state interests to accomplish economic protectionism.
Some of the briefs, and the court’s opinion, not only cite to, but also rely on a prefatory statutory provision that literally states that economic protectionism of in-state interests is the purpose of the statutory scheme and yet none of the briefs raise a constitutional challenge – either commerce clause or equal protection – against any interpretation that would give credence to such a provision:
[i]t is the policy of the Legislature to insure the orderly distribution and marketing of alcoholic beverages in this state in order to protect locally owned and operated business enterprises and those residents whose livelihoods and investments are dependent on their freedom to manage their businesses without economic and coercive control by nonresident suppliers of alcoholic beverages. See Nev. Rev. Stat. § 597.190
This statement doesn’t strike me as the kind to be viewed as offering a rational basis in “orderly markets” as the justification for liquor regulation so much as it is an explicit threat that protecting in-state interests against out-of-state interests is the statute’s purpose. And yes, the problem with that is that citizens of different states cannot be treated differently under the equal protection clause of the Fourteenth Amendment and states cannot restrict commerce by treating in-state interests dissimilar to out-of-state interests under the commerce clause.