Bell’s Brewery wins order forcing beer distributor to arbitration in one of several continuing disputes over the brewer’s decision to exit an entire state (not the first time it’s done that). Bonus: we’ve got the docs and contracts for you.
Bell’s Brewery is racking up wins for brewers’ rights to obtain arbitration where agreements mandate arbitrations between the parties but distributors look to state franchise laws try to preempt those rights. The sad fact is that many parties do not understand how advantageous to their relationship a good arbitration provision can be.
Arbitration allows parties to craft the scope of their proceedings in fashions such as agreeing to limit discovery, agreeing to a timetable to say that any dispute needs to be ready for a hearing 90 days from initiation, etc. It also allows parties to keep their disputes private – out of the public sphere and away from industry publications and other news sources like prying liquor law blogs. The sped up timeframe alone can help save on costs, attorneys’ fees, and push the parties to resolve matters in a timely fashion which avoids uncertainty.
The brewer’s decision to pull out of Virginia given some machinations and sales between beer distributors in that state resulted in several disputes with its then-current malt beverage wholesalers. In resolving the disputes, many of the beer distributors sought to have Virginia’s Alcoholic Beverage Control Board rule that Virginia’s beer franchise laws invalidated arbitration provisions in the agreements they had with Bell’s. The VABCB compelled arbitration in one case between the brewer and a wholesaler (although that decision was partially vacated on appeal with a holding that the substantive ruling was correct although the VABCB lacked the power to compel arbitration), and now, the court in this present case has also held that the arbitration provision should be enforced.
For those looking for some potential guidance and elucidation, the arbitration provision at issue reads:
(a) All claims disputes and other matters arising out of or relating to this Agreement, including the validity, legality, breach, or termination thereof, shall be decided by binding arbitration in accordance with the rules of the American Arbitration Association (“AAA”). Arbitration shall be conducted before a single arbitrator selected by the parties or, if they cannot agree to an acceptable arbitrator within 30 days, by the AAA. Notwithstanding any provisions of law or this Agreement, this agreement to arbitrate shall be enforceable under the Federal Arbitration Act, and any award shall be final and binding.
(b) The place of arbitration shall be selected by non-initiating party. The initiating party shall be the party that is the first to either: (a) initiate through the filing of a complaint, petition or similar paper a court or administrative proceeding (a “legal proceeding”) arising out of or relating to this Agreement or the breach or termination thereof; or (b) request arbitration before either party has initiated a legal proceeding.
(c) Notwithstanding any contrary provision of law, the arbitrator shall have no power to award punitive or exemplary damages or award any sum beyond compensation for actual damages suffered.
The Federal Court in this case found that the Virginia beer franchise statute did not preclude the Court from enforcing the arbitration provision under the Federal Arbitration Act:
Virginia Code § 4.1-509(A) provides, in relevant part: “The [ABC Authority], upon petition by any beer wholesaler or brewery . . . shall have the responsibility of determining whether a violation of any provision of this chapter has occurred.” Section 4.1-501 of the Code states that the BFA [Virginia’s Beer Franchise Act], including § 509(A), applies “to all agreements in effect on or after January 1, 1978.” However, these statutes do not give the ABC Authority the exclusive right to determine whether violations of the BFA have occurred. A plain reading of § 509(A) shows that the ABC Authority has the responsibility of determining whether violations of the BFA have occurred, but not at the expense of any other authority’s ability to shoulder that responsibility. Put differently, Blue Ridge’s interpretation of § 509(A) would require it to read “shall have the exclusive responsibility,” or something to that effect. But that is not how the law is written, and the Court cannot insert such language into the statute. Under Virginia law, the ABC Authority does not have the sole responsibility of determining whether the BFA has been violated.
This interpretation of the BFA is compatible with a panel of ABC Authority’s recent interpretation of the intersection between the BFA and FAA. In May 2019, a panel of the ABC Authority determined that the BFA did not preclude it from compelling arbitration where the parties’ agreement clearly required disputes to be arbitrated. See ABC Authority’s decision on motion to dismiss and compel arbitration in Loveland Distributing co., Inc. v. Bell’s Brewery, Inc., dated May 7, 2019 … In that case, Loveland made a similar argument to Blue Ridge’s argument here: that the ABC Authority has primary jurisdiction to decide disputes under the BFA and the parties cannot delegate that duty to an arbitrator. Id. at 15. The panel rejected that argument, finding that the BFA’s “overarching theme” was fairness, and “[o]ne can scarcely conceive of anything more fair than enforcing the terms of an agreement the parties voluntarily entered.” Id. at 17. After considering the totality of the circumstances, the panel found that nothing in the BFA precluded arbitration, and compelled arbitration pursuant to the parties’ agreement. Id. at 18.
The Court is aware that the ABC Authority vacated the Loveland panel opinion on appeal, holding that the panel as an administrative body did not have the authority to compel arbitration. … However, the ABC Authority did not abandon the panel’s substantive findings that the BFA does not preclude arbitration. The Court finds the panel’s interpretation of the BFA persuasive.
As many state franchise laws address the rights of parties to arbitration and how they go about entering into a contract that contains an arbitration provision, decisions like this help to bolster the view that negotiated contracts containing arbitration provisions between brewers and beer distributors will be enforced despite 11th hour arguments by beer distributors looking to wiggle out of arbitration provisions after entering into them.
- You can read the brewer’s motion in support of its petition to compel arbitration against the beer distributor here along with supporting exhibits.
- You can read the brewer’s reply brief in support of the motion to compel arbitration against the beer distributor here. It also contains the exhibits that include the decision by the Virginia Alcoholic Beverage Control Authority to compel arbitration in a case the brewer had involving a similar matter involving another beer distributor in Virginia – Loveland Distributing Co., Inc., v. Bell’s Brewery, Inc. The exhibits also include the beer distribution agreement between the brewer and the beer wholesaler.