A good reminder out of Maine – beer distribution franchise laws generally incorporate themselves into contracts whether the parties want it or not.
Vacationland Distributors brought suit against Fore River Brewing Co., following notice that Fore River Brewing sent to the beer wholesaler stating that the brewer did not intend to continue its distribution relationship with Vacationland and intended to directly distribute (self-distribute) to Maine retailers. The parties had a beer distribution agreement that apparently termed out and Fore River asserted the end of that term as a justification for the end of the beer distribution agreement (along with other performance and economic related justifications, but the contract term is the one we are concerned with here).
Vacationland pointed out that Maine, like many states, has a beer distribution franchise statute: the Certificate of Approval Holder and Maine Wholesale Licensee Act and that Act requires proper notice and good cause for termination or non-renewal and arguing that regardless of the contract, the Act controlled.
ASIDE: note here, Maine’s law on this which says that a brewer cannot “require” waiver:
§1462. No waiver; good faith settlements
No certificate of approval holder may require any wholesale licensee to waive compliance with any provisions of this chapter. Nothing in this chapter limits or prohibits good faith settlements of disputes voluntarily entered into between the parties.
But also note that the Act specifically doesn’t prohibit a voluntary waiver – e.g., one that is not “required” by a brewer. Fore River didn’t argue this, but potentially, a party could argue that if a contract contradicts a franchise Act, the specific “require” language of Maine’s beer franchise law could reasonably be read not an absolute prohibition on any waiver of the act (some state beer franchise laws are drafted that way e.g., “no party may waive any provisions of this Act”) but rather as a statement that any waiver must be knowing and voluntary and cannot be “required” by a brewer to get a contract/agreement. So, if a waiver were inferred from a contractual agreement between the parties and that contract was mutually negotiated and not the product of coercion, you’d have a pretty good argument that this “required” language could be read to assume that such a contractual waiver should be enforced. But I digress.
The Court here agreed with the beer distributor’s arguments that the Maine beer franchise statute prohibited the contract from simply ending by its own terms and did so because the beer franchise statute applied, regardless of what the contract may or may not have said:
In their opposition to Vacationland’s Motion, Fore River chiefly argues that the Act does not govern this analysis because their Distribution Agreement with Vacationland expired on December 31st, 2021, the date listed as the “end date” in the distribution agreement executed by the parties on January 1st, 2017. Fore River claims that this contractual end date, along with the effective date of the boilerplate “Termination Agreement” sent to Vacationland for a signature — December 31st, 2021 — rendered Fore River and Vacationland’s contractual relationship inactive.1
As a matter of law, the court disagrees.
The fact that the Distribution Agreement between the parties expired on December 31st, 2021, does not alter this analysis. Although termed as an “agreement” in the act, the statutory text of Section 1454(1) only requires a “commercial relationship” for a party to seek the Act’s protections. The existence of a commercial relationship is admitted by the parties and buttressed by the two statutory factors which constitute prima facie evidence of an agreement. At some point over the six years that Fore River and Vacationland were in business, Fore River “shipped or prepared for shipment,” an order for malt liquor by Vacationland, 28-A M.R.S. § 1451(1)(A), and Fore River “accept[ed] . . . payment” for such a shipment or order. 28-A M.R.S. § 1454(1)(B).
To the extent Fore River argues that Vacationland waived the Act’s application or its right to reasonable compensation through the 2017 contract, the Act’s language itself defeats this argument. Fore River may not require Vacationland, through contract or otherwise, “to waive [Fore River’s] compliance with any provisions of [the Act].” 28-A M.R.S. § 1462 (2022).
Even if Fore River’s contractual arguments had merit, Section 1454 prohibits “refus[ing] to continue” and “refus[ing] to renew” a distribution relationship without good cause. 28-A M.R.S. § 1457 (1-A) (2022). Thus, a decision by Fore River not to renew the 2017 contract, made without good cause, would subject Fore River to arbitration on the issue of reasonable compensation under Section 1457 and potentially damages under Section 1458, regardless of whether a contract exists. See 28-A M.R.S. § 1457 (2022) (defining a “triggering change” as a “refusal to renew” and “refusal to continue” a distribution relationship); 28-A M.R.S. § 1458 (2022) (authorizing suit for any violation of the Act’s provisions).
As a matter of law, the provisions of the Act apply to the distribution arrangement between Fore River and Vacationland. Fore River is bound to comply with the Act’s provisions notwithstanding the existence of the 2017 contract.
We may be hearing more about this case as the ultimate determinations regarding whether the brewer had “good cause” to terminate the agreement and what/how a lack of good cause would mean for the fees associated with termination are issues that the Court put off following further discovery. But an important lesson for parties crafting their distribution agreements in understanding whether or not a beer franchise act’s terms can supersede a contract and what incorporation of the state franchise act means for your distribution relationship.