Court provides stark reminder to liquor and beer distributors about why FOB terms matter: the location of title transfer or sale can determine whether you have franchise protection thanks to the Dormant Commerce Clause.

New York’s ABC, section 55-c(2)(b), defines “brewer” as “any person or entity engaged primarily in business as a brewer, manufacturer of alcoholic beverages, importer, marketer, broker or agent of any of the foregoing who sells or offers to sell beer to a beer wholesaler in this state or any successor to a brewer.” ABC § 55-c(2)(b) (emphasis added).5 New Jersey’s MBPA has a similar provision, indicating “[e]very brewer shall contract and agree in writing with a wholesaler for all supply, distribution and sale of the products of the brewer in this State, and each contract shall provide and specify the rights and duties of the brewer and the wholesaler [*17]  with regard to such supply, distribution and sale.” N.J. Stat. Ann. § 33:1-93.15 (emphasis added). Based on the language of these statutes, Defendant argues Plaintiff must, and has failed to, plead a sale or offer to sell within New York or New Jersey. (Def.’s Mem. at 10-11.) In response, Plaintiff argues the “in this state” language should only be read as modifying the words “wholesaler” not “sells or offers to sell.” (Pl.’s Opp’n at 15.) Or, in other words, only the wholesaler needs to be within New York or New Jersey. (Id.)

Ultimately, the crux of the Court’s analysis on this issue turns on the interpretation of the language “in this state” under both statutes. And here, both parties’ analysis heavily references S.K.I. Beer Corp. v. Baltika Brewery, a district court opinion within the Eastern District of New York that considered this language within the New York statute as a matter of first impression. 443 F. Supp. 2d 313 (E.D.N.Y. 2006), aff’d, 612 F.3d 705 (2d Cir. 2010). In effect, Defendant urges the Court to adopt the reasoning of the S.K.I. Beer Corp. court’s analysis, while Plaintiff urges the Court to deviate from it. Ultimately, the Court finds the analysis in S.K.I. Beer Corp. persuasive and instructive here.

In S.K.I Beer Corp., the court considered [*18]  a dispute between Baltika Brewery and S.K.I. Beer Corporation, which turned, in part, on the “scope and meaning” of the “in this state” language of New York’s ABC, particularly whether the language modified “wholesaler” or “sells or offers to sell.” Id. at 318-23. There, the court first acknowledged that both interpretations were reasonable. The court noted “[o]ne might reasonably read the phrase ‘in this state’ as qualifying ‘wholesaler’—and not the type of transaction,” which would comport with the rule of the last antecedent, “an interpretive canon which confines the effect of qualifying words and phrases to the word or phrase immediately preceding the qualifier.” Id. at 318. However, the court also noted “[the contrary] interpretation is also reasonable, because one could, despite the rule of the last antecedent, read the phrase ‘in this state’ to refer back to the verbal phrase ‘sells or offers to sell beer,’” given “the phrasing here simply follows the order of object, indirect object, and place standard to English[.]” Id. at 319. Nonetheless, the court recognized statutory construction is a “holistic endeavor,” and conducted a fulsome analysis of the statutory language as a whole, the implications of each interpretation, [*19]  and the legislative history of the statute. Id. at 319-21. Based on this analysis, the court determined “it is clear that the phrase ‘in this state’ refers to the entire phrase preceding it[,]” or in other words, “the New York legislature intended to limit the Statute to sales and deliveries in New York.” Id. at 320.

Given the S.K.I. Beer Corp. court’s persuasive and thorough analysis, this Court need not reproduce the same here. That said, the Court notes it finds particularly persuasive the S.K.I. Beer Corp. court’s concern that Plaintiff’s interpretation raises constitutional concerns, namely, the dormant Commerce Clause. Id. (“Plaintiff’s reading would impose New York’s statutory regime for brewer-wholesaler relations on agreements consummated and completed on the other side of the globe simply because the wholesaler was licensed under New York law.”). In effect, accepting Plaintiff’s argument would mean that any transaction in the world with a licensed New York wholesaler is covered by the New York beer distribution statute. The constitutional concerns apply equally to the New Jersey distributor statute. Against this backdrop, the Court agrees Plaintiff here must plead that Defendant made a sale or offer to sell Zubr [*20]  in New York or New Jersey, which Plaintiff has not done.

§ 2-319. F.O.B. and F.A.S. Terms.

(1)Unless otherwise agreed the term F.O.B. (which means “free on board”) at a named place, even though used only in connection with the stated price, is a delivery term under which

(a) when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this Article (Section 2-504) and bear the expense and risk of putting them into the possession of the carrier; or

(b) when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this Article (Section 2-503);

(c) when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this Article on the form of bill of lading (Section 2-323).

In granting Defendant’s motion to dismiss the original complaint, the Court relied heavily on the reasoning set forth in S.K.I. Beer Corp. v. Baltika Brewery, 443 F. Supp. 2d 313 (E.D.N.Y. 2006), aff’d, 612 F.3d 705 (2d Cir. 2010). That case considered the very question at issue here: “whether any transaction anywhere in the world with a licensed New York wholesaler is covered by [ABC], or whether it pertains only to those transactions where the sale or the offer are made in New York.” Id. at 319. While the court in S.K.I. Beer Corp. acknowledged that the statute could reasonably be interpreted to mean the former, it ultimately held that the statute, when viewed holistically, “compels the conclusion that it regulates only those sales and deliveries which take place in the State of New York.” Id. at 318, 322. The court keenly noted that certain ambiguities were “clarified by the purpose of the statute, which provides for regulation of ‘the sale and delivery of beer by brewers’” as a matter of state policy. Id. at 319 (emphasis in original). And, more to the point, the court found that ABC is “instinct with the purpose of regulating the sale and delivery in [the state of New York] of alcoholic beverages.” Id. (citing ABC § 2).

Here, according to the 2000 Agreement, the “delivery of the Products and acceptance thereof by the Distributor [occurred] at the Manufacturer’s [] warehouse,” and payment for the products was “effected by depositing [the purchase price] . . . to the Manufacturer’s bank account,” both of which were situated in Poland. (See Ex. 2 at 2–3, Def.’s Mot.) In other words, the sale and delivery of the product at issue, Zubr, took place outside of New York and New Jersey.

In addition, and as the Court previously found, Plaintiff’s effort to prosecute Defendant for violations of ABC and MABPA runs afoul of the dormant Commerce Clause. See Amtec I, 2022 WL 992565, at *6. Here again, S.K.I. Beer Corp. proves instructive. As that court explained, “[t]he Commerce Clause . . . precludes the application of a state statute to commerce that takes place wholly outside of the State’s borders whether or not the commerce has effects within the state.” S.K.I. Beer Corp., 443 Supp. 2d at 319–320 (quoting Healy v. Beer Inst., 491 U.S. 324, 336 (1989)). Therefore, for the same reason Plaintiff’s claim fails under a reading of the statute, it fails under the United States Constitution: The transaction for the sale of the product between Plaintiff and Defendant was wholly exterritorial to both New York and New Jersey. That, as Plaintiff argues, “the 2000 Agreement makes clear that the final destination of the Zubr Brand products was New York and New Jersey,” is of no consequence. (Pl.’s Opp’n at 9.) Put differently, the dormant Commerce Clause operates to preclude a state from regulating wholly extraterritorial commerce, even where the commerce may have effects within the state. Likewise, Plaintiff’s allegations that Defendant sold or offered to sell to other duly licensed distributors, “with such sales actually taking place in New York and New Jersey,” does not overcome the Commerce Clause’s prohibitions. (Am. Compl. ¶ 5.) Under Plaintiff’s current argument, a state would be permitted to regulate wholly extraterritorial commerce between a brewer and distributor so long as that brewer conducts any commerce within the state, however tangential. Such a finding cannot be read consistent with the Commerce Clause; rather it would do violence to it.