Alcoholic Beverage Control - Special Provisions Relating to Beer - Agreements between brewers and beer wholesalers


Published: 2014-09-22

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§ 55-c. Agreements between brewers and beer wholesalers. 1. Purpose.
It is hereby declared to be the policy of this state, that the sale and
delivery of beer by brewers to beer wholesalers shall be pursuant to a
written agreement. That further, the regulation of business relations
between brewers and beer wholesalers is necessary and appropriate to the
general economy and tax base of this state and in the public interest.

2. Definitions. As used in this section, the following words shall
have the following meanings:

(a) "Agreement" means any contract, agreement, arrangement, course of
dealing or commercial relationship between a brewer and a beer
wholesaler pursuant to which a beer wholesaler is granted the right to
purchase, offer for sale, resell, warehouse or physically deliver beer
sold by a brewer.

(b) "Brewer" means 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.

(c) "Successor to a brewer" means any person or entity which acquires
the business or beer brands of a brewer, without limitation, by way of
the purchase, assignment, transfer, lease, or license or disposition of
all or a portion of the assets, business or equity of a brewer in any
transaction, including merger, corporate reorganization or consolidation
or the formation of a partnership, joint venture or other joint
marketing alliance.

(d) "Beer wholesaler" and "wholesaler" means the holder of a
wholesaler's license pursuant to section fifty-three of this article who
purchases, offers to sell, resells, markets, promotes, warehouses or
physically distributes beer sold by a brewer.

(e) "Good cause" means and shall be limited to:

(i) (A) The implementation by a brewer of a national or regional
policy of consolidation which is reasonable, nondiscriminatory and
essential. Such policy shall have been previously disclosed, in
writing, in reasonable detail to the brewer's wholesalers, and shall
result in a contemporaneous reduction in the number of a brewer's
wholesalers not only for a brand in this state, but also for a brand in
contiguous states or in a majority of the states in which the brewer
sells the brand. All affected wholesalers and affected brewers shall be
afforded ninety days prior notice of the implementation of such policy,
and such notice shall be provided by the brewer implementing said
policy. Further, an affected wholesaler who has actual knowledge of the
intended implementation of such policy shall also notify each affected
brewer. The term "affected brewers" means all other brewers with an
agreement with an affected wholesaler who is a multiple brands
wholesaler. The term "affected wholesalers" means wholesalers who may
reasonably be expected to experience a loss or diminishment of a right
to distribute a brand, in whole or in part, as a consequence of a
proposed consolidation policy.

(B) An affected brewer receiving notice pursuant to this paragraph
may, within one hundred twenty days after receiving such notice,
terminate an agreement with a multiple brands wholesaler in the event:
(1) the total case purchases computed in twenty-four twelve ounce
equivalence units by the wholesaler of the products of the affected
brewer amounted to two percent or less of the multiple brands
wholesaler's total sales volume during the twelve month period preceding
the notice; and (2) the affected brewer, prior to such termination, pays
compensation to the multiple brands wholesaler.

(ii) There is a failure by the beer wholesaler to comply with a
material term of an agreement required by subdivision three of this
section between the brewer and beer wholesaler, provided that: (A) the
wholesaler was given written notice by the brewer of the failure to
comply with the agreement as provided for in subdivision five of this
section and in which the brewer states with particularity the basis for
the brewer's determination of non-compliance, and upon the wholesaler's
written request within ten days of receipt of the notice, the brewer has
supplemented such notice by submitting to the wholesaler in writing the
brewer's recommended plan of corrective action to cure the claimed
defaults or deficiencies in a manner satisfactory to it; (B) the
wholesaler was afforded a reasonable opportunity to assert good faith
efforts to comply with the agreement by curing the claimed defaults or
deficiencies specified in said notice within the time provided for in
clause (C) of this subparagraph; and (C) the wholesaler was afforded
fifteen days after receipt of such notice to submit a written plan of
corrective action to comply with the agreement by curing the claimed
non-compliance and seventy-five days to cure such non-compliance in
accordance with the plan. Provided, however, that such period for cure
may be increased or reduced to a commercially reasonable period by an
order of a court in this state entered after a hearing at which the
brewer has the burden to demonstrate that the claimed defaults or
deficiencies can be substantially rectified in the period of time
afforded the wholesaler or that, after receipt of notice of default or
deficiency as provided for in subdivision five of this section, the
wholesaler has intentionally engaged in an affirmative course of conduct
in which the brewer's current marketing plans and other trade secrets
are disclosed to a third party without the prior consent of the brewer
or in which the wholesaler acts or threatens to act to significantly
impair, harm or dilute the reputation or competitive position of the
brewer or otherwise irreparably injure the brewer, its brands or
trademarks. Provided, further however: (1) that such period for cure
need not exceed forty-five days if within the twelve months immediately
following a cure, the wholesaler intentionally engages in conduct which
repeats the same specified default and deficiency which the brewer had
deemed cured; and (2) that such period for cure need not exceed sixty
days in the event that during the twelve month period preceding the
notice, the total case purchases by the wholesaler of the affected
products of the brewer account for less than one-half of one percent of
the wholesaler's aggregate case purchases from all sources or one
thousand cases. For purposes of this subdivision, case purchases of
affected products whether package or draught shall be computed in
twenty-four twelve ounce equivalence units.

(f) "Good faith" means honesty in fact and the observance of
reasonable commercial standards in the trade.

(g) "Material modification" of an agreement or to "materially modify"
means and includes a substantial and significant change in the
competitive circumstances under which the agreement was entered into and
is performed which is caused by a brewer without fault on the part of
the wholesaler.

(h) "Multiple brands wholesaler" means a wholesaler which pursuant to
agreements with different brewers holds the rights to purchase, resell,
warehouse or physically deliver two or more competing products in
substantially the same geographic area or to the same customer class.

(i) "Fair market value of distribution rights" means the amount a
willing seller, under no compulsion to sell, would be willing to accept
and a willing buyer, under no compulsion to purchase, would be willing
to pay for the distribution rights.

3. Written agreement required. Except as provided for in subdivision
ten of this section, beer offered for sale in this state by a brewer to
a beer wholesaler shall be sold and delivered pursuant to a written
agreement which conforms to the provisions of this section and which
sets forth all essential and material terms, requirements, standards of
performance and conditions of the business relationship between a brewer
and a beer wholesaler. Such agreement may be cancelled, terminated,
materially modified or not renewed for good cause as defined in this
section, provided the brewer has acted in good faith.

4. Termination for cause and opportunity to cure. (a) No brewer may
cancel, fail to renew, or terminate an agreement unless the party
intending such action has good cause for such cancellation, failure to
renew, or termination and in any case in which prior notification is
required under this section, the party intending to act has furnished
said prior notification as provided for in subdivision five of this
section and the wholesaler has failed to cure such defaults or
deficiencies after a period for cure, as provided for in clause (C) of
subparagraph (ii) of paragraph (e) of subdivision two of this section.

(b) No brewer shall amend or materially modify or otherwise terminate
any essential and material term or requirement of an agreement unless
the brewer has good cause therefor and has furnished the affected party
with at least fifteen days prior notification as required by subdivision
five of this section.

(c) Notwithstanding any provision of this subdivision to the contrary:

(i) Any brewer with an annual volume as defined in subparagraph (iv)
of this paragraph of less than three hundred thousand barrels of beer
and whose sales to an affected beer wholesaler are three percent or less
of the beer wholesaler's total annual brand sales measured in case
equivalent sales of twenty-four--twelve ounce units may terminate an
agreement with any beer wholesaler without having good cause for such
termination, as defined in paragraph (e) of subdivision two of this
section, and shall not be subject to liability to the beer wholesaler
under paragraph (b) of subdivision seven of this section provided that,
prior to the effective date of the termination, the brewer pays the beer
wholesaler the fair market value of the distribution rights which will
be lost or diminished by reason of the termination. If such brewer and
beer wholesaler cannot mutually agree to the fair market value of the
applicable distribution rights lost or diminished by reason of the
termination, then the brewer shall pay the beer wholesaler a good faith
estimate of the fair market value of the applicable distribution rights.

(ii) If the beer wholesaler being terminated under subparagraph (i) of
this paragraph disputes that the payment made by the brewer was less
than the fair market value of the distribution rights, then the beer
wholesaler may within forty-five days of termination submit the question
of fair market value of the applicable distribution rights lost or
diminished by reason of the termination to binding arbitration before a
panel of three neutral arbitrators appointed in accordance with the
commercial arbitration rules of the American Arbitration Association,
which panel shall determine by majority decision whether the brewer's
payment meets the requirements of subparagraph (i) of this paragraph. If
the arbitration panel rules that the payment made by the brewer to the
beer wholesaler upon termination was less than the fair market value of
distribution rights lost or diminished by reason of the termination,
then the brewer must pay the beer wholesaler the difference between the
payment made to the beer wholesaler and the determined fair market value
plus interest. If the arbitration panel rules that the payment made by
the brewer to the beer wholesaler upon termination was more than the
fair market value of distribution rights lost or diminished by reason of
the termination, then the beer wholesaler must pay the brewer the
difference between the payment made to the beer wholesaler and the
determined fair market value plus interest. All arbitration fees and
expenses shall be equally divided among the parties to the arbitration
except if the arbitration panel determines that the brewer's payment
upon termination was not a good faith estimate of the fair market value,
then the panel may award up to one hundred percent of the arbitration
costs to the brewer.

(iii) Notwithstanding any provision of this section to the contrary,
for purposes of this paragraph, the term "brewer" shall mean any person
or entity engaged primarily in business as a brewer or manufacturer of
beer.

(iv) For the purpose of this paragraph, the term "annual volume" shall
mean: (1) the aggregate number of barrels of beer, under trademarks
owned by that brewery and brewed, directly or indirectly, by or on
behalf of the brewer during the measuring period, on a worldwide basis,
plus (2) the aggregate number of barrels of beer brewed, during the
measuring period, directly or indirectly, by or on behalf of any person
or entity which, at any time during the measuring period, controlled,
was controlled by or was under common control with the brewer, on a
worldwide basis. Annual volume shall not include beer brewed under
contract for any other brewer. There shall be no double counting of the
same barrels of beer under clauses one and two of this subparagraph.

(v) For the purposes of this paragraph, the term "measuring period"
shall mean the twelve month calendar period immediately preceding the
date notice of termination, as required under subparagraph (i) of this
paragraph, was given by a brewer to the beer wholesaler.

5. Notice of default or deficiency. (a) Except as provided in
paragraph (d) of this subdivision, no brewer may cancel, fail to renew
or terminate an agreement unless the brewer or beer wholesaler furnished
prior notification in accordance with paragraph (c) of this subdivision.

(b) Notwithstanding any agreement, no brewer or beer wholesaler may
materially amend or modify an essential and material term or requirement
unless the brewer or beer wholesaler furnished prior notification in
accordance with paragraph (c) of this subdivision.

(c) The notification required under paragraphs (a) and (b) of this
subdivision shall be in writing and sent to the affected party by
certified mail. Such notification shall contain:

(i) a statement of intent to cancel, not renew, otherwise terminate,
materially amend or modify an agreement;

(ii) a statement of all reasons therefor, stated with particularity;
and

(iii) the date on which such action shall take effect.

(d) A brewer or beer wholesaler may cancel, fail to renew or otherwise
terminate an agreement without furnishing the prior notification
required under this section only:

(i) in the event the affected party has made an assignment for the
benefit of creditors or similar disposition of all or substantially all
of the assets of such party's business;

(ii) in the event of a conviction or plea of guilty or no contest to a
felony which in the reasonable judgment of the brewer may adversely
affect the goodwill or interests of the wholesaler or brewer;

(iii) in the event of the revocation or suspension for thirty-one days
or more of any license or permit required of the wholesaler for the
normal operation of its business;

(iv) in the event there was fraudulent conduct on the part of the
brewer or beer wholesaler in its dealings with the other party;

(v) in the event of the failure by either party to pay sums of money
to the other party when due or if either the wholesaler or brewer takes
any action which would provide grounds for immediate termination
pursuant to the reasonable terms of a written enforceable agreement
between them, which was freely entered into without threat of
termination or other coercion or compulsion and was in full force and
effect sixty days from the effective date of the chapter of the laws of
nineteen hundred ninety-seven which amended this subparagraph;

(vi) in the event the brewer and beer wholesaler voluntarily agree in
writing to terminate the agreement.

6. Right of action. If a brewer fails to comply with the provisions of
this section, a beer wholesaler may maintain a civil action in a court
of competent jurisdiction within this state for damages sustained in
accordance with the laws of this state which shall govern all disputes
arising under an agreement or by reason of its making and performance.
In any such action the court may grant such equitable relief as is
necessary or appropriate, considering the purposes of this section, to
remedy the effects of any failure to comply with the provisions of this
section or the effects of conduct prohibited hereunder, including
declaratory judgment, mandatory or prohibitive injunctive relief, or
preliminary or other interim equitable relief; provided, however, that
permanent injunctive relief shall not be granted to prohibit the
effectiveness of a termination or non-renewal of an agreement in
furtherance of a policy of consolidation that is in compliance with
subparagraph (i) of paragraph (e) of subdivision two of this section. In
any legal action challenging any cancellation, termination or failure to
renew, or where an issue is the brewer's compliance with the provisions
of subparagraph (i) of paragraph (e) of subdivision two of this section,
the brewer shall have the burden of proof that its action was based upon
good cause, provided however, the wholesaler shall retain the burden of
proof in all other respects. The rights and remedies provided in this
section to a beer wholesaler with respect to an agreement with a brewer
and to an affected wholesaler or an affected brewer shall be intended to
supplement and not be exclusive of any rights and remedies otherwise
available pursuant to any other statute, or at law or equity.

7. Reasonable compensation. (a) Any brewer who shall implement a
national or regional consolidation policy, pursuant to this section,
shall not terminate its relationship with an affected wholesaler until
compensation as provided for in this subdivision has been paid. Such
brewer shall pay the affected beer wholesaler the fair market value of
the distribution rights which will be lost or diminished by reason of
the implementation of such policy, together with fair and reasonable
compensation for other damages sustained.

(b) Every brewer who without good cause amends, cancels, terminates,
materially modifies or fails to renew any agreement, or who in violation
of this section causes a beer wholesaler to resign from an agreement or
denies or withholds consent to any assignment, transfer or sale of a
beer wholesaler's business assets or capital stock or other equity or
debt securities, shall pay the affected beer wholesaler the fair market
value of the beer wholesaler's business, including distribution rights,
which have been lost or diminished as the result of the brewer's
actions.

(c) In the event that the brewer and the beer wholesaler are unable to
agree on the compensation to be paid for the value of the beer
wholesaler's business and assets, the matter may with the consent of
both the brewer and the beer wholesaler, be submitted to a neutral
arbitrator to be selected by the parties; if they cannot agree on such
an arbitrator, the same shall be selected by a judge of a court of
competent jurisdiction. No brewer or beer wholesaler may impose binding
arbitration of any issue as a term or condition of an agreement.
Arbitration costs shall be equally divided by the beer wholesaler and
the brewer. The award of the arbitrator shall be confirmed by a court of
competent jurisdiction in this state, the judgment of which shall be
binding.

8. Sale and transfer of beer wholesaler's business. No brewer shall
unreasonably withhold or delay its approval of any assignment, sale or
transfer of all or any portion of beer wholesaler's corporate equity or
debt or assets, including the beer wholesaler's rights and obligations
under the terms of an agreement, whenever the person or persons to be
substituted meet objectively reasonable standards imposed by the brewer.
A wholesaler who sells, assigns or transfers an agreement made pursuant
to this section shall provide written notice of such sale, assignment or
transfer to all other brewers with whom it has entered agreements.

9. (a) A brewer qualified to do business in the state of New York may
hold an interest in a limited partnership licensed by the authority as a
wholesaler, when the brewer or its affiliate is a limited partner and
the beer wholesaler is the general partner. Notwithstanding any other
provision of law, such brewer may loan money to a general partner of an
aforementioned limited partnership. Provided, however, any brewer or its
affiliate who holds an interest in a limited partnership licensed by the
authority as a wholesaler or who loans money to a general partner of
such limited partnership may only exercise such control of the business
as permitted by section 121-303 of the partnership law.

(b) Notwithstanding subdivision (a) of this subdivision, no brewer or
its affiliate may acquire or hold an interest in or loan money to a
general partner of a multiple brands wholesaler unless and until all
other brewers having agreements with said multiple brands wholesaler
have been afforded sixty days prior written notice of the particular
terms and conditions of the limited partnership or loan agreement or of
any change therein. A "loan" for purposes of this subdivision shall not
include bona fide credit terms for product purchases customarily
extended by a brewer to wholesalers in the normal course of business.

(c) For one hundred twenty days after the formation, licensing and
commencement of operations as a beer wholesaler of a limited partnership
or the making of a loan, and upon at least fifteen days prior
notification as required by subdivision five of this section, a brewer
may terminate an agreement with a multiple brands wholesaler in the
event: (i) a competing brewer or its affiliate becomes a limited partner
with or loans money to a general partner of a multiple brands
wholesaler, (ii) by reason of said loan, the performance of a loan
agreement, or the terms or conduct of the limited partnership, there is
a reasonable likelihood that competition between brands of the competing
brewers has been or may be significantly reduced in a relevant
geographic area or market, and (iii) in lieu of other rights and
remedies it might have under this chapter to terminate for good cause,
the terminating brewer pays compensation to the multiple brands
wholesaler.

10. Coverage. (a) This section shall not apply to written agreements
that were in effect prior to the effective date of this section which
set forth all terms and conditions of material significance governing
the relationship between the brewer and beer wholesaler, including but
not limited to the grounds and procedures which govern: (i) termination
of the relationship; (ii) approval and disapproval of managers; (iii)
change in ownership; and (iv) whether or not the wholesaler is entitled
to compensation in the event the wholesaler is terminated for deficient
performance under such agreement or without good cause. Provided,
however, that this section shall apply to any agreement entered into,
and renewals, extensions, amendments or conduct constituting a material
modification of an agreement on or after the effective date of this
section.

(b) Where an agreement between a brewer and beer wholesaler in effect
prior to the effective date of this section is continuous in nature or
has no specific duration or has no renewal provision and fails to set
forth all terms and conditions of material significance governing the
relationship between the brewer and beer wholesaler, including but not
limited to the grounds and procedures which govern: (i) termination of
the relationship; (ii) approval and disapproval of managers; (iii)
change in ownership; and (iv) whether or not the wholesaler is entitled
to compensation in the event the wholesaler is terminated for deficient
performance under such agreement or without good cause; such agreement
shall be considered for purposes of this section to have been renewed
sixty days after the effective date of this section.

11. The requirements of this section may not be altered, waived or
modified by written or oral agreement in advance of a bona fide case and
controversy arising under a written agreement complying with this
section.