City Beverages, LLC v. Crown Imports, LLC

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 20, 2023
• Docket: 23-35010
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 20 2023 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

CITY BEVERAGES, LLC, DBA Olympic No. 23-35010 Eagle Distributing, a Missouri limited liability company with its principal place of D.C. No. 3:22-cv-05756-DGE business in Washington,

Plaintiff-Appellee, MEMORANDUM*

v.

CROWN IMPORTS, LLC, DBA Constellation Brands Beer Division, a Delaware corporation with its principal place of business in Illinois; CONSTELLATION BRANDS, INC., a Delaware corporation with its principal place of business in New York,

Defendants-Appellants.

Appeal from the United States District Court for the Western District of Washington David G. Estudillo, District Judge, Presiding

Argued and Submitted July 10, 2023 Seattle, Washington

Before: GRABER, GOULD, and FRIEDLAND, Circuit Judges.

Defendant Crown Imports, LLC, a wholly owned subsidiary of Constellation

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Brands, Inc., is the exclusive brewer, marketer, and supplier of a portfolio of

imported beer brands. Pursuant to a Distribution Agreement (the “Agreement”),

Plaintiff City Beverages, LLC, d/b/a Olympic Eagle, has the right to distribute

some of Defendant’s products within a defined territory in the state of Washington.

We review for abuse of discretion the district court’s grant of a preliminary

injunction prohibiting Defendant from terminating the Agreement without cause

and review de novo the underlying legal principles. Fyock v. Sunnyvale, 779 F.3d

991, 995 (9th Cir. 2015). We vacate the preliminary injunction on the ground that

Plaintiff has not shown a likelihood of success on the merits, and we remand.

1. Plaintiff is unlikely to succeed on its claim under the Washington

Wholesale Distributor/Supplier Equity Agreement Act (the “Wholesale Distributor

Act” or the “Act”). Although the text of the Act does not expressly state that

suppliers always have the right to terminate distribution agreements without cause,

it clearly allows a supplier to contract for that right.

Under the Act, a supplier must give a distributor sixty days’ notice before

terminating a distribution agreement, with two exceptions that are not relevant

here. Wash. Rev. Code § 19.126.040(2). That notice must state “all the reasons”

for the termination, and the distributor must be given sixty days to “rectify any

claimed deficiency.” Id. If the supplier terminates the agreement for one of three

specific reasons, including “for cause,” then the distributor is not entitled to any

2 compensation. Id. § 19.126.040(4). But if the supplier terminates the agreement

for “any reason other than” those three reasons, including “other than for cause,”

the distributor is entitled to compensation for inventory and the fair market value

of the terminated rights. Id. Thus, if the supplier contracts for the right to

terminate without cause, the Act gives the supplier two choices: (1) the supplier

may terminate the agreement for cause after giving the distributor an opportunity

to cure any deficiencies, in which case the supplier would not owe any

compensation; or (2) the supplier may terminate the agreement without cause and

provide compensation for inventory and the fair market value of the terminated

rights.

When applying Washington law, we are bound by decisions of the

Washington Supreme Court and, in the absence of a decision from the Washington

Supreme Court, we must look to decisions of the Washington Court of Appeals to

aid our prediction of how the Washington Supreme Court would decide the issue.

See PSM Holding Corp. v. Nat’l Farm Fin. Corp., 884 F.3d 812, 820 (9th Cir.

2018) (explaining how federal courts interpret state law). But here, there is no

Washington state court authority suggesting that our interpretation of the statutory

text is incorrect.

In Birkenwald Distributing Co. v. Heublein, Inc., 776 P.2d 721 (Wash. Ct.

App. 1989), the court held only that “the Act must be limited to distributorship

3 agreements created after its effective date.” Id. at 726. And in Mt. Hood Beverage

Co. v. Constellation Brands, Inc., 63 P.3d 779 (Wash. 2003), the Washington

Supreme Court held only that an earlier version of the Act that exempted in-state

wineries violated the dormant commerce clause. Id. at 785–87. In that context, the

court’s statement that the Act requires suppliers “to give notice and cause before

canceling contracts with distributors,” id. at 786, is best viewed as unreasoned

dictum.

2. The Agreement grants Defendant the right to terminate without cause.

When interpreting a contract under Washington law, “the preferred interpretation

gives meaning to all provisions and does not render some superfluous or

meaningless.” Bogomolov v. Lake Villas Condo. Ass’n of Apartment Owners, 127

P.3d 762, 766 (Wash. Ct. App. 2006). Paragraph 6.2 of the Agreement explains in

detail the parties’ rights “in the event of the termination of this Agreement by

[Defendant] without cause.” (Emphasis added). Unless Defendant has the right to

terminate without cause, the entirety of Paragraph 6.2 would be surplusage.

3. Plaintiff is also unlikely to succeed on its claim under the Washington

Franchise Investment Protection Act (“FIPA”). First, it is not clear that FIPA

applies to the termination of beer distribution agreements at all, in light of the more

specific Wholesale Distributor Act, which clearly governs such agreements and

their termination. See Ass’n of Wash. Spirits & Wine Distribs. v. Wash. State

4 Liquor Control Bd., 340 P.3d 849, 856 (Wash. 2015) (“A general statutory

provision must yield to a more specific statutory provision.”).

But even if FIPA does apply to beer distributors that meet the definition of a

franchise, and even assuming Plaintiff qualifies as a franchise, Plaintiff likely

waived the right to injunctive relief as a remedy for any FIPA violation. The

Agreement expressly provides that, in the event of a supplier’s termination of the

Agreement without cause, the supplier “shall pay to [the] Distributor” a specified

sum “in full and complete satisfaction, waiver and discharge of all claims of

whatever nature that [the] Distributor may have against [the supplier], arising out

of or with respect to the termination.” Although FIPA makes it unlawful for a

supplier to terminate a franchise without cause, Wash. Rev. Code

§ 19.100.180(2)(j), FIPA does not require that right to be enforceable through

injunctive relief in the case of private enforcement, id. § 19.100.190(2). The

parties therefore could agree to limit the remedy to damages—rather than

injunctive relief—in the case of a supplier-initiated, without-cause termination.

VACATED and REMANDED.