§ 55-C — Agreements between brewers and beer wholesalers

New York § 55-C

• Jurisdiction: New York
• Law ABC: Alcoholic Beverage Control
• Art. 4: Special Provisions Relating to Beer

Text

§ 55-c. Agreements between brewers and beer wholesalers. 1. Purpose.\nIt is hereby declared to be the policy of this state, that the sale and\ndelivery of beer by brewers to beer wholesalers shall be pursuant to a\nwritten agreement. That further, the regulation of business relations\nbetween brewers and beer wholesalers is necessary and appropriate to the\ngeneral economy and tax base of this state and in the public interest.\n 2. Definitions. As used in this section, the following words shall\nhave the following meanings:\n (a) "Agreement" means any contract, agreement, arrangement, course of\ndealing or commercial relationship between a brewer and a beer\nwholesaler pursuant to which a beer wholesaler is granted the right to\npurchase, offer for sale, resell, warehouse or physically deliver beer\nsold by a brewer.\n (b) "Brewer" means any person or entity engaged primarily in business\nas a brewer, manufacturer of alcoholic beverages, importer, marketer,\nbroker or agent of any of the foregoing who sells or offers to sell beer\nto a beer wholesaler in this state or any successor to a brewer.\n (c) "Successor to a brewer" means any person or entity which acquires\nthe business or beer brands of a brewer, without limitation, by way of\nthe purchase, assignment, transfer, lease, or license or disposition of\nall or a portion of the assets, business or equity of a brewer in any\ntransaction, including merger, corporate reorganization or consolidation\nor the formation of a partnership, joint venture or other joint\nmarketing alliance.\n (d) "Beer wholesaler" and "wholesaler" means the holder of a\nwholesaler's license pursuant to section fifty-three of this article who\npurchases, offers to sell, resells, markets, promotes, warehouses or\nphysically distributes beer sold by a brewer.\n (e) "Good cause" means and shall be limited to:\n (i) (A) The implementation by a brewer of a national or regional\npolicy of consolidation which is reasonable, nondiscriminatory and\nessential. Such policy shall have been previously disclosed, in\nwriting, in reasonable detail to the brewer's wholesalers, and shall\nresult in a contemporaneous reduction in the number of a brewer's\nwholesalers not only for a brand in this state, but also for a brand in\ncontiguous states or in a majority of the states in which the brewer\nsells the brand. All affected wholesalers and affected brewers shall be\nafforded ninety days prior notice of the implementation of such policy,\nand such notice shall be provided by the brewer implementing said\npolicy. Further, an affected wholesaler who has actual knowledge of the\nintended implementation of such policy shall also notify each affected\nbrewer. The term "affected brewers" means all other brewers with an\nagreement with an affected wholesaler who is a multiple brands\nwholesaler. The term "affected wholesalers" means wholesalers who may\nreasonably be expected to experience a loss or diminishment of a right\nto distribute a brand, in whole or in part, as a consequence of a\nproposed consolidation policy.\n (B) An affected brewer receiving notice pursuant to this paragraph\nmay, within one hundred twenty days after receiving such notice,\nterminate an agreement with a multiple brands wholesaler in the event:\n(1) the total case purchases computed in twenty-four twelve ounce\nequivalence units by the wholesaler of the products of the affected\nbrewer amounted to two percent or less of the multiple brands\nwholesaler's total sales volume during the twelve month period preceding\nthe notice; and (2) the affected brewer, prior to such termination, pays\ncompensation to the multiple brands wholesaler.\n (ii) There is a failure by the beer wholesaler to comply with a\nmaterial term of an agreement required by subdivision three of this\nsection between the brewer and beer wholesaler, provided that: (A) the\nwholesaler was given written notice by the brewer of the failure to\ncomply with the agreement as provided for in subdivision five of this\nsection and in which the brewer states with particularity the basis for\nthe brewer's determination of non-compliance, and upon the wholesaler's\nwritten request within ten days of receipt of the notice, the brewer has\nsupplemented such notice by submitting to the wholesaler in writing the\nbrewer's recommended plan of corrective action to cure the claimed\ndefaults or deficiencies in a manner satisfactory to it; (B) the\nwholesaler was afforded a reasonable opportunity to assert good faith\nefforts to comply with the agreement by curing the claimed defaults or\ndeficiencies specified in said notice within the time provided for in\nclause (C) of this subparagraph; and (C) the wholesaler was afforded\nfifteen days after receipt of such notice to submit a written plan of\ncorrective action to comply with the agreement by curing the claimed\nnon-compliance and seventy-five days to cure such non-compliance in\naccordance with the plan. Provided, however, that such period for cure\nmay be increased or reduced to a commercially reasonable period by an\norder of a court in this state entered after a hearing at which the\nbrewer has the burden to demonstrate that the claimed defaults or\ndeficiencies can be substantially rectified in the period of time\nafforded the wholesaler or that, after receipt of notice of default or\ndeficiency as provided for in subdivision five of this section, the\nwholesaler has intentionally engaged in an affirmative course of conduct\nin which the brewer's current marketing plans and other trade secrets\nare disclosed to a third party without the prior consent of the brewer\nor in which the wholesaler acts or threatens to act to significantly\nimpair, harm or dilute the reputation or competitive position of the\nbrewer or otherwise irreparably injure the brewer, its brands or\ntrademarks. Provided, further however: (1) that such period for cure\nneed not exceed forty-five days if within the twelve months immediately\nfollowing a cure, the wholesaler intentionally engages in conduct which\nrepeats the same specified default and deficiency which the brewer had\ndeemed cured; and (2) that such period for cure need not exceed sixty\ndays in the event that during the twelve month period preceding the\nnotice, the total case purchases by the wholesaler of the affected\nproducts of the brewer account for less than one-half of one percent of\nthe wholesaler's aggregate case purchases from all sources or one\nthousand cases. For purposes of this subdivision, case purchases of\naffected products whether package or draught shall be computed in\ntwenty-four twelve ounce equivalence units.\n (f) "Good faith" means honesty in fact and the observance of\nreasonable commercial standards in the trade.\n (g) "Material modification" of an agreement or to "materially modify"\nmeans and includes a substantial and significant change in the\ncompetitive circumstances under which the agreement was entered into and\nis performed which is caused by a brewer without fault on the part of\nthe wholesaler.\n (h) "Multiple brands wholesaler" means a wholesaler which pursuant to\nagreements with different brewers holds the rights to purchase, resell,\nwarehouse or physically deliver two or more competing products in\nsubstantially the same geographic area or to the same customer class.\n (i) "Fair market value of distribution rights" means the amount a\nwilling seller, under no compulsion to sell, would be willing to accept\nand a willing buyer, under no compulsion to purchase, would be willing\nto pay for the distribution rights.\n 3. Written agreement required. Except as provided for in subdivision\nten of this section, beer offered for sale in this state by a brewer to\na beer wholesaler shall be sold and delivered pursuant to a written\nagreement which conforms to the provisions of this section and which\nsets forth all essential and material terms, requirements, standards of\nperformance and conditions of the business relationship between a brewer\nand a beer wholesaler. Such agreement may be cancelled, terminated,\nmaterially modified or not renewed for good cause as defined in this\nsection, provided the brewer has acted in good faith.\n 4. Termination for cause and opportunity to cure. (a) No brewer may\ncancel, fail to renew, or terminate an agreement unless the party\nintending such action has good cause for such cancellation, failure to\nrenew, or termination and in any case in which prior notification is\nrequired under this section, the party intending to act has furnished\nsaid prior notification as provided for in subdivision five of this\nsection and the wholesaler has failed to cure such defaults or\ndeficiencies after a period for cure, as provided for in clause (C) of\nsubparagraph (ii) of paragraph (e) of subdivision two of this section.\n (b) No brewer shall amend or materially modify or otherwise terminate\nany essential and material term or requirement of an agreement unless\nthe brewer has good cause therefor and has furnished the affected party\nwith at least fifteen days prior notification as required by subdivision\nfive of this section.\n (c) Notwithstanding any provision of this subdivision to the contrary:\n (i) Any brewer with an annual volume as defined in subparagraph (iv)\nof this paragraph of less than three hundred thousand barrels of beer\nand whose sales to an affected beer wholesaler are three percent or less\nof the beer wholesaler's total annual brand sales measured in case\nequivalent sales of twenty-four--twelve ounce units may terminate an\nagreement with any beer wholesaler without having good cause for such\ntermination, as defined in paragraph (e) of subdivision two of this\nsection, and shall not be subject to liability to the beer wholesaler\nunder paragraph (b) of subdivision seven of this section provided that,\nprior to the effective date of the termination, the brewer pays the beer\nwholesaler the fair market value of the distribution rights which will\nbe lost or diminished by reason of the termination. If such brewer and\nbeer wholesaler cannot mutually agree to the fair market value of the\napplicable distribution rights lost or diminished by reason of the\ntermination, then the brewer shall pay the beer wholesaler a good faith\nestimate of the fair market value of the applicable distribution rights.\n (ii) If the beer wholesaler being terminated under subparagraph (i) of\nthis paragraph disputes that the payment made by the brewer was less\nthan the fair market value of the distribution rights, then the beer\nwholesaler may within forty-five days of termination submit the question\nof fair market value of the applicable distribution rights lost or\ndiminished by reason of the termination to binding arbitration before a\npanel of three neutral arbitrators appointed in accordance with the\ncommercial arbitration rules of the American Arbitration Association,\nwhich panel shall determine by majority decision whether the brewer's\npayment meets the requirements of subparagraph (i) of this paragraph. If\nthe arbitration panel rules that the payment made by the brewer to the\nbeer wholesaler upon termination was less than the fair market value of\ndistribution rights lost or diminished by reason of the termination,\nthen the brewer must pay the beer wholesaler the difference between the\npayment made to the beer wholesaler and the determined fair market value\nplus interest. If the arbitration panel rules that the payment made by\nthe brewer to the beer wholesaler upon termination was more than the\nfair market value of distribution rights lost or diminished by reason of\nthe termination, then the beer wholesaler must pay the brewer the\ndifference between the payment made to the beer wholesaler and the\ndetermined fair market value plus interest. All arbitration fees and\nexpenses shall be equally divided among the parties to the arbitration\nexcept if the arbitration panel determines that the brewer's payment\nupon termination was not a good faith estimate of the fair market value,\nthen the panel may award up to one hundred percent of the arbitration\ncosts to the brewer.\n (iii) Notwithstanding any provision of this section to the contrary,\nfor purposes of this paragraph, the term "brewer" shall mean any person\nor entity engaged primarily in business as a brewer or manufacturer of\nbeer.\n (iv) For the purpose of this paragraph, the term "annual volume" shall\nmean: (1) the aggregate number of barrels of beer, under trademarks\nowned by that brewery and brewed, directly or indirectly, by or on\nbehalf of the brewer during the measuring period, on a worldwide basis,\nplus (2) the aggregate number of barrels of beer brewed, during the\nmeasuring period, directly or indirectly, by or on behalf of any person\nor entity which, at any time during the measuring period, controlled,\nwas controlled by or was under common control with the brewer, on a\nworldwide basis. Annual volume shall not include beer brewed under\ncontract for any other brewer. There shall be no double counting of the\nsame barrels of beer under clauses one and two of this subparagraph.\n (v) For the purposes of this paragraph, the term "measuring period"\nshall mean the twelve month calendar period immediately preceding the\ndate notice of termination, as required under subparagraph (i) of this\nparagraph, was given by a brewer to the beer wholesaler.\n 5. Notice of default or deficiency. (a) Except as provided in\nparagraph (d) of this subdivision, no brewer may cancel, fail to renew\nor terminate an agreement unless the brewer or beer wholesaler furnished\nprior notification in accordance with paragraph (c) of this subdivision.\n (b) Notwithstanding any agreement, no brewer or beer wholesaler may\nmaterially amend or modify an essential and material term or requirement\nunless the brewer or beer wholesaler furnished prior notification in\naccordance with paragraph (c) of this subdivision.\n (c) The notification required under paragraphs (a) and (b) of this\nsubdivision shall be in writing and sent to the affected party by\ncertified mail. Such notification shall contain:\n (i) a statement of intent to cancel, not renew, otherwise terminate,\nmaterially amend or modify an agreement;\n (ii) a statement of all reasons therefor, stated with particularity;\nand\n (iii) the date on which such action shall take effect.\n (d) A brewer or beer wholesaler may cancel, fail to renew or otherwise\nterminate an agreement without furnishing the prior notification\nrequired under this section only:\n (i) in the event the affected party has made an assignment for the\nbenefit of creditors or similar disposition of all or substantially all\nof the assets of such party's business;\n (ii) in the event of a conviction or plea of guilty or no contest to a\nfelony which in the reasonable judgment of the brewer may adversely\naffect the goodwill or interests of the wholesaler or brewer;\n (iii) in the event of the revocation or suspension for thirty-one days\nor more of any license or permit required of the wholesaler for the\nnormal operation of its business;\n (iv) in the event there was fraudulent conduct on the part of the\nbrewer or beer wholesaler in its dealings with the other party;\n (v) in the event of the failure by either party to pay sums of money\nto the other party when due or if either the wholesaler or brewer takes\nany action which would provide grounds for immediate termination\npursuant to the reasonable terms of a written enforceable agreement\nbetween them, which was freely entered into without threat of\ntermination or other coercion or compulsion and was in full force and\neffect sixty days from the effective date of the chapter of the laws of\nnineteen hundred ninety-seven which amended this subparagraph;\n (vi) in the event the brewer and beer wholesaler voluntarily agree in\nwriting to terminate the agreement.\n 6. Right of action. If a brewer fails to comply with the provisions of\nthis section, a beer wholesaler may maintain a civil action in a court\nof competent jurisdiction within this state for damages sustained in\naccordance with the laws of this state which shall govern all disputes\narising under an agreement or by reason of its making and performance.\nIn any such action the court may grant such equitable relief as is\nnecessary or appropriate, considering the purposes of this section, to\nremedy the effects of any failure to comply with the provisions of this\nsection or the effects of conduct prohibited hereunder, including\ndeclaratory judgment, mandatory or prohibitive injunctive relief, or\npreliminary or other interim equitable relief; provided, however, that\npermanent injunctive relief shall not be granted to prohibit the\neffectiveness of a termination or non-renewal of an agreement in\nfurtherance of a policy of consolidation that is in compliance with\nsubparagraph (i) of paragraph (e) of subdivision two of this section. In\nany legal action challenging any cancellation, termination or failure to\nrenew, or where an issue is the brewer's compliance with the provisions\nof subparagraph (i) of paragraph (e) of subdivision two of this section,\nthe brewer shall have the burden of proof that its action was based upon\ngood cause, provided however, the wholesaler shall retain the burden of\nproof in all other respects. The rights and remedies provided in this\nsection to a beer wholesaler with respect to an agreement with a brewer\nand to an affected wholesaler or an affected brewer shall be intended to\nsupplement and not be exclusive of any rights and remedies otherwise\navailable pursuant to any other statute, or at law or equity.\n 7. Reasonable compensation. (a) Any brewer who shall implement a\nnational or regional consolidation policy, pursuant to this section,\nshall not terminate its relationship with an affected wholesaler until\ncompensation as provided for in this subdivision has been paid. Such\nbrewer shall pay the affected beer wholesaler the fair market value of\nthe distribution rights which will be lost or diminished by reason of\nthe implementation of such policy, together with fair and reasonable\ncompensation for other damages sustained.\n (b) Every brewer who without good cause amends, cancels, terminates,\nmaterially modifies or fails to renew any agreement, or who in violation\nof this section causes a beer wholesaler to resign from an agreement or\ndenies or withholds consent to any assignment, transfer or sale of a\nbeer wholesaler's business assets or capital stock or other equity or\ndebt securities, shall pay the affected beer wholesaler the fair market\nvalue of the beer wholesaler's business, including distribution rights,\nwhich have been lost or diminished as the result of the brewer's\nactions.\n (c) In the event that the brewer and the beer wholesaler are unable to\nagree on the compensation to be paid for the value of the beer\nwholesaler's business and assets, the matter may with the consent of\nboth the brewer and the beer wholesaler, be submitted to a neutral\narbitrator to be selected by the parties; if they cannot agree on such\nan arbitrator, the same shall be selected by a judge of a court of\ncompetent jurisdiction. No brewer or beer wholesaler may impose binding\narbitration of any issue as a term or condition of an agreement.\nArbitration costs shall be equally divided by the beer wholesaler and\nthe brewer. The award of the arbitrator shall be confirmed by a court of\ncompetent jurisdiction in this state, the judgment of which shall be\nbinding.\n 8. Sale and transfer of beer wholesaler's business. No brewer shall\nunreasonably withhold or delay its approval of any assignment, sale or\ntransfer of all or any portion of beer wholesaler's corporate equity or\ndebt or assets, including the beer wholesaler's rights and obligations\nunder the terms of an agreement, whenever the person or persons to be\nsubstituted meet objectively reasonable standards imposed by the brewer.\nA wholesaler who sells, assigns or transfers an agreement made pursuant\nto this section shall provide written notice of such sale, assignment or\ntransfer to all other brewers with whom it has entered agreements.\n 9. (a) A brewer qualified to do business in the state of New York may\nhold an interest in a limited partnership licensed by the authority as a\nwholesaler, when the brewer or its affiliate is a limited partner and\nthe beer wholesaler is the general partner. Notwithstanding any other\nprovision of law, such brewer may loan money to a general partner of an\naforementioned limited partnership. Provided, however, any brewer or its\naffiliate who holds an interest in a limited partnership licensed by the\nauthority as a wholesaler or who loans money to a general partner of\nsuch limited partnership may only exercise such control of the business\nas permitted by section 121-303 of the partnership law.\n (b) Notwithstanding subdivision (a) of this subdivision, no brewer or\nits affiliate may acquire or hold an interest in or loan money to a\ngeneral partner of a multiple brands wholesaler unless and until all\nother brewers having agreements with said multiple brands wholesaler\nhave been afforded sixty days prior written notice of the particular\nterms and conditions of the limited partnership or loan agreement or of\nany change therein. A "loan" for purposes of this subdivision shall not\ninclude bona fide credit terms for product purchases customarily\nextended by a brewer to wholesalers in the normal course of business.\n (c) For one hundred twenty days after the formation, licensing and\ncommencement of operations as a beer wholesaler of a limited partnership\nor the making of a loan, and upon at least fifteen days prior\nnotification as required by subdivision five of this section, a brewer\nmay terminate an agreement with a multiple brands wholesaler in the\nevent: (i) a competing brewer or its affiliate becomes a limited partner\nwith or loans money to a general partner of a multiple brands\nwholesaler, (ii) by reason of said loan, the performance of a loan\nagreement, or the terms or conduct of the limited partnership, there is\na reasonable likelihood that competition between brands of the competing\nbrewers has been or may be significantly reduced in a relevant\ngeographic area or market, and (iii) in lieu of other rights and\nremedies it might have under this chapter to terminate for good cause,\nthe terminating brewer pays compensation to the multiple brands\nwholesaler.\n 10. Coverage. (a) This section shall not apply to written agreements\nthat were in effect prior to the effective date of this section which\nset forth all terms and conditions of material significance governing\nthe relationship between the brewer and beer wholesaler, including but\nnot limited to the grounds and procedures which govern: (i) termination\nof the relationship; (ii) approval and disapproval of managers; (iii)\nchange in ownership; and (iv) whether or not the wholesaler is entitled\nto compensation in the event the wholesaler is terminated for deficient\nperformance under such agreement or without good cause. Provided,\nhowever, that this section shall apply to any agreement entered into,\nand renewals, extensions, amendments or conduct constituting a material\nmodification of an agreement on or after the effective date of this\nsection.\n (b) Where an agreement between a brewer and beer wholesaler in effect\nprior to the effective date of this section is continuous in nature or\nhas no specific duration or has no renewal provision and fails to set\nforth all terms and conditions of material significance governing the\nrelationship between the brewer and beer wholesaler, including but not\nlimited to the grounds and procedures which govern: (i) termination of\nthe relationship; (ii) approval and disapproval of managers; (iii)\nchange in ownership; and (iv) whether or not the wholesaler is entitled\nto compensation in the event the wholesaler is terminated for deficient\nperformance under such agreement or without good cause; such agreement\nshall be considered for purposes of this section to have been renewed\nsixty days after the effective date of this section.\n 11. The requirements of this section may not be altered, waived or\nmodified by written or oral agreement in advance of a bona fide case and\ncontroversy arising under a written agreement complying with this\nsection.\n