Here’s an update from St. Louis on the ongoing legal battle over Bacardi’s termination of its distribution deal with local wholesaler, Major Brands, who has now appealed an unfavorable decision by a Florida federal court. The case implicates a number of interesting issues related to distribution contracts, a couple of which are particularly important in the context of alcoholic beverages.
First, when and under what circumstances can a party terminate a distribution agreement? This is especially important where such deals are exclusive between the producer and distributor and the distributor has relied on that exclusivity to build a market for that product. This will be an important area of law to monitor as small craft producers outgrow the smaller, perhaps state-specific wholesalers they used to get their boots on the ground in a given state.
Second, where such questions are a function of state law, which state’s laws control? Where a producer is based in one state — let’s say California — and is using a wholesaler based in New Jersey to distribute its product to retailers in New York City, there could be confusion and uncertainty in the event of a dispute just which laws apply. As alcoholic beverage laws are very much a creature of state law, and often specific state statutes, it is important to know from the outset — and to set forth clearly in the distribution agreement — just which laws apply, and in which state’s courts any dispute will be resolved.
Where these two questions intersected in the Bacardi case, it appears that whether Missouri law or Florida law applied would lead to a much different answer to the question of whether Bacardi was within its rights to terminate the distribution contract. Even though Major Brands was based in Missouri and only distributed Bacardi’s products in that state, the court found that the parties intended for Florida law to apply in the interpretation of the contract. Under Florida law, the court found, Bacardi’s unilateral termination was valid regardless of whether Missouri law would have prohibited such termination under the circumstances.
This case will bear watching, but regardless of the outcome it carries important lessons for everyone, particularly smaller distributors, when it comes to ensuring their distribution agreements are clear and their interests protected.