It’s Whiskey. But is it Tennessee Whiskey?

My wife and I were eating crabs on the Eastern Shore of Maryland this past weekend and the conversation turned to foods that were — like crabs are to Maryland — inextricably linked with a particular state.  We considered lobster (Maine), crawfish (Louisiana), barbecue brisket (Texas), and the like.  Upon further thought on the topic later, I expanded the exercise to include beverages as well as food and immediately thought of Bourbon whiskey, of which approximately 95% is made in the state of Kentucky.  There are federal and state laws, furthermore, that govern what can be called “Bourbon Whiskey” or “Kentucky Whiskey.”

Kentucky is apparently not the only state seeking to protect its brand when it comes to whiskey, as evidenced by recent legal battles over what can be considered “Tennessee Whiskey.”  The main industry combatants here are Kentucky-based Brown-Forman Group, which owns the Jack Daniel’s brand, and British liquor giant Diageo, which sells “Tennessee whiskey” under the smaller George Dickel label.  The primary point of contention is that Diageo, though it distills its George Dickel whiskey in Tennessee, ages at least some of it in barrels across the border in Kentucky.  Under a newly enacted Tennessee law, that Dickel is not aged in Tennessee would foreclose it from being marketed as “Tennessee whiskey.”  For its part, Jack Daniel’s is both distilled and aged within Tennessee’s borders and supported the enactment of the law, arguing it was consistent with other laws around the world that protect regional designations of alcoholic beverages — with the protection of the term “Champagne” for sparkling wines made in that region of France being perhaps the most famous.

Diageo’s efforts to rewrite the law to be less restrictive failed in the 2014 Tennessee legislative session.  Diageo has also challenged the law in the law in federal court, arguing it violated the U.S. Constitution’s Commerce Clause, which has been consistently interpreted to prohibit state laws that unduly inhibit or restrict the free flow of commerce between the states.   In another twist, state regulators recently, and somewhat abruptly, dropped their investigation of Diageo over whether it violated the storage law as it related to its Dickel Tennessee whiskey

Lawmakers plan to review the issue this summer, and the issue of what can be called “Tennessee Whiskey” will likely be back before the Tennessee legislature in 2015.

Uncertainty in Choice of Law Provisions Leads to Appeal in Bacardi v. Wholesaler Dispute

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.