SB128 By Senator Sanford RFD Tourism & Marketing Rd 1 03-MAR-15

SYNOPSIS: Under existing law, large and small breweries are restricted in their ability to terminate their relationship with a beer wholesaler.

This bill would allow small breweries to enter into enforceable contracts with beer wholesalers which provide for the termination or changing of their relationship with beer wholesalers.

A BILL TO BE ENTITLED AN ACT

To amend Sections 28-9-2 and 28-9-6 of the Code of Alabama 1975, relating to beer suppliers and wholesalers; to allow small breweries to enter into enforceable contracts with beer wholesalers which provide for the termination or changing their relationship with beer wholesalers; and to add a new Section 28-9-6.1 to the Code of Alabama 1975, to provide the procedure for the termination or changing of a small breweries relationship with a beer wholesaler.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:Section 1. Sections 28-9-2 and 28-9-6 of the Code of Alabama 1975, are amended to read as follows:

§28-9-2.

"(a) The following words or phrases, or the plural thereof, whenever they appear in this chapter, unless the context clearly requires otherwise, shall have the meanings ascribed to them in this section:

"(1) AGREEMENT. Any agreement between a wholesaler and a supplier, whether oral or written, whereby a wholesaler is granted the right to purchase and sell a brand or brands of beer sold by a supplier.

"(2) ANCILLARY BUSINESS. A business owned by a wholesaler, by a substantial stockholder of a wholesaler, or by a substantial partner of a wholesaler the primary business of which is directly related to the transporting, storing, or marketing of the brand or brands of beer of a supplier with whom the wholesaler has an agreement; or a business owned by a wholesaler, a substantial stockholder of a wholesaler or a substantial partner of a wholesaler which recycles empty beverage containers.

"(3) DESIGNATED MEMBER. The spouse, child, grandchild, parent, brother or sister of a deceased individual who owned an interest, including a controlling interest, in a wholesaler; or any person who inherits the deceased individual's ownership interest in the wholesaler under the terms of the deceased individual's will, or under the laws of intestate succession of this state; or any person who or entity which has otherwise, by designation in writing by the deceased individual, succeeded the deceased individual in the wholesaler's business, or has succeeded to the deceased individual's ownership interest in the wholesaler pursuant to a written contract or instrument; and also includes the appointed and qualified personal representative and the testamentary trustee of a deceased individual owning an ownership interest in a wholesaler. Designated member also includes the person appointed by a court as the guardian or conservator of the property of an incapacitated individual owning an ownership interest in a wholesaler.

"(4) GOOD FAITH. Honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade, as defined in and interpreted under the Uniform Commercial Code, Section 7-2-103.

"(5) REASONABLE QUALIFICATIONS. The standard of the reasonable criteria established and consistently used by the respective supplier for Alabama wholesalers that entered into, continued or renewed an agreement with the supplier during a period of 24 months prior to the proposed transfer of the wholesaler's business, or for Alabama wholesalers who have changed managers or designated managers during a period of 24 months prior to the proposed change in manager or successor manager of the wholesaler's business.

"(6) RETALIATORY ACTION. Includes, but is not limited to, the refusal to continue an agreement, or a material reduction in the quality of service or quantity of products available to a wholesaler under an agreement, which refusal or reduction is not made in good faith.

"(7) SALES TERRITORY. An area of exclusive sales responsibility for the brand or brands of beer sold by a supplier as designated by an agreement.

"(8) SMALL SUPPLIER. A supplier in a "small supplier relationship" with a wholesaler. A "small supplier relationship" shall mean any relationship between a supplier and a wholesaler if sales of the supplier's products to the wholesaler do not exceed 20 percent of the total sales in the prior calendar year preceding any act or omission that might otherwise be governed by the provisions of this chapter. In calculating sales of a supplier to a wholesaler or the total sales of the wholesaler, the sales by a supplier or wholesaler in a "controlled group," as that term is defined in 26 U.S.C. § 5051(a)(2)(b), or a successor provision, shall count as the sales of a single entity.

"(8)(9) SUBSTANTIAL STOCKHOLDER or SUBSTANTIAL PARTNER. A stockholder of or partner in the wholesaler who owns an interest of 25 percent or more of the partnership or of the capital stock of a corporate wholesaler.

"(9)(10) SUPPLIER. A manufacturer or importer of beer licensed by the board, including any small supplier except for purposes of Section 28-9-6.

"(10)(11) TRANSFER OF WHOLESALER'S BUSINESS. The voluntary sale, assignment or other transfer of all or control of the business or all or substantially all of the assets of the wholesaler, or all or control of the capital stock of the wholesaler, including without limitation the sale or other transfer of capital stock or assets by merger, consolidation or dissolution, or of the capital stock of the parent corporation, or of the capital stock or beneficial ownership of any other entity owning or controlling the wholesaler.

"(11)(12) WHOLESALER. A wholesaler of beer licensed by the board.

"(b) Other words and phrases used in this chapter shall have the meanings ascribed to them in Section 28-3-1, as amended, and any acts amendatory thereof, supplementary thereto or substituted therefor, unless the context clearly requires otherwise.

§28-9-6.

"(a) Notwithstanding any agreement and except as otherwise provided for in this chapter, a supplier shall not: amend or modify an agreement; cause a wholesaler to resign from an agreement; or cancel, terminate, fail to renew, or refuse to continue under an agreement, unless the supplier has complied with all of the following:

"(1) Has satisfied the applicable notice requirements of subsection (c) of this section.

"(2) Has acted in good faith.

"(3) Has good cause for the amendment, modification, cancellation, termination, nonrenewal, discontinuance, or forced resignation.

"(b) For each amendment, modification, termination, cancellation, nonrenewal, or discontinuance, the supplier shall have the burden of proving that it has acted in good faith, that the notice requirements under this section have been complied with, and that there was good cause for the amendment, modification, termination, cancellation, nonrenewal, or discontinuance.

"(c) Notwithstanding any agreement and except as otherwise provided in this section, and in addition to the time limits set forth in subdivision (d)(5) of this section, the supplier shall furnish written notice of the amendment, modification, termination, cancellation, nonrenewal, or discontinuance of an agreement to the wholesaler not less than 60 days before the effective date of the amendment, modification, termination, cancellation, nonrenewal, or discontinuance. The notice shall be by certified mail and shall contain all of the following:

"(1) A statement of intention to amend, modify, terminate, cancel, not renew, or discontinue the agreement.

"(2) A statement of the reason for the amendment, modification, termination, cancellation, nonrenewal, or discontinuance.

"(3) The date on which the amendment, modification, termination, cancellation, nonrenewal, or discontinuance takes effect.

"(d) Notwithstanding any agreement, good cause shall exist for the purposes of a termination, cancellation, nonrenewal, or discontinuance under subdivision (a)(3) of this section when all of the following occur:

"(1) There is a failure by the wholesaler to comply with a provision of the agreement which is both reasonable and of material significance to the business relationship between the wholesaler and the supplier.

"(2) The supplier first acquired knowledge of the failure described in subdivision (1) not more than 18 months before the date notification was given pursuant to subdivision (a)(1) of this section.

"(3) The wholesaler was given notice by the supplier of failure to comply with the agreement.

"(4) The wholesaler was afforded a reasonable opportunity to assert good faith efforts to comply with agreement within the time limits as provided for in subdivision (d)(5) of this section.

"(5) The wholesaler has been afforded 30 days in which to submit a plan of corrective action to comply with the agreement and an additional 120 days to cure such noncompliance in accordance with the plan.

"(e) Notwithstanding subsections (a) and (c) of this section, a supplier may terminate, cancel, fail to renew, or discontinue an agreement immediately upon written notice given in the manner and containing the information required by subsection (c) of this section if any of the following occur:

"(1) Insolvency of the wholesaler, the filing of any petition by or against the wholesaler under any bankruptcy or receivership law, or the assignment for the benefit of creditors or dissolution or liquidation of the wholesaler which materially affects the wholesaler's ability to remain in business.

"(2) Revocation or suspension of the wholesaler's state or federal license by the appropriate regulatory agency whereby the wholesaler cannot service the wholesaler's sales territory for more than 61 days.

"(3) The wholesaler, or a partner or an individual who owns 10 percent or more of the partnership or stock of a corporate wholesaler, has been convicted of a felony under the United States Code or the laws of any state which reasonably may adversely affect the good will or interest of the wholesaler or supplier. However, an existing stockholder or stockholders, or partner or partners, or a designated member or members, shall have, subject to the provisions of this chapter, the right to purchase the partnership interest or the stock of the offending partner or stockholder prior to the conviction of the offending partner or stockholder and if the sale is completed prior to conviction the provisions of this subdivision (3) shall not apply.

"(f) Notwithstanding subsections (a), (c) and (e) of this section, upon not less than 15 days' prior written notice given in the manner and containing the information required by subsection (c) of this section, a supplier may terminate, cancel, fail to renew, or discontinue an agreement if any of the following events occur:

"(1) There was intentional fraudulent conduct relating to a material matter on the part of the wholesaler in dealings with the supplier. Provided, however, the supplier shall have the burden of proving intentional fraudulent conduct relating to a material matter on the part of the wholesaler.

"(2) The wholesaler failed to confine to the designated sales territory its sales of a brand or brands to retailers. Provided this subdivision does not apply if there is a dispute between two or more wholesalers as to the boundaries of the assigned territory, and the boundaries cannot be determined by a reading of the description contained in the agreements between the supplier and the wholesalers.

"(3) A wholesaler who has failed to pay for beer ordered and delivered in accordance with established terms with the supplier fails to make full payment within two business days after receipt of written notice of the delinquency and demand for immediate payment from the supplier.

"(4) A wholesaler intentionally has made a transfer of wholesaler's business, other than a transfer to a designated member or pursuant to a loan agreement or debt instrument, without prior written notice to the supplier, and has failed, within 30 days from the receipt of written notice from the supplier of its intent to terminate on the ground of such transfer, to reverse said transfer of wholesaler's business.

"(5) A wholesaler intentionally has made a transfer of wholesaler's business, other than a transfer to a designated member, although the wholesaler has prior to said transfer received from supplier a timely notice of disapproval of said transfer in accordance with this chapter.

"(6) The wholesaler intentionally ceases, or ceases for a period of more than 61 days, to carry on business with respect to any of supplier's brand or brands previously serviced by wholesaler in its territory designated by the supplier, unless such cessation is due to force majeure or to labor dispute and the wholesaler has made good faith efforts to overcome such events. Provided, however, this shall affect only that brand or brands with respect to which the wholesaler ceased to carry on business.

"(g) Notwithstanding subsections (a), (c), (e), and (f) of this section, a supplier may terminate, cancel, not renew, or discontinue an agreement upon not less than 30 days' prior written notice if the supplier discontinues production or discontinues distribution in this state of all the brands sold by the supplier to the wholesaler. Provided, however, nothing in this section shall prohibit a supplier from: (1) upon not less than 30 days' notice, discontinuing the distribution of any particular brand or package of beer; or (2) conducting test marketing of a new brand of beer or of a brand of beer which is not currently being sold in this state, provided that the supplier has notified the board in writing of its plans to test market, which notice shall describe the market area in which the test shall be conducted; the name or names of the wholesaler or wholesalers who will be selling the beer; the name or names of the brand of beer being tested; and the period of time, not to exceed 18 months, during which the testing will take place.

"(h) This section shall not apply to a small supplier."

Section 2. Section 28-9-6.1 is added to the Code of Alabama 1975, to read as follows:

§28-9-6.1.

(a) A relationship between a small supplier and a wholesaler for the distribution of beer may be discontinued as established by written contract or through the process described in this section. For purposes of this section, "discontinued" shall include termination, cancellation, nonrenewal, resignation, noncontinuance, or any other method that halts a small supplier relationship.

(b) Nothing in this chapter shall be construed to expand or diminish the rights or obligations established by contract in a small supplier relationship; provided, however, that a small supplier also may elect at any time to discontinue its sales to any wholesaler in accordance with subsection (c).

(c) To initiate a small supplier's noncontractual right to discontinue sales to a wholesaler as established under this subsection, the small supplier shall provide the wholesaler with not less than 30 days' written notice of such discontinuance, which written notice shall identify the successor wholesalers who will begin servicing the affected territory. Upon any discontinuance under this subsection, the successor wholesalers shall compensate the affected wholesaler in an amount equal to the fair market value of the small supplier's distribution rights granted to the wholesaler in the territory previously served by the discontinued wholesaler. A small supplier's discontinuance may take effect following the notice period stated in the small supplier's notice, which shall not be less than 30 days, regardless of whether the successor wholesaler has compensated the affected wholesaler. If the successor wholesalers and the affected wholesaler cannot agree to the fair market value compensation due to the affected wholesaler within 30 days following the small supplier's notice of discontinuance, either the affected wholesaler or any successor wholesaler may request that the amount of compensation be determined by final binding arbitration conducted in accordance with subsections (b) through (h) of Section 28-9-8, except that the mutual agreement of both parties shall not be required in order for one party to commence arbitration proceedings under this subsection.

Section 3. This act shall become effective immediately following its passage and approval by the Governor, or its otherwise becoming law.

Alcoholic Beverages

Beer

Wholesalers

Breweries

Business and Commerce

Code Added

Code Amended