Liquor litigation: Suppliers vs. Distributors
The world of beer, wine and liquor regulation is complex, to say the least. It is full of twists and turns, with statutes compounded by administrative rules. Navigating that landscape as a business owner can be tricky, especially if you are a supplier or a distributor. In Washington, the relationship between suppliers and distributors is carefully defined by the law, and if either one puts a foot wrong, the legal consequences can be devastating.
This article focuses on RCW 19.126 et. al., which governs suppliers and distributors of malt beverages and spirits (but does not include wine). A supplier is one who manufactures or imports spirits or malt beverages who is a party to any agreement of distributorship with a wholesale distributor. Notably, suppliers governed by the statute do not include small distilleries or brewers (i.e. those which produce less than 150,000 gallons of spirits or 200,000 gallons of malt liquor annually). A distributor is anyone who imports or purchases any spirits or malt beverages for sale or resale to licensed Washington retailers.
Every agreement to distribute spirits and malt beverages is subject to the protections and prohibitions in RCW 19.126.030, 040 and 050. All such agreements must be in writing. The distributor is required to maintain the quality and integrity of the products provided by the supplier and must use its best efforts to sell the products. If the distributor changes ownership or management, or if it plans to cancel the agreement, it must provide 90 days’ written notice to the supplier. On the other hand, suppliers must only give 60 days’ notice of their intent to cancel the agreement.
In the event a supplier cancels the agreement without good cause, the supplier must compensate the distributor for the laid-in cost of inventory and for the fair market value of the terminated distribution rights. This is true even if the supplier only terminates the agreement in regard to one brand but leaves other brands with the distributor. RCW 19.126.040 sets forth the details of determining the fair market value of those distribution rights and provides that if the parties cannot agree on the fair market value, they must engage an independent arbitrator to make that determination.
Suppliers are expressly prohibited from inducing a distributor to engage in any illegal act (we all know how easily distributors are peer pressured by suppliers). Additionally, suppliers cannot require a distributor to refrain from selling the products of any other suppliers and cannot require the distributor to accept delivery of any product outside the scope of the agreement.
A supplier or distributor who doesn’t strictly comply with the rules imposed by RCW 19.126 can be sued by the other party to force compliance, and the prevailing party in such litigation will receive its attorney fees. In addition to the prospect of litigation, noncompliance can also lead the state to suspend or cancel the supplier or distributor’s license. It pays for suppliers and distributors to understand these rules and to adhere to them without exception.
If you are a supplier or distributor of spirits or malt beverages and you would like some direction on complying with these rules, or if you feel a distribution agreement has been improperly drafted or breached, the attorneys at Beresford Booth can assist you. We have decades of experience assisting clients in the food and beverage industry and stand ready to offer the legal support you need.
To learn more about Liquor litigation: Suppliers vs. Distributors, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.
