Opinion
10-P-2019
12-21-2011
L. KNIFE & SON, INC., & another v. ALCOHOLIC BEVERAGES CONTROL COMMISSION & another.
NOTICE: Decisions issued by the Appeals Court pursuant to its rule 1:28 are primarily addressed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, rule 1:28 decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28, issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
In this administrative action brought before the Alcoholic Beverages Control Commission (commission), L. Knife & Son, Inc. (Knife), and its affiliate, Seaboard Products Company (Seaboard), (collectively wholesalers), sought an order compelling importer-supplier, Heineken USA, Inc. (Heineken), to sell five Mexican beers (brands) to them. After the commission dismissed their applications for relief, a judge of the Superior Court affirmed the agency decision. Having reviewed the voluminous record and the submissions within the parameters of G. L. c. 30A, § 14(7), we see no justification for disturbing that judgment. Therefore, we affirm.
The five brands at issue in this litigation (Dos Equis, Carta Blance, Tecate, Sol, and Bohemia) are manufactured by Cerveceria Cuahtemoc Moctezma, S.A. de C.V. (CCM), a wholly-owned subsidiary of FEMSA Cerveza, S.A. de C.V. (FEMSA). Pursuant to a June 18, 2004 sublicense agreement with CCM and FEMSA (Mexican manufacturers), and Wisdom Import Sales Company, L.L.C. (Wisdom), another FEMSA subsidiary, Heineken currently holds the rights to act as the exclusive importer-distributor of the brands in the United States.
Although the parties initially argued the case on the procedural posture of cross motions for summary decision, with the agreement of the parties, the commission rendered a decision on the merits, issuing findings and rulings. No claim of procedural error was raised by the wholesalers.
Facts. We draw the pertinent facts from the commission's findings as supplemented by undisputed facts to add context. In 1994, the Mexican manufacturers and the Canadian brewer Labatt decided to combine their United States distribution operations. A series of complicated transactions defining their commercial relationship and rights and obligations followed. As herein relevant, on December 1, 1994, thirteen FEMSA and Labatt entities entered into a joint venture agreement establishing a single, jointly-owned corporate structure. On the same day, the Mexican manufacturers appointed Wisdom as the exclusive United States distributor of the brands until 2093. In consideration for an assignment of its rights under that exclusive distributor agreement (EDA), Wisdom obtained an indirect, thirty percent ownership interest in Labatt USA L.L.C. (Labatt USA), a member of the joint venture and one of four limited liability corporations formed on the same day for the purpose of conducting the combined United States distribution operations.
Prior to December 1, 1994, Wisdom, the national importer of the brands, used wholesalers not parties to this litigation to distribute the brands in Massachusetts. In contrast, the Labatt prejoint-venture distribution network included some of the wholesalers involved in this litigation.
Wisdom received a thirty percent membership interest in the two limited liability companies that owned Labatt USA. The Labatt group held the remaining seventy percent interest.
Following Wisdom's transfer and assignment of its rights under the EDA to it in March, 1996, Labatt USA held 'the sole and exclusive responsibility for, and discretion in, the implementation of marketing, advertising and promotion . . . of the [b]rands . . . and decisions relating to the selection, appointment and termination of wholesale[rs] . . . .' The Mexican manufacturers and Wisdom played no role in the selection of Knife and Seaboard as Massachusetts wholesalers in 2003. Nor did they review, sign, approve, or ratify any of the distribution agreements, or deal with or manage the wholesalers. There were no other agreements between Labatt USA or any other Labatt company and Wisdom or the Mexican manufacturers regarding the distribution of the brands.
Although Wisdom may have appointed A & E as a wholesaler of one brand (Dos Equis) shortly before the transfer of the distribution rights to Labatt USA in 1996, there was no evidence of any further involvement by Wisdom with this wholesaler. There was no evidence that Wisdom or the Mexican manufacturers sold the brands to any of the petitioners involved in this lawsuit.
Knife and Seaboard entered into the 'Labatt USA L.L.C. distribution agreement[s]' with Labatt USA, and not with any other individual member of the joint venture. No reference to the joint venture appeared in those agreements.
In March, 2004, the Mexican manufacturers and Wisdom brought a successful legal action to prevent the Labatt group from transferring control of the brand distribution rights to a major FEMSA competitor. The parties subsequently entered into another series of complicated transactions settling their dispute and unwinding their affairs.
On May 24, 2004, before the execution of the Heineken sublicense agreement, the joint venture terminated. Labatt USA returned the EDA back to Wisdom in exchange for the redemption of Wisdom's interests in Labatt. On November 18, 2004, Heineken, the successor importer-supplier, informed the wholesalers that it would not sell the brands to them, effective January 1, 2005. Heineken, the commission found, discontinued the relationship with Knife and Seaboard for economic reasons unrelated to G. L. c. 138, § 25E (§ 25E).
Heineken was never a member of the joint venture, the affairs of which were wrapped up prior to the date Heineken began distributing the brands through its own established system. Heineken's network did not include Knife and Seaboard. Prior to the sublicense agreement, Heineken had no relationship with FEMSA, CCM, or Wisdom, nor had it distributed the brands anywhere in the world. Moreover, at no time did Heineken have any relationship with Labatt, a long-term competitor in the industry.
Discussion. Because Heineken never made any voluntary sales to the wholesalers, it was not subject to direct liability under § 25E. See Charles E. Gilman & Sons, Inc. v. Alcoholic Bevs. Control Commn., 61 Mass. App. Ct. 916, 917-918 (2004) ('The statutory limitation on wholesaler termination prescribed under § 25E attaches to a supplier upon the supplier's satisfaction of a condition: the sale of branded products to a wholesaler for a period of six months or more'); Brown-Forman Corp. v. Alcoholic Bevs. Control Commn., 65 Mass. App. Ct. 498, 499 (2006) ('[o]bligations imposed by [§ 25E] are particular to a supplier'). As the wholesalers concede, a supplier is generally not required to sell to an unaffiliated predecessor's wholesalers. See id. at 499-500. In certain limited circumstances, a predecessor supplier's § 25E obligations may be imputed to the successor supplier. See Heublein, Inc. v. Capital Distrib. Co., 434 Mass. 698, 708 (2001) (Heublein).
Here, after considering the nature of the transaction and the manner in which Heineken obtained its distribution rights, the commission found no basis from which to impute the sales obligations of any predecessor supplier to Heineken. In the particular circumstances of this case, the commission did not err by ruling that the wholesalers were not entitled to the protections afforded by § 25E. See Heublein, supra at 705 (the commission's interpretation of the statute was entitled to weight); Sy v. Massachusetts Commn. Against Discrimination, 79 Mass. App. Ct. 760, 764 (2011) (where the agency's interpretation of the statute within its charge was reasonable, a court should not supplant the agency's judgment).
Claiming error of law by the commission, the wholesalers maintain that principles of joint venture and partnership law bound the upstream suppliers (FEMSA, CCM, and Wisdom) to their coventurer Labatt USA's § 25E obligations by operation of law. This theory ignores the corporate structure through which the importation and distribution operations were conducted. The wholesalers signed contracts solely with Labatt USA in its capacity as a limited liability corporation and at all times dealt exclusively with Labatt USA. Under New York law, the corporate form should not be disregarded in this context. See 8 Fletcher, Cyclopedia of the Law of Corporations § 3997.10 at 348-349 (rev. perm. ed. 2010), citing Itel Containers Intl. Corp. v. Atlanttrafik Exp. Serv. Ltd., 909 F.2d 698, 702 (2d Cir. 1990) ('[A] joint venture and a corporation remain mutually exclusive ways of doing business; although business associates may be treated as partners vis-a-vis one another even when they operate through a corporation, the corporate form is to be respected in dealing with third parties'); Cosy Goose Hellas v. Cosy Goose USA, Ltd., 581 F. Supp. 2d 606, 619-620 (S.D.N.Y. 2008).
It was undisputed that Labatt USA had contractual and statutory duties to the wholesalers. In applying the Heublein analysis here, the wholesalers have not designated Labatt USA as a 'predecessor supplier.' As Heineken pointed out, pursuant to par. 4.2 of the Labatt USA L.L.C. distribution agreements, the wholesalers agreed (1) not to sue Labatt USA for the very contingency that happened here (i.e., its loss of the exclusive distribution rights for the brands), and (2) that the agreements would terminate immediately upon that event.
The parties agree that New York law governs the joint venture agreement. The wholesalers contend that Massachusetts joint venture and partnership law are, in material respect, in accord, a point we need not reach.
The doctrine of partnership by estoppel was inapplicable here. There was no evidence that FEMSA, CCM, and Wisdom held themselves out to the wholesalers as partners in the distribution of the brands. Neither was there evidence that the wholesalers reasonably relied upon any representations. See Brown v. Gerstein, 17 Mass. App. Ct. 558, 571 (1984); First Am. Corp. v. Price Waterhouse LLP, 988 F. Supp. 353, 358-359 (S.D.N.Y. 1997). The reference in Labatt USA's letterhead to the 'partnership of Labatt Brewing Company Limited and [CCM]' did not create a legal partnership. See Brown v. Gerstein, supra at 572.
There was no merit to the wholesalers' assignment arguments. Although pursuant to the August 31, 2004, assignment and assumption agreement, Wisdom and the Mexican manufacturers agreed to assume all of Labatt USA's 'liabilities and obligations,' the agreement covered liabilities 'arising or accruing' on or after the closing date. Labatt USA's § 25E obligations to the wholesalers arose before that date. Moreover, the § 25E 'obligation,' strictly speaking a statutory limitation on wholesaler termination, was not the type of liability subject to general contractual assumption. See Charles E. Gilman & Sons, Inc. v. Alcoholic Bevs. Control Commn., 61 Mass. App. Ct. at 917-918. Because Wisdom and the Mexican manufacturers never assumed the § 25E obligations by contract, it follows that Heineken, as assignee of the contract rights and duties, incurred no liability to the wholesalers on that basis.
As the wholesalers acknowledge, in order to impute the § 25E obligations to Heineken as the successor supplier, they were required to show a continuing affiliation or agency relationship between the former holders of the product rights and Heineken. See Heublein, supra at 704-708 & n.11. Here, the wholesalers maintained that 'FEMSA, either singly or in combination with Wisdom and CCM,' was 'the former supplier' with whom there is a continuing affiliation with Heineken. Their argument fails because it was based upon a distortion of the factual record and the commission's findings. First and foremost, the same entities (i.e., CCM and Wisdom) have not 'always manufactured and imported the Brands and . . . had some control over the appointment and termination of the wholesalers that distribute the Brands.' Admittedly, the manufacturer (CCM) has remained constant at all relevant times. Standing alone, that was no basis for imputing § 25E obligations to Heineken. See Heublein, supra at 702-703 & n.8, 706; Brown-Forman Corp. v. Alcoholic Bevs. Control Commn., 65 Mass. App. Ct. at 506-508. As the commission further found, pursuant to the June, 2004, sublicense agreement, the Mexican manufacturers and Wisdom appointed Heineken as the exclusive importer and distributor of the brands and with an exception not herein relevant, gave to Heineken the sole right and exclusive discretion to select, appoint, and terminate the wholesalers for the brands.
The wholesalers have not challenged the commission's conclusion that there was no agency relationship between Wisdom (or any member of the joint venture) and Heineken. Substantial evidence supported that conclusion. Compare Brown-Forman Corp. v. Alcoholic Bevs. Control Commn., 65 Mass. App. Ct. at 504-508 where, on similar facts, this court found no agency relationship.
We note that in fact, Wisdom held the distribution and appointment rights for only a short period relevant to this litigation. From March, 1996, until May, 2004, pursuant to the assignment of the EDA, Labatt USA held and exercised those exclusive rights.
The commission's subsidiary findings did not compel a finding of a continuing affiliation between the Mexican manufacturers and Wisdom on the one hand and Heineken on the other. Combining its analysis of the agency relationship and continuing affiliation questions, the commission found, as relevant to the latter, an absence of common ownership, and an absence of common directors, managers, and employees. The commission further found that Heineken did not make an asset purchase of the brands and that Heineken did not control Wisdom or the Mexican manufacturers (and vice versa). The commission specifically considered and rejected the nature of the transaction used to transfer the exclusive distribution rights to Heineken (i.e., a sublicense as opposed to an outright sale) as evidence of continuing affiliation. Although the commission found that 'Wisdom and Heineken agreed to develop a mutually acceptable marketing strategy for the advertising, marketing and distribution' of the brands, it further found that neither Wisdom nor the Mexican manufacturers controlled Heineken's marketing and advertising of the brands. In light of the absence of connections enumerated by the commission, and the absence of any agency relationship and of control, neither Wisdom's retained contract right nor the limited term of Heineken's distribution rights required the commission to find a continuing affiliation.
The underlying premise of the wholesalers' appeal -- the alleged engagement by the brand owner and upstream suppliers in a type of 'shell game' involving the shuffling of intermediaries for circumvention purposes -- was implicitly rejected by the commission. The undisputed facts established that the change in the middlemen here had nothing to do with § 25E. The Mexican manufacturers and Wisdom left the joint venture and substituted intermediaries for sound reasons unrelated to evading § 25E obligations.
The wholesalers' policy arguments, predicated substantially upon facts not of record, are unpersuasive. We fail to see how the purposes behind the protectionist legislation would be served by requiring Heineken to sell the brands to the wholesalers. See Heublein, supra at 707. At the end of the day, this case had little to do with the dangers of vertical integration and economic imbalance. See Pastene Wine & Spirits Co. v. Alcoholic Bevs. Control Commn., 401 Mass. 612, 617-619 (1988) (rejecting similar policy and shifting intermediary arguments). On the facts of the case, where no intent to evade § 25E was involved, an order requiring Heineken, an independent supplier, to sell to wholesalers outside its established network at increased fixed costs would generate an inequity against a supplier, a result not permitted by our courts. See Heublein, supra at 707.
On this record, the specter of weak wholesalers left to the mercy of suppliers with superior economic bargaining power seems suspect. There was undisputed evidence that Knife and Seaboard are two of the largest wholesalers in Massachusetts that sell many of the best selling beers in the world. By volume, they are the largest distributors in Massachusetts of Mexican beers that compete with the five brands. The brands comprised a small fraction of their total sales.
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The judgment of the Superior Court affirming the decision of the commission is affirmed.
So ordered.
By the Court (Kantrowitz, Graham & Fecteau, JJ.),