Antitrust Law Daily Agreement allowing alcohol manufacturer to ‘redirect’ sale of wholesaler is void
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Tuesday, June 4, 2019

Agreement allowing alcohol manufacturer to ‘redirect’ sale of wholesaler is void

By Nicole D. Prysby, J.D.

Contract provision allowing beer manufacturer to redirect a sale of its wholesaler violates Mississippi’s Beer Industry Fair Dealing Act, which prohibits "interference" with the transfer of a wholesaler’s business.

In a matter of first impression, the Mississippi Supreme Court held that a beer manufacturer violated the state’s Beer Industry Fair Dealing Act (BIFDA) when it enforced a contract provision with a wholesaler allowing it to "redirect" a sale of the wholesaler’s business. The wholesaler alleged that the manufacturer interfered with the sale to punish the wholesaler for selling a competitor’s beer. The court concluded that BIFDA rendered the match-and-redirect provision null and void. Because the BIFDA claim goes forward, so does the civil conspiracy claim against the manufacturer and the entity to which it redirected the sale, reversing a state trial court’s dismissal of both claims. Tortious interference claims also would go forward, but the remaining state law claims failed. Two justices dissented and would have held that BIFDA does not render the match-and-redirect provision null and void (Rex Distributing Company, Inc. v. Anheuser-Busch, LLCJune 4, 2019, Ishee, D.).

Background. Rex Distributing Company was a wholesaler of Anheuser-Busch’s beer. The distribution contract between the two gave Anheuser-Busch a right of first refusal if Rex were sold—"at the price and on the terms and conditions applicable"—and the right to assign the sale to a third-party purchaser of Anheuser-Busch’s choosing (the "match-and-redirect" provision). When Rex attempted to sell, the high bidder was another nearby distributor, Adams Beverages, Inc. Two days before Rex’s sale to Adams was to close, Anheuser-Busch informed Rex it was exercising its right to match and redirect the sale of Rex to Mitchell Distributing Company, Inc., another local distributor. Rex alleged that the redirect provision was void under Mississippi’s BIFDA and that Anheuser-Busch’s interference with the sale caused it damages.

Anheuser-Busch had recently tried to convince its Mississippi distributors not to sell beer from one of its competitors, Yuengling and Son, but it had been mostly unsuccessful; Mitchell had been the only Anheuser-Busch distributor to spurn Yuengling at Anheuser-Busch’s request. Rex alleged Anheuser-Busch asserted the match-and-redirect claim to reward Mitchell and simultaneously to punish Rex for selling a competitor’s beer. The trial court dismissed Rex’s claims.

BIFDA and derivative claims go forward. BIFDA provides in part that a supplier "shall not interfere with, prevent or unreasonably delay the transfer of the wholesaler’s business" so long as the proposed transferee "meets such nondiscriminatory, material and reasonable qualifications and standards required by the supplier for similarly situated wholesalers." The statute further permits the supplier to refuse to accept the transfer only "in good faith and for good cause related to the reasonable qualifications" of the transferee. Miss. Code Ann. § 67-7-13. The court concluded that Anheuser-Busch’s stepping in to insist Rex sell its business to someone else amounted to "preventing" the proposed transfer under any definition of the word and that Anheuser-Busch also "interfered" with the sale.

The court rejected Anheuser-Busch’s argument that "interfere" in the context of the statute means "tortious interference with contract," because a party to a contract cannot tortiously interfere with it. If "interfere" meant "tortious interference with contract," the statute would prohibit something that is already impossible, and it would offer distributors no protection whatsoever from unjustified interference. In addition, the purpose of BIFDA (separation between manufacturers and distributors) would be undermined if a manufacturer could choose the owners of its wholesalers. Therefore, BIFDA rendered the match-and-redirect provision null and void, and Anheuser-Busch’s demands premised on the void provision may have amounted to unjustified "interference" with Rex’s transfer to Adams, an allegedly qualified transferee. Because the BIFDA claim goes forward, so does the civil conspiracy claim against Mitchell and Anheuser-Busch, based on the BIFDA violation.

Rex’s tortious interference claim against Mitchell also goes forward, over Mitchell’s argument that the sale contract to Adams required the consent of Yuengling, which had not yet been given at the time Anheuser-Busch made the demand for the assignment to Mitchell. The claim may go forward, even though it depends on a condition precedent, because the plaintiff can prove the condition precedent would have occurred. The court rejected Mitchell’s argument that as long as it was to Mitchell’s financial advantage to do what it did, its actions could not be tortious interference. The court also rejected Mitchell’s argument that Rex failed to adequately allege that Mitchell proximately caused Rex’s damages.

Remaining claims fail. Rex’s breach of contract claim failed. Rex argued that the contract with Anheuser-Busch required Anheuser-Busch, in the event it disapproved of a purchaser for specified marketing/sales purposes, to ensure that Rex received the same price. But the same price provision applies to disapproved sales, not assignments, and Anheuser-Busch did not disapprove the transfer for the reasons stated. The court also held that other claims failed, as Rex failed to properly place them before the court.

Concurring and dissenting opinion. Justice Griffis concurred in part and dissented in part in a separate opinion, joined by Justice King. Justice Griffis would have held that BIFDA does not render the match-and-redirect provision null and void, and would have held that Mitchell should have been dismissed. He stated that for there to be "interference," under BIFDA, there must be an action with an unlawful purpose. Anheuser-Busch’s actions were taken to enforce a contract right and were therefore not unlawful and not interference. Similarly, he stated that there were no allegations that Mitchell’s actions were taken for an unlawful purpose and the tortious-interference-with-contract and civil conspiracy claims against the Mitchell Companies should be dismissed.

The case number is No. 2018-IA-00037-SCT.

Attorneys: Nathan Lamar Prescott (Nathan Lamar Prescott, Attorney at Law) for Rex Distributing Co., Inc. W. Wayne Drinkwater Jr. (Bradley Arant Boult Cummings LLP) for Anheuser-Busch, LLC.

Companies: Rex Distributing Co., Inc.; Anheuser-Busch, LLC

MainStory: TopStory FranchisingDistribution MississippiNews

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