Alaskan Brewing Co. is the subject of an interesting Washington Court of Appeals opinion, which was handed down today. The opinion is unpublished and provides little to nothing in the way of new legal precedent, but it provides an intriguing look at the Washington distributorship law.
Alaska Distributors Company (ADCO) was the exclusive distributor of Alaskan Brewing Company (Alaskan) products in seven Washington counties. In August 2008, after ADCO notified Alaskan of its intent to sell its distribution rights to another distributor, Alaskan terminated ADCO’s distribution services. The termination of the contract was for convenience, rather than for cause.
After termination, ADCO filed for arbitration, in accordance with their distribution contract. The arbitrator awarded damages of $5,537,520 to ADCO for the fair market value of the terminated distribution rights, along with attorneys fees and legal costs. Alaskan filed a motion to vacate in King County Superior Court that was denied, while the Court confirmed the arbitration award as a judgment. Alaskan then appealed the dismissal of its motion to vacate.
Alaskan argued that the arbitrator made mistakes of law that warranted a look by the courts. The brewer believes that the arbitrator (1) failed to apply a contractual liquidated damages clause, (2) failed to apply an agreed upon contractual definition of “fair market value” (for purposes of damages for termination) and (3) erred in applying a statute that awarded the winner with its attorneys fees.
The major argument is over the application of former RCW 19.126.040(2) and (3) (this statute has been amended), which provided:
“[a] supplier shall give the wholesale distributor at least sixty days prior written notice of the supplier’s intent to cancel or otherwise terminate the agreement [unless termination is for cause]” and must provide the reasons for the termination. The “wholesale distributor shall have sixty days in which to rectify any claimed deficiency.”
Former RCW 19.126.040(2).
“The wholesale distributor is entitled to compensation for the laid-in cost of inventory and liquidated damages measured on the fair market price of the business as provided for in the agreement for any termination of the agreement by the supplier other than termination for cause . . .”
Former RCW 19.126.040(3)
The arbitrator decided that this statute applied to the immediate circumstances of the Alaskan dispute. Furthermore, it believed that a contractual limitation on the definition of “fair market price” should only be conditionally applied. The arbitrator elected to hear argument on the “fair market price,” determining that an award of more than $5 Million was appropriate.
Unfortunately for Alaskan, Washington courts accord substantial finality to the decision of an arbitrator rendered in accordance with the parties’ contract. Davidson v. Hensen, 135 Wn.2d 112, 118, 954 P.2d 1327 (1998). This leaves very little room for judicial review of an arbitrator’s opinion.
However, the courts can review errors of law. See RCW 7.04A.230. The courts will only review the face of the arbitration award for clearly erroneous rule of law and misapplication of law. Here, they found none.
The court further agreed that the arbitrator had not erroneously found that the dispute arose out of statute. Therefore, ADCO was entitled to recoup its legal fees under RCW 19.126.060.
Its a big loss for Alaskan and a huge win for a distributor. Alaskan had alleged that the contract limited recovery to $1.4 Million value, but because the contract’s limitation was not enforced, damages tripled.
The case illustrates the vast importance of properly crafted arbitration clauses in contracts. RCW 19.126 will be applied to disputes between qualifying brewers. The prior RCW 19.126. applies to all brewers who produce 50,000+ barrels, annually. But, a change to the law in 2009 modified that statute, changing the minimum to 200,000+ barrels. Of course, many brewers are now exempt.
Regardless, consider your current agreement with your distributor. If it was drafted during the old statute’s effectual period, and you produce more than 50,000 barrels, there is cause for concern. A careful brewer should review these regulations with their attorney and find ways to avoid the sometimes severe consequences through smart contracting.
***This post was originally published on BeerBlotter.com, a seattle beer blog to which I regularly offer commentary.***
UPDATE: Since this was originally posted on BeerBlotter.com, I was advised of a myriad of conversation on the topic. Here are a few additional links to the BeerNews.org report and the Full Pint’s interview with Moylan’s brewmaster (who produced his lawyer’s response to Port’s claims)
I was shocked to see this one yesterday; so shocked that I had to read it twice and pull the court records to believe it. Port Brewing, the business entity that sells Lost Abbey beers, has sued Moylan’s Brewing.
Port Brewing’s other business name, Lost Abbey utilizes a celtic cross symbol as its emblem. Well, Moylans Brewing (a historically irish brewer) decided to use a remarkably similar cross for their new Celts Golden Ale. You can see images of the conflicting marks by viewing this article by BeerNews.org. The two images are virtually identical.
The gist of the suit can be found in some of the opening paragraphs:
9. Plaintiff has engaged in extensive marketing and promotion of their Celtic cross trademark and has enjoyed significant sales of their beer and merchandise, including sales of the Celtic cross beer tap handles.
10. Due to Plaintiff’s extensive use of its stylized Celtic cross image marks (collectively referred to herein as the “Port Brewing Marks”), Plaintiff has built up significant goodwill therein and its branded merchandise has been praised and recognized in the brewing industry and through various media.
11. As a result of such longstanding, substantial and continuous use, the Celtic cross- branded products have long been immediately recognized by consumers and the trade.
18. Upon information and belief, Defendant recently began using a stylized cross beer tap handle within its course of business that is strikingly similar to the Port Brewing Marks.
19. Upon information and belief, Defendant is currently using a stylized cross beer tap handle, at its brewery and at other participating restaurants, bars, taverns and breweries across the nation, including within this District, featuring marks confusingly similar to Plaintiff’s stylized Port Brewing Marks. Defendant is providing this infringing beer tap to distributors and such taps are being particularly confused with Port Brewing’s protected beer taps where both companies’ beers are being served.
Arthur is now taking a beating from craft beer enthusiasts – a beating that probably is not warranted. Unfortunately, beer is business. Businesses work hard to develop an image and when two closely competing businesses have confusing marks, someone needs to take a step back. Apparently, Port and Moylans will let the court decide who needs to take that step.
Please check our FAQ’s which we compiled to address this issue. At this time, we are waiting for a response from Moylan’s Brewing Company and still are open to a resolution that neither weakens nor devalues our Lost Abbey Trademark stylized Celtic Cross Tap Handle. …. The bigger and healthier the Craft Brewing business gets, the harder it is to be unique and distinctive. Intellectual Property is something that all breweries (small and big) need to value. It’s one of the biggest assets we can own.
Lastly,filing paperwork with the Federal Courts does not mean we are obligated to sue Moylan’s Brewing LLC. I can tell you that we at Port Brewing and The Lost Abbey are not giddy with excitement about this filing. When I look out my office window, I know the 12 people who work at this brewery aren’t high fiving each other about their owners decision to do this. But they understand that Intellectual Property is a big part of this brewery and the beers we sell.
…at this time, it is a solely two small passionate craft breweries who happen to disagree looking to protect their intellectual property. Ultimately, a compromise that doesn’t involve the courts may be reached. And then we can all go back to focusing on doing the things we do best.
Recently, the Liquor Control Board (LCB) has been vocal about its disdain for the proposed Initiative. The Washington Wine Institute hosted Washington Liquor Control Board Deputy Director, Rick Garza, at a panel meeting in Woodinville, last month. The purpose of the panel was to show the public why most of the local beverage industry opposes the Initiative. The Washington Brewers Guild was also present, echoing the Wine Institute’s call. (You can listen to Garza’s presentation by following this link over at SoundPolitics.com)
Apparently, one concerned citizen is upset about the LCB’s public presence. A local Seattle man (and writer for SoundPolitics.com) has filed a Complaint with the State of Washington Executive Ethics Board against Garza, alleging that the LCB executive is illegally using public resources and misleading the public with false information.
This blog takes no position with regard to the Complaint. Furthermore, we have no supporting information which makes us believe that the LCB is misleading the public.
It is, however, apparent that the LCB is openly involved in the “Vote No” movement. Recent materials illustrate that they believe the passing of Initiative 1100 will cost millions, necessitating a dip into the State’s general fund to meet LCB budget requirements.
Of course, the war of words will only gain steam as we approach November. Feel free to leave comments below if you have something to add to the discussion.