3rd Circuit Affirms Brewer Victory; Forum Selection Clause Trumps MN Franchise Act
Franchise Times Legal Eagles 2015
Tal Grinblat, Certified Specialist in Franchise and Distribution Law and Chair of the Franchise Law Committee of the Business Law Section of the State Bar of California, was featured as one of the best attorneys in franchising by the Franchise Times. The full list of honorees was published in the magazine’s April edition.
Barry Kurtz & Bryan H. Clements’ Article in Business Law News, a publication of the State Bar of California
“Many states now regulate the relationship between those who brew or import beer and those who receive, warehouse and distribute to retailers by way of special relationship statutes…”
Time for a Tall One? 3rd Circuit Affirms MillerCoors’ Victory in Dispute
A U.S Court of Appeals ruled in favor of MillerCoors finding the brewer did not violate its distribution agreement with a beer distributor or Pennsylvania’s alcohol beverage laws when it (i) assigned distribution rights for its new craft beer brands to the distributor’s competitors and (ii) conditioned the award of future brands on the distributor establishing a new entity devoted to MillerCoors products.
The distributor had exclusivity for specified MillerCoors’ products in the Pittsburgh area. The Agreement gave MillerCoors the right to add new products to the exclusive distribution list and gave the distributor the right to sell other brewers’ beer brands without MillerCoors’ consent. The distributor exercised that right by selling Anheuser-Busch products for many years.
In 2012 and 2013, MillerCoors began marketing three new craft and specialty beers, Batch 19, Third Shift, and Redd’s Apple Ale, and awarded distribution rights for these new brands to the distributor’s competitors, prompting a lawsuit. The distributor claimed it was denied distribution rights to the new brands because it also sold Anheuser-Busch products; and claimed MillerCoors said it would have to create a new entity dedicated exclusively to MillerCoors to be considered for rights to distribute new MillerCoors products. The distributor sought a judgment saying MillerCoors could not make it a condition to getting other MillerCoors products, that the distributor not sell other brewers’ products.
The Third Circuit affirmed a trial court decision that rejected the distributor’s claim. The Third Circuit ruled that MillerCoors did not violate its contract or state law by having a selection process and exercising its contractual right to choose another distributor for its new brands. Though state beer distribution laws give protection to beer distributors, brewers can retain significant control over their brands through well-drafted contractual provisions.
Forum Selection Clause Valid Despite MN Franchise Act
A federal court in New Jersey upheld a franchise agreement’s forum selection clause in favor of hotel franchisor Ramada Worldwide Inc. and denied a Minnesota hotel franchisee’s motion to dismiss the complaint, or alternatively, transfer the case to Minnesota.
SB Hotel Management Inc. terminated its franchise agreement with Ramada for a hotel in Wisconsin. The franchise agreement had a clause saying any litigation would be in New Jersey. Ramada brought an action against SB in New Jersey federal court for breach of contract.
Ramada complained for outstanding fees and damages due to SB’s early termination of the franchise agreement. SB argued that an addendum to the franchise agreement, which said that pursuant to the Minnesota Franchise Act nothing in the agreement could require SB to conduct litigation outside Minnesota, created a valid forum selection clause that required any litigation to be in Minnesota.
The Court rejected SB’s interpretation. The Court found the agreement’s forum selection provisions prohibited Ramada from requiring SB to waive its right to file suit in its home courts in Minnesota.
However, the court ruled, the Minnesota law and its regulations did not prevent a franchisor, like Ramada, from filing suit outside Minnesota, which is what Ramada did. The court also ruled the franchise agreement’s forum selection clause was valid and that SB failed to show its witnesses would be unavailable or that litigation of the case in New Jersey would be so inconvenient as to deny SB its day in court.
The same facts could yield a different result in a different state, applying a different state’s franchise laws. The case shows the importance of franchisees understanding forum selection clauses in their franchise agreements before signing or taking actions that might result in litigation.