Brown-Forman Corp. v. Alcoholic Beverages Control CommissionBrown-Forman Corp. v. Alcoholic Beverages Control Commission
This appeal concerns a decision of the Alcoholic Beverages Control Commission (commission) in which it concluded on the evidence before it that the Brown-Forman Corporation (Brown-Forman) was required by G. L. c. 138,
1. The controlling statute. General Laws c. 138, § 25E, “makes it an unfair trade practice for a manufacturer (or other supplier), absent good cause, to refuse to sell a brand of alcohol to a wholesaler if the manufacturer has made regular sales of such brand to the wholesaler during the preceding six-month period.”
Obligations imposed by c. 138, § 25E, are particular to a supplier. See Charles E. Gilman & Sons, Inc. v. Alcoholic Bevs. Control Commn.,
Where, however, a “continuing affiliation or agency relationship” exists between a supplier and its predecessor, the commission has construed c. 138, § 25E, to allow for the imputation of obligations. Heublein v. Capital Distrib. Co.,
2. Background. J. Wray & Nephew Limited (Wray) is a Jamaican company that produces and sells several varieties of rum beverages collectively referred to as “Appleton Rum.”
In January of 1997, Wray stopped its distribution of Appleton
During the period of October 1, 1994, through October, 2001, first Carriage, until 1997, and then UDV sold Appleton Rum to Walker. Brown-Forman, however, was not inclined to continue this practice beyond October, 2001. By letter dated September 4, 2001, Brown-Forman notified Walker that it intended “to consolidate the responsibility for [Wray] brands with [other] Brown-Forman brands in [Walker’s] territory,” and that come October 1, 2001, it would not makes sales of Appleton Rum to Walker.
3. Prior proceedings. Walker turned to the commission and argued that sales of Appletоn Rum by Carriage and UDV to it should be attributed to Brown-Forman under c. 138, § 25E. It was undisputed before the commission that Brown-Forman did not itself make sales to Walker during the statutory six-month period. See Charles E. Gilman & Sons, Inc. v. Alcoholic Bevs. Control Commn.,
Relying on general principles of agency, the commission found that Wray’s distributorship agreements provided Wray
Brown-Forman then took an appeal to the Superior Court pursuant to G. L. c. 30A, Walker intervened as a defendant, and they filed cross motions for judgment on the pleadings.
4. Walker’s argument. Rather than argue in any meaningful manner whether or why the factors relied upon by the commission were competent or sufficient to show an agency relationship for purposes of imputing to Brown-Forman obligations to
5. The applicable standard of review. We review the commission’s decision in accordance with the standards set out in G. L. c. 30A, § 14(7), and discussed in Athol Daily News v. Board of Review of the Div. of Employment & Training,
If we determinе that the commission’s findings are supported by substantial evidence and that the proper legal standards were applied to those findings, we will uphold the commission’s decision. Athol Daily News v. Board of Review of the Div. of Employment & Training,
6. The Wray-UDV distributorship agreement and the commission’s decision. To put Walker’s claims before us in perspective, we describe in some detail the terms of the Wray-UDV distributorship agreement and the basis of the commission’s decision.
a. The agreement. Pursuant to the terms of the agreement, UDV was appointed the sole and exclusive importer and distributor of Appleton Rum within the United States, while Wray continued to own the trademarks аnd goodwill associated with that brand. UDV was required to “maintain a properly trained sales force of adequate size”; “maintain inventories of the [product] to sufficiently service the requirements of the [market]”; “deliver the [product] to its customers ... in accordance with good business practice and local custom”; and “use all reasonable efforts to distribute and sell the [product].” UDV had the right “to appoint such sub-distributors, brokers and agents . . . as it deem[ed] advisable in order to perform its . . . obligations under [the] Agreement.”
The agreement specified annual sales objectives for UDV. Failure to meet the specified objectives for two consecutive contract years constituted grounds for either party to terminate the agreement. UDV was required to furnish Wray with monthly reports detailing sales and depletion rates by customers. While the agreement contemplated UDV’s sale of competing products, Wray had the right to request that Appleton Rum and competing
Terms for Wray’s sale of Appleton Rum to UDV were also set out in the agreement. Sale prices for the first contract year were set out in an exhibit attached to the agreement. Thereafter, and upon 180 days’ prior notice to UDV, Wray had the right to raise its prices оnce a year in accordance with a formula set out in the agreement. Sales from Wray to UDV were F.O.B. Jamaica.
While UDV was granted an exclusive right to use the “Appleton” trademark in connection with the marketing and distribution of Appleton Rum within the United States, it was required to expend specified rmnimum amounts to advertise, market, and promote the sale of that product. All of UDV’s marketing activities were to be conducted in accordance with a mаrketing plan developed by UDV and approved by Wray on a biannual basis.
Wray could require UDV to discontinue any advertising, merchandising, or promotional activity that it deemed to be inconsistent with an approved plan or likely to damage its market reputation. The agreement also required Wray to contribute specified minimum amounts in support of UDV’s marketing activities, and UDV to appoint one full-time marketing manager to work on Appleton Rum accounts. After notice and an opportunity to cure, either party could terminate their contractual relationship for the other’s failure to “fulfill any material relationship, warranty or covenant.” As a final matter,
b. The commission’s decision. In concluding that an agency relationship existed between UDV and Wray in UDV’s “marketing and sale” of Appleton Rum, the commission pointed to the following rights retained by Wray under the agreement. Wray continued in its ownership of manufacturing rights in the rum as well as in its associated trademarks and goodwill, and it was continuously involved in producing and bottling the product. It also had control over UDV’s national marketing activities, as manifested in its right to approve and demand conformity with a marketing plan, and it required UDV to expend specified minimum amounts to advertise, market, and promotе the sale of Appleton Rum and to dedicate one marketing manager on a substantially full-time basis to the Appleton Rum accounts. Wray also had the right to require UDV to discontinue any advertising, merchandising, or promotional activity inconsistent with the approved plan or likely to damage its reputation. The commission also looked to the facts that Wray had the right to terminate the agreement should UDV fail to meet specified sales volumes and thаt the product was shipped by Wray F.O.B. Jamaica to UDV.
7. Discussion. “An agency relationship is created when there is mutual consent, express or implied, that the agent is to act on behalf and for the benefit of the principal, and subject to the principal’s control.” Theos & Sons, Inc. v. Mack Trucks, Inc.,
Our review of the administrative record concerning this central issue, the nature of the relationship created by the Wray/ UDV agreement, reflects the follоwing undisputed facts. UDV had a broad right to appoint sub-distributors, that is, agents “as it deemed advisable” in order to perform its obligations under the agreement. On the other hand, there is nothing in the agreement that gave Wray the power to approve or veto UDV’s appointment of downstream sellers nor to have any input into UDV’s selection of those sellers. Compare Spencer v. Doyle,
The evidence most directly related to the question of Wray’s control over UDV’s sales relationships concerns Wray’s right to
Absent some further explanation or finding by thе commission indicating the actual extent to which Wray’s right to approve UDV’s “pricing strategy” affected UDV’s ability to set prices, and in light of all other indications in the evidence to the contrary, including the fact that the parties’ agreement provided that “no joint venture [is] created by this Agreement and that neither party can take any action that is legally binding on the other party without the prior consent of the party to be charged,” see part 6(a), supra, we conclude that the evidence of Wray’s right to approve UDV’s “pricing strategy” is an insufficient basis upon which to sustain a finding of an agency relationship. See Theos & Sons, Inc. v. Mack Trucks, Inc.,
As a final observation, we see nothing in DeCantis v. Mid-
Moreover, our reading of DeCantis leads us to conclude that its test for “control” cuts against rather than helps Walker. DeCantis holds that a distributor is “under the control” of the manufacturer if “the manufacturer has the power, by contract or otherwise, to direct the course of dealings between the wholesale distributor and its retail dealers” (emphasis supplied). Ibid. See Grappone, Inc. v. Subaru of America, Inc.,
So ordered.
Notes
The commission has not participated in this appeal.
As amended through St. 1982, c. 672, § 10, G. L. c. 138, § 25E, provides in relevant part that it is “an unfair trade practice and therefore] unlawful for any manufacturer, winegrower, farmer-brewer, importer or wholesaler of any alcoholic beverages, to refuse to sell, except for good cause shown, any item having a brand name to any licensed wholesaler to whom [the] manufacturer ... has made regular sales . . . during a period of six months preceding any refusal to sell.”
The brand items at issue in the case before us are Appleton Gold Rum, Appletоn Estate VX Rum, Appleton Estate 12 Year Old Rum, and J. Wray & Nephew 126 Proof Rum.
We note as an aside that the commission found that as early as 1987, Carriage served as the exclusive United States distributor of Appleton Rum; that in 1987, Carriage was a wholly owned subsidiary of Rums International, Inc. (Rums); and that in 1987, Rums was owned by Richard D’Costa. The commission found, and the record establishes, that before Carriage became a wholly owned subsidiary of Wray in October, 1994, Carriage distributed Appleton Rum in accordance with two intеrrelated agreements, executed in January, 1993, pursuant to which Wray appointed Carriage to serve as its exclusive distributor in the United States and Rums granted Carriage an exclusive right to use the “Appleton” trademark in connection with the marketing and distribution of Appleton Rum within the United States. There is some, but not overwhelming, evidentiary support for the commission’s finding
By an agreement dated January 6, 1997, Wray appointed Heublein, Inc. (Heublein), a Connecticut corporation, to serve as the exclusive importer and distributor of Appleton Rum in the United States. As a result of corporate mergers and reorganizations, the specifics of which are irrelevant to our decision, UDV succeeded to Heublein as the exclusive importer-distributor of Appleton Rum in the United States.
The commission made no finding, express or implied, that the movement of the Appleton brand from Carriage to UDV to Brown-Forman was undertaken for the purpose of evading the provisions of § 25E.
In its decision, the commission noted that it construes the phrase “regular course” to obligate a supplier to sell up to 110 per cent per year of the highest annual sales, by product and size, sold to the wholesaler during the preceding four or five years. See Somerset Importers, Ltd. v. Alcoholic Bevs. Control Commn.,
The commission did not submit any pleadings in respect to the cross motions filed by Brown-Forman and Walker. See note 1, supra.
In reaching her decision, the judge examined the terms of Wray’s agreement with Brown-Forman and concluded that the commission was in error in finding that an agency relationship existed between them.
Because we have concluded that our review of the commission’s decision is de nova, we need not discuss Walker’s allegations of error concerning the judge’s detailed and comprehensive memorandum of decision on BrownForman’s appeal to the Superior Court pursuant to G. L. c. 30A.
More specifically, at the inception of the agreement and every six months thereafter, UDV was required to meet with Wray to “discuss [its] plans for the advertising, marketing and promotion of [Appleton Rum]” during the following six-month period. Should the parties fail to agree on a plan or any aspect of it, the plan of the previous period was to be deemed “approved” by Wray.
Restatement (Second) of Agency § 14J (1958) provides that these factors are probative on the issue whether “[o]ne who receives goods from another for resale to a third person,” that is, a distributor or dealer, is the other’s agent in the subsequent sale of the goods.
We note that a finding of agency in the circumstances before us would be at odds with a general principle recognized in some jurisdictions, i.e., that an independent distributor that purchases the goods of a manufacturer, bears the risk of loss, and sells for its own account is not a manufacturer’s agent in the sale of the goods to its downstream customers. See, e.g., Oberlin v. Marlin Am. Corp.,
Federal jurisdictions appear to be divided on the question “whether a finding of ‘control’ under the Act must be premised on agency principles.” Grappone, Inc. v. Subaru of America, Inc.,