• New Beer Distribution Franchise Laws for Washington State
  • June 11, 2009 | Author: Kelly A. Luzania
  • Law Firm: Davis Wright Tremaine LLP - Portland Office
  • In April, Washington state Governor Christine Gregoire signed HB 1441, which will revamp the state's beer distribution franchise laws. The new laws will be effective on July 26, 2009.

    Washington state beer franchise laws govern all agreements between wholesalers and "suppliers" (defined as in and out-of-state manufacturers of malt beverages, or their authorized representatives, that produce ≥ 200,000 barrels/year, and enter into distribution agreements with a Washington state wholesaler). So Washington state beer franchise laws will not apply to small breweries who produce less than 200,000 barrels of malt liquor per year (up from 50,000 barrels/year under current Washington state law). This is quite different from the beer franchise law system in most states, which impose very stringent franchise laws upon all beer distribution agreements, regardless of the size of the brewer.

    How does this affect in and out-of-state brewers working with Washington state distributors?

    1. Brewers that produce greater than 50,000 barrels/year, but less than 200,000 barrels/year, will now be exempt from Washington state beer franchise laws for future agreements. Brewers that produce ≥ 200,000 barrels/year (“suppliers”) should be aware that these new laws will automatically supplement the terms below to all new distribution agreements with distributors or to existing agreements if there is any material change.
    2. There are more detailed termination and distributor compensation provisions: 

    Termination, cancellation, or nonrenewal

    • Immediate termination only allowed if distributor: commits fraud, becomes insolvent, makes assignments for the benefit of creditors, becomes bankrupt, has its WSLCB license revoked or suspended for over 14 days, or results from supplier’s newly acquired right to manufacture or distribute a particular brand, and has a new distributor handle that brand in the territory, even if prior distributor still handles other brands of the supplier.
    • Otherwise, suppliers must give 60 days written notice if for any other reason than those listed above. Wholesaler has 60 days to cure.

    Compensation

    Requires distributors to be compensated by one or more successor distributors for laid-in inventory costs and "fair market value" for the distribution rights in a territory if the distribution rights are terminated, cancelled or not renewed, unless these actions are:

    • for cause;
    • for distributor’s failure to live up to terms of distribution agreement; or
    • due to immediate termination because of distributor fraud, insolvency, assignment for the benefit of creditors, bankruptcy, or license revocation or suspension over 14 days.

    Fair Market Value (FMV):

    • Law originally allowed parties to contractually decide FMV. Now FMV must be decided at the time rights are transferred, and is defined as the amount “a willing buyer would pay and a willing seller would accept for distribution rights when neither party is acting under compulsion and both have knowledge of all the facts material to the transaction.” Distribution rights cannot be transferred until the laid-in costs and FMV have been determined and paid.
    • If parties cannot decide on FMV within 30 days of notice of termination, parties must submit to binding arbitration, and each party must bear its own costs and attorney's fees.

    Prevailing party in any action other than compensation determination will be awarded reasonable attorney’s fees and costs.

    All brewers will benefit by carefully reviewing new or amended Washington beer distribution agreements, because: (1) if they produce ≥ 200,000 barrels/year, the above laws are automatically incorporated into agreements so they will have to be more aware when signing a new distribution agreement with a Washington distributor, or before making any change in their existing beer distribution arrangements; and (2) we have seen distribution contracts with small (exempt) brewers that impose many of the above restrictions, even though the statute doesn't require it.