Bert G. Gianelli Distributing Co. v. Beck & Co.

• Citation: 172 Cal.App.3d 1020,219 Cal.Rptr. 203
• Court: California Court of Appeals
• Decision Date: 10 June 1985
• Parties: , 1985-2 Trade Cases P 66,851 GIANELLI DISTRIBUTING CO., et * al., Plaintiffs and Appellants, v. BECK & CO., et al., Defendants and Respondents. A015564.

Page 203

219 Cal.Rptr. 203

172 Cal.App.3d 1020, 1985-2 Trade Cases P 66,851

GIANELLI DISTRIBUTING CO., et ^* al., Plaintiffs and Appellants, v. BECK & CO., et al., Defendants and Respondents.

A015564.

Court of Appeal, First District, Division 2, California.

June 10, 1985.

As Modified July 5 and Oct. 3, 1985.

Timothy H. Fine, San Francisco, for plaintiffs and appellants.

Jeffrey P. Mansuy, San Francisco, for defendants and respondents.

KLINE, Presiding Justice.

Introduction

Plaintiffs are eight local beer wholesalers terminated as distributors for defendant Beck & Co. They appeal from a judgment in favor of defendants entered after defendants' motion for summary judgment was granted. Plaintiffs challenge the grant of summary judgment on each of the three causes of action charged by each plaintiff. Specifically, they contend: (1) plaintiffs presented sufficient evidence to create a question of fact as to whether the contract between Beck & Co. and each plaintiff included an implied requirement of good cause for termination; (2) sufficient evidence presented an issue of material fact as to whether defendants entered into a combination in restraint of trade adversely affecting industry competition; (3) since their hearsay evidence was admissible under the co-conspirator exception to the hearsay rule, sufficient evidence supported a material question of fact as to whether defendants tortiously interfered with prospective business relations between plaintiffs and the "direct" or "master" wholesalers from whom they had previously purchased their Beck's Beer.

In addition, plaintiff Rausser contends that: (1) its termination constituted an additional violation of the Cartwright Act's prohibition of exclusive dealing contracts which may substantially lessen competition, and (2) it offered sufficient separate, admissible evidence to support a triable issue of fact as to whether defendants tortiously interfered with its business relations with independent third parties.

Statement of Facts ¹

Beck & Co. is a beer manufacturer based in West Germany; its product, Beck's Beer, is imported into the United States by Dribeck Importers. There is some conflict in defendants' evidence as to defendant Jack Woodlief's position with Beck & Co.: his answer to the complaint and one declaration states that he is Western U.S. Sales Director for Beck's Beer; for purposes of a motion to quash service of summons his declaration stated he was not an employee of Beck & Co. Defendant Jack Lewis is Regional Sales Manager for Beck's Beer, working under the supervision of Jack Woodlief.

There is also some conflict in the parties' descriptions of the distribution network for Beck's Beer, and the relationships between the parties. Defendants characterize the distribution network as a "three-tier system," with the first tier being the brewer/manufacturer, the second the wholesaler/distributors, and the third the retailers. Plaintiffs characterize this network as a "multilayered system," explaining that the brewer/manufacturer sells directly to a few large independent distributors (whom plaintiffs call "master distributors") who in turn resell the beer at a profit to smaller independent wholesalers like plaintiffs. It is often the case that the large wholesalers (hereafter termed "direct wholesalers") often sell their supplies of Beck's Beer both to the sub-jobbing smaller wholesalers (hereafter termed "local distributors") and to retail outlets, in competition with the local distributors.

When Beck & Co. enters into a distributor agreement with a wholesaler, it determines whether to ship directly to that wholesaler or to require that the distributor purchase its supplies of Beck's Beer from the larger direct wholesalers. If the latter, Beck & Co. notifies its direct wholesalers of the authorized distributor. It is the direct wholesaler who determines what it will charge the local distributor, although Beck & Co. makes suggestions.

A distributor's agreement, specifying the distributor's territory, is required by law to be submitted to the Department of Alcoholic Beverage Control, along with the distributor's current price postings for each brand of beer the distributor sells. (See Cal.Bus. & Prof.Code, §§ 25000, 25000.5.) It was defendant Jack Woodlief's deposition testimony that in order to sell a brand of beer a distributor must have such an agreement on file at the Department, and that those items would remain on file after the manufacturer canceled the distributor's agreement, so long as the wholesaler was legally contesting the termination.

Defendant Beck & Co. entered into a separate distributor agreement with each of the eight plaintiffs, all California beer distributors selling many brands of beer to retailers. Certain of plaintiffs' representatives stated that their discussion with Woodlief regarding entering into this arrangement with Beck & Co. included no mention of contractual terms or conditions for termination. Harry Yamamoto of Towne Distributing declared he understood the distributors' agreement form to be simply a legally imposed prerequisite to selling the Beck's brand. While most of the declarations alluded to the existence of an unspoken understanding that good cause is required for distributor termination, Anthony Ferrigno of Consumers Distributing testified that at the time of the contract it was his understanding that either party could terminate the agreement at will, which understanding was later altered by information he received from other distributors at conventions. Jack Woodlief testified that he made it a practice to terminate distributors only for good cause.

Some time thereafter, Woodlief, acting as Beck's Western U.S. Sales Director, notified each of the plaintiffs that Beck & Co. would terminate its agreement in thirty days. Beck & Co. appointed new distributors to replace the terminated distributors in each territory.

After the effective termination date, when plaintiffs called their usual direct wholesalers to order Beck's Beer, they were informed by most that they would no longer be sold Beck's Beer. To explain this refusal plaintiffs offer declarations containing hearsay statements allegedly made by Jack Woodlief or Jack Lewis to the employees of these direct wholesalers to the effect that Beck & Co.'s representatives told them not to sell to the terminated local distributors. In addition, plaintiff Rausser points to a letter sent by Jack Woodlief to all his wholesalers stating that Rausser Distributing had been terminated and that selling Beck's Beer to Rausser would violate state law. Jack Woodlief declares that the wholesalers were neither threatened nor coerced and defendants objected to the admission of the hearsay statements on the summary judgment motion.

Some plaintiffs were able to continue purchasing Beck's Beer after their termination: Modugno Brothers bought supplies from plaintiff Sunny Distributors; Rausser bought from United Beverage until Woodlief allegedly told its representative to stop selling to Rausser; Rausser then bought from Santa Clara Valley Distributors until they too were terminated by Beck & Co.; it also bought Beck's from Placer Beverage until Woodlief sent Placer a letter. Gianelli Distributing also purchased supplies from Santa Clara Valley Distributors. It was Woodlief's belief that many earlier-terminated plaintiffs purchased Beck's from the later-terminated Gianelli.

Jack Woodlief received complaints from one direct wholesaler, Markstein Distributing, that terminated sub-jobbers were selling Beck's in its area, and he testified that Jack Lewis had received similar complaints from two replacement distributors, Premium Distributing and Basso Distributing, though Woodlief did not specify when these complaints were received. Woodlief says he told them there was nothing he could do about it. Woodlief also received complaints from new distributors Goings and Goethe that Rausser was selling Beck's in their territories, which complaints prompted him to send out to Beck's wholesalers the letter stating that Rausser had been terminated and that it would be illegal to sell to it. Woodlief also met with representatives of Santa Clara Valley Distributing on February 14, 1979, and told them that while it was legal to sell to the terminated distributors, it was creating chaos and "screwing up the market." Woodlief also asked them if they planned to continue to sell to plaintiff Gianelli despite its termination by Beck's, to which they replied that they didn't know. Santa Clara Valley Distributors was thereafter terminated effective March 31, 1979, allegedly for low sales.

Woodlief testified that he neglected to send in the appropriate form notifying the Department of Alcoholic Beverage Control of the distributor terminations until December 1978, after the suit had been filed.

Statement of the Case

Plaintiffs filed their complaint on November 3, 1978 in Alameda County Superior Court, charging Beck & Co., Jack Woodlief, and Jack Lewis with breach of contract, arguing that defendants had breached an implied term of their contract requiring good cause for termination; intentional interference with prospective economic advantage; and violations of the Cartwright Act. Defendants answered on December 21, 1978 denying the relevant allegations and proposing four affirmative defenses: (1) defendants' actions encouraged and promoted competition, (2) defendants' conduct was justified because undertaken in protection of legitimate business interests, (3) the complaint failed to state facts sufficient to constitute a cause of action, and (4) the distributor agreements were unenforceable by reason of failure of consideration.

On March 19, 1979, Santa Clara Valley Distributors filed a complaint in the Superior Court of Santa Clara County against Beck & Co., Dribeck Importers, and Jack Woodlief, charging breach of contract, violations of the Cartwright Act, and intentional...