State Distributors, Inc. v. Glenmore Distilleries Co.

• Decision Date: 02 July 1984
• Docket Number: No. 82-1991,82-1991
• Citation: 738 F.2d 405
• Parties: STATE DISTRIBUTORS, INC., Plaintiff-Appellant, v. GLENMORE DISTILLERIES COMPANY and Foreign Vintages, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 405

738 F.2d 405

STATE DISTRIBUTORS, INC., Plaintiff-Appellant, v. GLENMORE DISTILLERIES COMPANY and Foreign Vintages, Inc. Defendants-Appellees.

No. 82-1991.

United States Court of Appeals Tenth Circuit.

July 2, 1984.

Charles C. Spann, Spann, Latimer & Hollowwa, Albuquerque, N.M. (E. Douglas Latimer, Spann, Latimer & Hollowwa, Albuquerque, N.M., with him on brief), for plaintiff-appellant.

Thomas C. Kayser, Robins, Zelle, Larson & Kaplan, Minneapolis, Minn. (Linda H. Groff and E. Anne McKinsey, Robins, Zelle, Larson & Kaplan, Minneapolis, Minn., and Bruce Hall, Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, N.M., with him on brief), for defendants-appellees.

Before BARRETT, DOYLE and McKAY, Circuit Judges.

WILLIAM E. DOYLE, Circuit Judge.

The appeal is pursuant to 28 U.S.C. Sec. 1291. The appellant, State Distributors, Inc. is the plaintiff below. It appeals from an adverse judgment of the United States District Court for the District of New Mexico, which denied State Distributors' requested relief under its complaint and awarded defendants costs.

I.

State Distributors is a wholesaler of alcoholic beverages, which is licensed to distribute products to retail outlets in the State of New Mexico. Some years ago during the 1960's State Distributors commenced purchasing an imported liqueur called Amaretto Di Saronno (Amaretto). This was acquired from an unidentified importer and was resold to retail stores throughout New Mexico.

Defendant Glenmore Distilleries Company (Glenmore) is a producer and supplier of alcoholic beverages. The defendant Foreign Vintages, Inc. (Foreign Vintages) is a national wholesale distributor and fully owned subsidiary of Glenmore. In the late 1960's Foreign Vintages obtained and continues to possess the importation and distribution rights to Amaretto in the United States. Since the late 1960's State Distributors has obtained and purchased Amaretto from Foreign Vintages for further distribution and resale to retail stores in New Mexico.

This brings us to the present suit which was instituted by State Distributors which sought an injunction and damages in 1979 to contest defendants' appointment of a second wholesale distributor in New Mexico. Until such appointment, State Distributors had been the sole distributor of Amaretto in New Mexico. State Distributors has alleged in its complaint that such establishment of a dual distributorship violated the New Mexico Alcohol Beverage Franchise Act (Franchise Act), N.M.Stat.Ann. Sec. 60-8A-7, et seq. and alternatively, constituted a breach of the distribution agreement between State Distributors and Glenmore. ¹

This lawsuit was originally commenced in New Mexico State district court of Bernalillo County. On defendants' motion the action was removed to the United States District Court for the District of New Mexico.

State Distributors then filed a motion to amend its complaint in order to join as defendants the New Mexico wholesale distributor and its owners that defendants Glenmore and Foreign Vintages had appointed as dual New Mexico distributors of Amaretto with State Distributors. Such joinder of the New Mexico residents would allegedly have defeated diversity jurisdiction in the federal court. The district court subsequently denied joinder.

The district court denied cross motions for summary judgment and the case proceeded to a non-jury trial on June 21-22, 1982. On July 15, the court entered judgment against plaintiff State Distributors and awarded costs to the defendants. As indicated above, State Distributors has sought review in this court.

The review sought by State Distributors requests reversal of the adverse judgment of the district court and a directed judgment in its favor on its complaint. Alternatively, State Distributors requests this court to remand the case to the district court with instructions to allow amendment of the complaint to join the specified New Mexico residents which in turn would result in a remand to the state court. Finally, State Distributors requests attorneys fees.

We have referred to some of the facts above. There we stated that in the mid-1960's, State Distributors entered into an oral agreement with a now unidentified broker/importer of Amaretto to distribute Amaretto to retailers in New Mexico. The oral agreement between State Distributors and the broker was never reduced to writing, nor have the specific terms or conditions of the agreement been established with any degree of certainty. It is clear, however, that until the time of the conduct leading to this suit, State Distributors was the sole distributor of Amaretto in New Mexico.

It was not until 1968 that Foreign Vintages assumed the national wholesale distributing and advertising for Amaretto in the United States. Foreign Vintages was acquired and became a wholly owned subsidiary of Glenmore in 1969.

In 1977, Glenmore announced its plans to appoint a second wholesale distributor, United Wholesale Liquors (United), for Amaretto in New Mexico. After State Distributors protested the proposal, Foreign Vintages rescinded its agreement with United and State Distributors again became the sole distributor of Amaretto in New Mexico. Later, Glenmore established certain performance guidelines governing the sale of Amaretto in New Mexico during the months of November and December 1978. State Distributors failed to attain the level of sales set in the performance guidelines.

State Distributors informed Glenmore of its intention to conduct a survey of all of its New Mexico accounts to identify those accounts with potential for increased sales. However, this survey, as far as the record shows, does not appear to have been completed.

In early 1979, State Distributors also announced a promotional program, labeled the "Mother's Day Program," and following consultation with Glenmore, sales goals were established in connection with this program. None of the goals were met and the program was unsuccessful.

On June 22, 1979, Glenmore notified State Distributors by letter of its intention to commence a dual distributorship in New Mexico on August 1, 1979. This contemplated utilization of State Distributors and United. State Distributors brought suit to challenge the appointment of United. State Distributors has continued to sell Amaretto to retailers since the appointment of the competing distributor and indeed during the pendency of this action.

II.

The initial issue to be considered is:

WHETHER THE DISTRICT COURT ERRED IN HOLDING THAT THE NEW MEXICO ALCOHOL BEVERAGES FRANCHISE ACT WAS INAPPLICABLE AS FAR AS THE DISTRIBUTION AGREEMENT BETWEEN STATE DISTRIBUTORS AND GLENMORE WAS CONCERNED.

We now address that question.

The New Mexico Alcohol Beverages Franchise Act, N.M.Stat.Ann. Sec. 60-8A-7 et seq., became effective on April 11, 1975. ² The Franchise Act prohibits a supplier's termination, cancellation, or failure to renew a franchise agreement with a New Mexico wholesaler, except in good faith or for good cause. N.M.Stat.Ann. Sec. 60-8A-8(A). A further provision is the definition of "termination" to include "any substantial alteration or modification of the provisions of the franchise." N.M.Stat.Ann. Sec. 60-8A-7(D). Apparently, the prime motivation for enaction of the Franchise Act was the concern of the New Mexico Legislature over the absence of legal remedies available to terminated distributors, where the custom in the liquor business is to deal informally and orally with the suppliers. Southwest Distributing Company v. Olympia Brewing Company, 90 N.M. 502, 565 P.2d 1019 (1977).

State Distributors contends that the district court erred in holding that the Franchise Act was inapplicable to its distribution agreement with Glenmore. The conclusion of the district court was that the Franchise Act having become prospectively effective in the early 1970's, has no application to the original distribution agreement between State Distributors and the unidentified broker in the mid-1960's, to the continuation of the agreement between State Distributors and Foreign Vintages in 1968, nor to the continuing agreement between State Distributors and Glenmore after 1969.

Glenmore maintains that the district court correctly concluded that the Franchise Act was inapplicable, but it also argues in the alternative that if the Franchise Act is applicable, it must be held unconstitutional as an impairment of existing contracts. All parties rely on language in the New Mexico Supreme Court decision of Southwest Distributing Company v. Olympia Brewery Company, 90 N.M. 502, 565 P.2d 1019 (1979), the sole New Mexico decision addressing the applicability of the Franchise Act to agreements predating the Act's effective date.

A defense to an allegation of a violation of the Franchise Act is that the supplier terminated, cancelled, substantially modified, or refused to renew the franchise agreement in good faith and for good cause. N.M.Stat.Ann. Sec. 60-8A-10. The conclusion of the district court was that all actions and conduct undertaken by Glenmore were undertaken in good faith and for good cause. Therefore, if one assumes that the Franchise Act is applicable to the distribution agreement between State Distributors and Glenmore, the conclusion that Glenmore acted in good faith and for good cause in appointing United as a second distributor in New Mexico precludes a finding that Glenmore violated the Franchise Act and defeats State Distributor's first cause of action.

Therefore, if this court finds no error in the district court's determination of good faith and good cause, the dispute as to the applicability of the Franchise Act becomes irrelevant and need not be resolved. As discussed below, the record reveals no such error in the district court's determination, and, therefore, this court may dispose of this appeal without determining the applicability of the Franchise Act.

We next address the issue:

WHETHER THE DISTRICT COURT ERRED IN...