G. Heileman Brewing Co., Inc. v. Stroh Brewery Co.

• Citation: 521 A.2d 1225,308 Md. 746
• Decision Date: 01 September 1986
• Docket Number: No. 13,13
• Parties: G. HEILEMAN BREWING COMPANY, INC. v. The STROH BREWERY COMPANY. Misc.,
• Court: Maryland Court of Appeals

Page 746

308 Md. 746

521 A.2d 1225

G. HEILEMAN BREWING COMPANY, INC. v. The STROH BREWERY COMPANY.

Misc. No. 13, Sept. Term, 1986.

Court of Appeals of Maryland.

March 13, 1987.

Jay N. Varon (Jane Golden Belford, Sheila McDonald Gill and Foley & Lardner, on brief), Washington D.C., and William A. Snyder, Jr., Ober, Kaler, Grimes & Shriver, on brief, Baltimore, and David E. Beckwith and Foley & Lardner, on brief, Milwaukee, Wis., for appellant.

Thomas M. Wilson III (J. Hardin Marion, Rebecca A. Laws and Tydings & Rosenberg, on brief), Baltimore, for appellee.

Before MURPHY, C.J., and ELDRIDGE, COLE, RODOWSKY, COUCH, McAULIFFE and ADKINS, JJ.

COUCH, Judge.

This case comes to us from the United States Court of Appeals for the Fourth Circuit, pursuant to the Maryland Uniform Certification of Questions of Law Act. Md.Code (1974, 1984 Repl.Vol.), §§ 12-601 to -609 of the Courts and Judicial Proceedings Article. The Fourth Circuit has certified for our determination the following questions:

1. Whether the Maryland Beer Franchise Fair Dealing Act applies to an agreement between a franchisor and a franchisee where the franchisee is also a manufacturer of beer, in competition with the franchisor.

2. Furthermore, if the Act does apply to such an agreement,

a. whether the language "unless good cause exists" of § 203C raises a question of fact or a question of law, and if it raises a question of law, whether good cause exists where the franchisor terminates the franchisee after the franchisee fails to distribute, in violation of the agreement, due to a strike of the franchisee's employees, and

b. whether the 180-day notice provision of § 203D applies to such an agreement.

I

Appellant, G. Heileman Brewing Company (Heileman), is a Wisconsin corporation engaged in the business of brewing and selling beer in Maryland and throughout the United States. Appellee, The Stroh Brewery Company (Stroh), is an Arizona corporation involved in the same commercial enterprise. ¹

In December of 1983, Heileman entered into a Wholesaler Agreement (Agreement) with Stroh, under which Heileman's Carling National Breweries Division became the exclusive distributor of certain brands of Stroh's beer in Baltimore City and in part of Baltimore County. The Agreement provided that Heileman could transfer its distribution rights subject to Stroh's approval. Stroh also had the right to terminate the Agreement if, inter alia, Heileman, "without the prior written consent of Stroh, cease[d] conducting ... business with respect to any one or more Stroh brands."

In April 1985, Heileman commenced negotiations for the sale of its entire wholesale distribution business with several potential purchasers. The purchasers included H & S Distributing Company (H & S), a distributor for Stroh in counties adjacent to Baltimore County; Winner Distributing Company (Winner), a distributor for Stroh in the Baltimore area of Stroh brands not distributed by Heileman; and Best Way Distributing Company (Best Way), a distributor previously unassociated with Stroh.

On July 3, 1985, a strike at Heileman's Carling distribution center in Baltimore forced the company to stop distributing Stroh brands of beer. Heileman informed Stroh that same day of the former's intention to sell its distribution rights to H & S and Best Way. Heileman also advised Stroh that, pending Stroh's approval of the sale, Heileman would continue to distribute Stroh brands through H & S and Best Way on a temporary basis. Both parties dispute whether Heileman distributed Stroh brands after July 3.

Stroh refused to consent to the temporary distribution plan, but Heileman continued to negotiate sales with H & S and Best Way. On July 5th, Heileman transferred part of its Stroh brand distribution rights to H & S and the balance to Best Way. The sales to these companies were conditioned upon Stroh's approval, as required by the Wholesaler Agreement.

Stroh notified Heileman orally on July 25 and in writing on July 29 that Stroh would not approve the sales to H & S and Best Way. The following day, Stroh terminated the Agreement with Heileman purportedly on the ground that Heileman had ceased distributing Stroh brands, which as noted was a basis for terminating the Agreement. Subsequently, Stroh appointed Winner as the distributor of Stroh brands in Heileman's territory.

Thereafter, Heileman filed a three count complaint against Stroh in the United States District Court for the District of Maryland, alleging violation of the Maryland Beer Franchise Fair Dealing Act, Md.Code (1957, 1981 Repl.Vol.), Art. 2B, §§ 203A-203G (the "Act"), breach of contract, and tortious interference with contractual relations. In response, Stroh filed a motion to dismiss. The federal district court concluded that the Act was not applicable to the instant case. The court stated in part:

"This Court cannot conclude that the General Assembly, when passing the Act, intended to protect Heileman, a national brewery, from undue economic pressure brought to bear by Stroh, another national brewery. Such a result is avoided by holding that the Maryland legislature did not intend the Act to be applied in situations involving commercial relationships between two prominent national breweries."

Rejecting the breach of contract and tortious interference claims, the court also held, under the facts as alleged, that Stroh had properly refused Heileman's proposed sale and lawfully terminated the Wholesaler Agreement. Accordingly, the court dismissed Heileman's claims for failure to state a claim upon which relief could be granted. Fed.R.Civ.P. 12(b)(6).

Heileman appealed the lower court's decision to the United States Court of Appeals for the Fourth Circuit. After reviewing briefs and holding oral argument, the Fourth Circuit concluded that the absence of Maryland authority interpreting the Act warranted certifying the present questions under consideration. The federal appellate court reserved Heileman's claims for breach of contract and tortious interference with contractual relations for its own consideration.

II

According to the Declaration of Policy set forth in the Act, the Maryland Beer Franchise Fair Dealing Act was enacted in 1974 to foster and promote temperance in the consumption of beer. Md.Code (1957, 1981 Repl.Vol.), Art. 2B, § 203A(a). See Erwin & Shafer, Inc. v. Pabst Brewing Co., 304 Md. 302, 310, 498 A.2d 1188, 1192 (1985). To effectuate this purpose, the Act seeks to deter beer manufacturers from inducing or coercing beer distributors into stimulating sales of beer products. Erwin & Shafer, 304 Md. at 310, 498 A.2d at 1192. The operative provision is section 203B, which reads as follows:

No beer manufacturer shall (1) induce or coerce, or attempt to induce or coerce, any beer distributor to accept delivery of any alcoholic beverage, any form or advertisement, or any other commodity, which shall not have been ordered by the beer distributor; (2) induce or coerce, or attempt to induce or coerce, any beer distributor to do any illegal act or thing, or do any other act unfair to the beer distributor, by threatening to cancel, terminate, or refuse to renew any beer franchise existing between a beer manufacturer, or representative thereof, and a beer distributor; (3) fail or refuse to deliver to a beer distributor having a franchise, or agreement, any beer publicly advertised by it or its agents for immediate sale promptly after such beer distributor's order shall have been received.

According to the legislature, a beer manufacturer can exert leverage on a beer distributor in a number of direct or subtle ways. These include the "threatened or actual termination of the manufacturer and distributor relationship," and "the establishment of dual distributors of a brand or brands ... in a territory presently served by a [single] distributor." Id. at § 203A(a). The elimination of this kind of intimidation or coercion provides distributors with a measure of commercial stability, thereby encouraging them "to make investments in their facilities to serve retail licensees." Id.

Incident to its operation, the Act characterizes various commercial arrangements between beer manufacturers (or "franchisors") ² and beer distributors (or "franchisees") ³ as a "franchise" or "agreement." Id. at § 203A(b)(1). ⁴ The Act then imposes specific restrictions on and affords certain protections to the parties. Under section 203E, a franchisor who has contracted with a particular franchisee to distribute certain brands in a designated sales territory cannot enter into a second franchise with another beer distributor to distribute the same brand or brands in the former franchisee's territory. Id. at § 203E. See Erwin & Shafer, 304 Md. at 308-14, 498 A.2d at 1191-94. ⁵ In turn, the franchisee of a given territory is forbidden from making any "sale or delivery of beer to any retail licensee whose place of business is not within the territory granted to the franchisee." Md.Code (1957, 1981 Repl.Vol.), Art. 2B, § 203F. The net effect of this statutory scheme is to eliminate intrabrand competition between franchisees in a given territory.

Once a franchise is in place, a franchisor cannot "cancel, terminate or refuse to continue or renew any beer franchise, or cause a franchisee to resign from a franchise, unless good cause exists" for such action. Id. at § 203C. ⁶ In the event good cause is shown to exist, the franchisee must be given at least 180 days prior written notice before any action is taken "to terminate, cancel or nonrenew the franchise agreement." Id. at § 203D. ⁷ The notice must state all the reasons for the intended action. Id. If the franchisee cures any claimed deficiency within the 180 day notice period, the proposed termination, cancellation, or nonrenewal becomes "null and void and without legal effect." Id. ⁸

III

We now consider the questions certified to us for determination.

(1)

Whether the Maryland Beer Franchise Fair...