In re Globe Distributors, Inc.

• Decision Date: 13 May 1991
• Docket Number: Bankruptcy No. 88-807,Adv. No. 88-97.
• Citation: 129 BR 304
• Parties: In re GLOBE DISTRIBUTORS, INC., Debtor. GLOBE DISTRIBUTORS, INC., Plaintiff, v. ADOLPH COORS COMPANY, Defendant.
• Court: U.S. Bankruptcy Court — District of New Hampshire

129 B.R. 304 (1991)

In re GLOBE DISTRIBUTORS, INC., Debtor GLOBE DISTRIBUTORS, INC., Plaintiff, v. ADOLPH COORS COMPANY, Defendant.

Bankruptcy No. 88-807, Adv. No. 88-97.

United States Bankruptcy Court, D. New Hampshire.

May 13, 1991.

William S. Gannon, Wadleigh, Starr Offices, Manchester, N.H., for Globe Distributors, Inc.

Peter Mosseau, Orr and Reno, Concord, N.H., for Adolph Coors Co.

Dennis Bezanson, South Portland, Me., Trustee.

MEMORANDUM OPINION

JAMES E. YACOS, Bankruptcy Judge.

This adversary proceeding involves the alleged wrongful termination of a New Hampshire beer distributor by the Adolph Coors Company. The distributor is no longer in business and is a debtor in this court. After deciding some preliminary motions, the Court held a trial from October 15-19, 1990, and heard oral arguments on October 25, 1990.¹ Due to the extensive factual and legal issues involved in this case, I took the matter under submission upon completion of post-trial briefing on December 28, 1990.

Coors terminated Globe as its distributor on October 18, 1988 without any prior notice. Upon the evidence submitted at trial Coors sought to justify the termination without notice upon the ground of "insolvency" and the ground of "non-payment of any account due" under the provisions of Article III(1) of the Distribution Agreement between the parties. Article III(1) does provide for a termination without notice for various egregious events involving the distributor, including among other things violation of laws and regulations, conviction of a felony, and revocation of license. This provision is to be distinguished from Article IX(2) of the Distributorship Agreement which provides for termination upon breach or a default in any term or condition of the agreement upon written advance notice during which the distributor "shall have a period of not more than 90 days from receipt of such notice to correct such breach or default to Coors' satisfaction."

As will be developed later in this opinion, the evidence submitted by Coors at the trial fell far short of establishing "insolvency" in the asset-liability sense appropriate for an egregious event justifying termination without notice under an appropriate construction of the agreement between the parties. Moreover, the evidence supports a finding that Coors had no information prior to October 18, 1988 which would have justified a reasonable belief that Globe was insolvent in the asset-liability sense. Accordingly, the primary issue for decision by this Court, as actually presented by the evidence in the record, is whether the "non-payment of any account due" ground asserted by Coors was well taken and was legally sufficient to justify termination without notice. There are additional issues regarding waiver and estoppel, and alternative causes of action asserted by Globe, which also will be considered.

STATEMENT OF FACTS

Globe Distributors, Inc. ("Globe") was a beer distributor located in Manchester, New Hampshire. Its sales territory covered approximately one-third of the state of New Hampshire, principally in the south and west, being the most populous part of the state. The company's stock was owned by Alphonse Vitale (91 percent) and Robert MacKnight (9 percent). Although Globe owned many of the assets it used for its business, it leased its warehouse from Vitale. In 1982, the company had $6 million in annual sales, which was comprised of about 650,000 cases of beer. Globe sold Schlitz and a few imports.

On October 25, 1985, Globe entered into a five year agreement with the Adolph Coors Company ("Coors") to distribute Coors beer. Its sales instantly more than doubled. To be a Coors distributor, however, Globe had to invest approximately $1.1 million in installing a refrigerated cooler, insulating trucks, and buying special forklifts. Most of these changes were required by Coors because Coors believed its products needed to be refrigerated to enhance quality. Coors is unique among brewers in requiring that its distributors have refrigerated warehouse storage facilities.

By the spring of 1988, Globe had annual sales of close to $20 million, which comprised about 2,000,000 cases, 1.2 million of which were Coors. At this time, Globe was considered a very good distributor by Coors in terms of market penetration. Globe had achieved a ranking varying between second and third among distributors of Coors beer in the Boston area marketing region.

In the summer of 1988, Globe experienced a cash flow problem.² The problem proved to be highly ironic, in light of subsequent developments, since it arose primarily from Globe taking advantage of an opportunity to sell considerably more Coors beer in its area due to a strike by employees at the Miller beer distributorship. Globe ordered and sold much more Coors beer during the strike. However, due to a quirk in the computerized billing system employed by Coors, the credit terms for Globe to pay for the beer supplies actually were severely curtailed rather than increased due to the low inventories that Globe was showing in its daily reports to Coors. The low inventories were showing because the beer was coming in and going out of its facility so quickly. Moreover, at about the same time, Coors revised its shipment method with regard to beer supplies which had the effect of causing Globe to buy an extra weeks inventory at a cost of about $300,000, at a time when the Miller strike was being settled and therefore caused a slowdown in the stepped-up Coors' sales. The summer was the busiest selling season so cash was already short, due to advance purchasing, and receivables were high.

Globe did not have sufficient working capital, i.e. "turn-around" monies available directly, or by a line of credit, sufficient to cover immediately the cash flow problems summarized above. Amoskeag Bank, its lender under a line of credit, would not increase the existing line of credit since it had indicated earlier in 1988 that it wanted Globe to obtain an alternative bank lending facility.

Consequently, Vitale called Dan Brown, the Coors' Credit Manager, on July 29, 1988 and alerted him to the problem. Brown granted Vitale's request to extend credit terms of the $642,069.97 that could not be immediately paid, to August 15th and August 22nd, but Globe couldn't make all of the payments projected. It was apparent to both Coors and Globe at this point that Globe's cash flow projections were proving unreliable and a Coors' employee named Nancy Mammorella, who was at Globe's facility at the time, was assigned the task of working-up more reliable figures. She was the Manager of Distributor Economics for Coors and assisted distributors in trying to be more profitable. In mid-August, she constructed a cash flow analysis that would help Globe pay its beer debt in a timely fashion while staying current on new invoices. The analysis scheduled payments on the remaining balance of the debt to be completed by September 20, 1988.

Vitale and Globe's accountant, Kevin Howe, agreed to the repayment schedule reflected in the analysis after a rather quick and sketchy review and one correction. As it turned out, there were significant errors in the analysis, including a substantial error in the beginning cash balance. The parties understood the analysis was subject to change depending on the realities of Globe's business. Consequently, Globe made some but not all payments according to schedule by September 20, 1988. On that date, the original $640,000 balance had been reduced to approximately $200,000 and Globe was current on payments for all other beer ordered during the interim.

Coors asked to have a meeting on September 30th primarily because a Coors' employee in New Hampshire noticed a foreclosure notice on the warehouse, which was owned individually by Vitale, but also because Coors wanted to clean up the debt. Between September 20th and 30th, Globe continued to make payments on the outstanding debt which Coors accepted.

At the September 30th meeting, Globe's attorney, William Tucker, explained that the foreclosure would be delayed. Globe's accountant, Howe, then stated business was as usual, but Globe's bank wanted them to find a new lender and Globe was optimistic that Indian Head Bank would refinance based on initial conversations. Globe asked for help from the Distributor Economics Group, which was scheduled to come in shortly, but Coors refused at this time. Coors suggested that Vitale put more capital into the business and Vitale agreed. Globe also suggested all of their financial problems could be solved by selling off the Keene, New Hampshire portion of its territory. Globe said it would start talking to potential buyers. In addition, Globe mentioned that it might sell the entire business, but this was to be strictly a last resort. Finally, Globe mentioned the possibility of finding an equity investor.

At no time during the September 30th meeting did Coors make a demand for payment of the outstanding debt in the sense of establishing a deadline for repayment beyond which Coors would be free to terminate the distributorship without any further notice. The Coors' representatives did make it abundantly clear that they were concerned about the continuing inability to clean-up the remaining balance on that debt and that they wanted their money. However, by this time Coors was at least equally concerned about the foreclosure situation with regard to the warehouse and Globe's and Vitale's other financial problems as opposed to the question of the relatively minor remaining balance on the outstanding debt.

Internal analysis by Coors' personnel on September 27, 1988 had indicated that the sales trends with regard to the Globe operation were "encouraging" but that Globe needed "to capitalize on this by cutting expenses" and that Globe "could be a very viable business if expenses were brought under tighter control and their bank support could be strengthened." At the...