Pabst Brewing Co. v. Frederick P. Winner, Ltd.

• Decision Date: 25 March 2022
• Docket Number: 8, September Term, 2021
• Citation: 478 Md. 61,272 A.3d 324
• Parties: PABST BREWING COMPANY v. FREDERICK P. WINNER, LTD.
• Court: Court of Special Appeals of Maryland

478 Md. 61

272 A.3d 324

PABST BREWING COMPANY

v.FREDERICK P. WINNER, LTD.

No. 8, September Term, 2021

Court of Appeals of Maryland.

March 25, 2022

Argued by Paul W. Hughes (Michael S. Nadel, McDermott Will & Emery LLP, Washington, DC), on brief, for Petitioner

Argued by Robert S. Brennen (Erinn M. Maguire, Miles & Stockbridge, P.C., Baltimore, MD), on brief, for Respondent

Argued before: Getty, C.J., ^* McDonald, Watts, Hotten, Booth, Biran, Alan M. Wilner (Senior Judge, Specially Assigned), JJ.

Biran, J. Beer and other alcoholic beverages are among the most highly regulated products sold in Maryland. As stated in the Alcoholic Beverages Article of the Maryland Code, "[t]o obtain respect and obedience to law and to foster and promote temperance, it is the policy of the State to regulate and control: (1) the manufacture, sale, distribution, and storage of alcoholic beverages in the State; and (2) the transportation and distribution of alcoholic beverages into and out of the State." Md. Code Ann., Alco. Bev. ("AB") § 1-201(a)(1)(i).¹ Indeed, the General Assembly has authorized "the exercise of the powers provided by [the Alcoholic Beverages Article] to displace or limit economic competition by regulating ... the sale or distribution of alcoholic beverages." Id. § 1-201(b)(1).

One such regulation restricts the ability of a beer manufacturer to terminate its contractual relationship with an entity that distributes its beer brand(s) in Maryland. In general, a beer manufacturer may not terminate or refuse to renew a contract with a distributor without cause. An exception exists where a "successor beer manufacturer" inherits a contract between a beer brand's previous manufacturer and the brand's distributor. Although a successor beer manufacturer is obligated under the terms of the pre-existing contract, the successor beer manufacturer may elect to terminate the contract without cause, in which case the distributor is entitled to receive the fair market value of the terminated distribution rights. In this case, we must decide who qualifies as a "successor beer manufacturer" under the pertinent Maryland statute, which is known as the Successor Manufacturers Law (the "SML"). See AB § 5-201.

Pabst Brewing Company ("Pabst"), the Petitioner in this case, is one of the oldest beer manufacturers in the United States. Beginning in 1994, Pabst maintained a contractual relationship for more than 20 years with Respondent Frederick P. Winner, Ltd. ("Winner"), under which Winner and its predecessor entity distributed Pabst beer brands in Maryland. In 2014, Blue Ribbon, LLC ("Blue Ribbon") purchased 100 percent of the stock of Pabst's parent entity. In 2015, Pabst terminated its contract with Winner. Pabst claimed that Winner's termination was permitted under the SML. Winner disputed that contention, and sued Pabst in the Circuit Court for Baltimore County. The circuit court agreed with Pabst that Blue Ribbon was a successor beer manufacturer under the SML, and that Blue Ribbon therefore was permitted to cause Pabst to terminate its contract with Winner without cause.

The Court of Special Appeals disagreed with the circuit court's reading of the SML, as do we. As discussed below, the SML applies only where the beer manufacturer that holds a Maryland license or permit to sell, distribute, or import a brand of beer is replaced by another as the license holder with respect to that brand. In this case, Pabst held the pertinent Maryland permit both before and after Blue Ribbon acquired Pabst's parent entity. Thus, neither Blue Ribbon, nor any person or entity affiliated with Blue Ribbon, qualifies as a successor beer manufacturer, and Pabst therefore did not have the right to terminate its contract with Winner without cause.

IBackground

A. The Statutory Scheme

The General Assembly has created a multi-tier system for the sale of beer and other alcoholic beverages in Maryland. Manufacturers sell to wholesalers (also referred to as distributors), who sell to retailers, who sell to consumers. Manufacturers, wholesalers, and retailers all must hold government-issued licenses or permits. See, e.g. , AB § 2-124(b)(1) & (d) (non-resident dealer's permit may be issued to a manufacturer, which allows the manufacturer to "sell beer ... to license holders authorized to receive the beverages"); id. § 2-302 (Class 1 beer, wine, and liquor wholesaler's license); id. §§ 9-601(b) (Class A beer license for retail sale in Allegany County) & 11-901(b) (Class A beer, wine, and liquor license for retail sale in Anne Arundel County).

The Maryland Beer Franchise Fair Dealing Act ("BFFDA") governs beer franchise agreements between manufacturers and distributors. See id. § 5-101 et seq . A "beer franchise agreement" is defined, among other things, as "a relationship in which a beer manufacturer grants a beer distributor the right to offer and sell the brands of beer offered by the beer manufacturer." Id. § 5-101(c)(2) (Supp. 2021).

The BFFDA promotes temperance and respect for the laws that control the distribution and sale of beer by among other things: (1) prohibiting beer manufacturers from inducing or coercing beer distributors to accept delivery of alcoholic beverages the distributors did not order, or to perform illegal acts, id. § 5-104; (2) limiting the number of franchisees in a sales territory, id. § 5-105; and (3) prohibiting a franchisor from terminating or refusing to continue or renew a beer franchise agreement without good cause, id. § 5-108 (Supp. 2021). The General Assembly concluded that, without these protections, a manufacturer could induce or coerce its distributor to unduly stimulate beer sales and consumption by threatening its distribution rights. Id . § 5-103(b).

In 1990, the General Assembly enacted the SML. See 1990 Md. Laws, ch. 281. The current version of the SML defines both a "[b]eer manufacturer" and a "[s]uccessor beer manufacturer." AB § 5-201(a)(3) & (a)(5). A " ‘[b]eer manufacturer’ means: (i) a brewer, fermenter, processor, bottler, or packager of beer located in or outside the State; or (ii) a person located in or outside the State that enters into an agreement with a beer wholesaler doing business in the State." Id . § 5-201(a)(3). A " ‘[s]uccessor beer manufacturer’ includes a person or license holder who replaces a beer manufacturer with the right to sell, distribute, or import a brand of beer." Id . § 5-201(a)(5).

Under the SML, "[e]xcept for the discontinuance of a brand of beer or for good cause shown as provided under § 5-108 of this title, a successor beer manufacturer that continues in the business is obligated under all the terms and conditions of the agreement made between the previous beer manufacturer and the existing beer wholesaler that were in effect on the date of change of beer manufacturers." Id. § 5-201(b). If a successor beer manufacturer "terminates any agreement provision required to be continued under subsection (b) of this section," the successor beer manufacturer "shall remunerate the beer wholesaler a sum equal to the fair market value for the sale of the subject brand or brands of beer calculated from the date of termination." Id. § 5-201(c).

The SML additionally provides that, before a successor beer manufacturer may terminate an agreement with a beer wholesaler "and designate another beer wholesaler to replace the existing beer wholesaler, the successor beer manufacturer shall give notice of termination to the beer wholesaler to be replaced." Id. § 5-201(d)(1). On receipt of the notice, "the beer wholesaler to be replaced and the designated beer wholesaler shall negotiate in good faith to determine the fair market value of the affected distribution rights." Id. § 5-201(d)(2). "Fair market value" is defined as "the price at which an asset would change hands between a willing seller and a willing buyer when neither is acting under any compulsion and when both have knowledge of all of the relevant facts." Id. § 5-201(a)(4).

If an agreement is reached, "the designated beer wholesaler promptly shall pay the fair market value as compensation to the beer wholesaler to be replaced." Id. § 5-201(d)(3). If an agreement is not reached within 30 days after the beer wholesaler to be replaced receives notice, "the designated beer wholesaler and the beer wholesaler to be replaced shall enter into nonbinding mediation." Id. § 5-201(d)(4). And if an agreement is not reached within 45 days after mediation begins, "the beer wholesaler to be replaced shall within 90 days bring an action in a court of general jurisdiction against a successor beer manufacturer to determine and award fair market value of the terminated brand or brands." Id. § 5-201(d)(5).

Until a resolution regarding the fair market value of the terminated distribution rights for the brand or brands is reached under subsection (d), and the beer wholesaler to be replaced has received payment for that fair market value, "the beer wholesaler to be replaced and the successor beer manufacturer shall support the brand to at least the same extent that the brand had been previously supported immediately before the successor beer manufacturer acquired rights to the brand" and "the beer wholesaler to be replaced shall continue to distribute the brand." Id. § 5-201(e).

B. The Relationship and Dispute Between Pabst and Winner

Pabst currently is a Delaware limited liability company with its principal place of business in San Antonio, Texas. Pabst's roots in the beer business go back to 1844. Today, Pabst's brands include Pabst Blue Ribbon, National Bohemian, Stroh's, Old Milwaukee, and Colt 45. Winner, doing business as Chesapeake Beverage, is a Delaware corporation with its principal place of business in Baltimore County, Maryland.

In 1994, Pabst and Winner's predecessor entity entered into a "distributorship agreement" (the "1994 Agreement"). On April 30, 2014, Pabst and Winner entered into a new "distributor agreement" (the "2014 Agreement"), which replaced the 1994 Agre...