Premier Wine & Spirits v. E. & J. Gallo Winery

• Decision Date: 03 June 1988
• Docket Number: No. 86-15043,86-15043
• Citation: 846 F.2d 537
• Parties: PREMIER WINE & SPIRITS, a South Dakota corporation, Plaintiff-Appellant, v. E. & J. GALLO WINERY, a California corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 537

846 F.2d 537

PREMIER WINE & SPIRITS, a South Dakota corporation Plaintiff-Appellant, v. E. & J. GALLO WINERY, a California corporation, Defendant-Appellee.

No. 86-15043.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 15, 1987.

Decided May 9, 1988.

As Modified June 3, 1988.

Thomas J. Welk and Michael S. McKnight, Boyce, Murphy, McDowell & Greenfield, Sioux Falls, S.D., for plaintiff-appellant.

G. Kip Edwards (argued) and Matthew D. Powers of Orrick, Herrington & Sutcliffe, San Francisco, Cal., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of California.

Before FLETCHER, WIGGINS and NOONAN, Circuit Judges.

NOONAN, Circuit Judge:

Premier Wine & Spirits (Premier), a South Dakota corporation, brought suit against E. & J. Gallo Winery (Gallo), a California corporation. Jurisdiction depended on diversity of citizenship. The suit was originally brought in South Dakota and transferred to the Eastern District of California pursuant to a provision in the contract between Premier and Gallo. Premier claimed breach of the implied covenant of good faith and fair dealing, wrongful termination of its distributorship by Gallo, violation of the California Franchise Investment Law, the California Franchise Relations Act, and the South Dakota Franchise Act, and breach of fiduciary duty by Gallo; it further contended that the termination clause in the distributorship agreement was unconscionable. The district court gave summary judgment for Gallo. 644 F.Supp. 1431. We affirm.

FACTS

Premier is a wholesaler of liquor in South Dakota with annual sales as of 1983 in excess of $8 million. Gallo is a producer of wines which are nationally distributed. Beginning in 1959 Gallo agreed that Premier should distribute its wines in South Dakota. The agreement at issue here was entered into on October 17, 1977. It provided for Premier to distribute Gallo's Muscatel, White Port, Port, Sherry, Cream Sherry, CPD Sherry, O.D. Tawny Port, O.D. Livingston Cream Sherry, O.D. Very Dry Sherry, Thunderbird, Sweet Vermouth, Dry Vermouth, Ruby Cabernet, Barbera, Zinfandel, Sauvignon Blanc, Riesling, Chenin Blanc, French Colombard, Rose, Burgundy, Hearty Burgundy, Sauterne, Rhine, Chablis Blanc, Pink Chablis, Red Rose, Vin Rose, Rhine Garten, Chianti of California, Paisano; Carlo Rossi Burgundy, Chablis, Pink Chablis, Vin Rose, Light Chianti, Spanada, Tyrolia, Madria-Madria Sangria, Pear Ripple, Red Ripple, Pagan Pink Ripple; Boone's Farm Apple, Strawberry Hill, Country Kwencher, Tickle Pink, Wild Mountain; Andre de Montcort Sparkling Burgundy, Cold Duck, White Champagne, Pink Champagne; and E & J Brandy. The wines were to be distributed in South Dakota from Aurora to Zieback. Premier was not bound to carry only Gallo wines, and Gallo was not bound to Premier as its exclusive distributor.

The agreement--apart from the wines and locations a standard form agreement prepared by Gallo--set out that the contract was "personal in nature," "not assignable" and terminable by either party's giving 30 days advance written notice. Gallo was further permitted to terminate "immediately" if there was "any change whatsoever in ownership or management of Premier." The contract said that it "set forth the entire agreement of the parties" and that no oral agreement could vary any term. It was entered into under the laws of California and to "be construed thereunder." Any cause of action arising between the parties "under this agreement or otherwise" was to be brought only in a court having jurisdiction over Gallo and with the venue of Modesto, California.

In November 1980, Premier hired a merchandise manager for the Gallo line alone and replaced him in 1981 with Shane Viger to perform the same function; in 1982 Premier hired a wine restaurant manager to promote the Gallo line alone in sales to restaurants. These employees of Premier were hired at Gallo's request.

In 1977 Premier entered into a consent order with the state of South Dakota by which it bound itself not to give "kickbacks" to retailers. Wholesalers sometimes arrange the wines of retailers, a practice known as "setting," not without benefit to the arranging wholesaler. At that time Premier did not understand that the term kickback embraced the practice of setting the premises of a retailer. On March 24, 1982 a directive from the office of the Attorney General and the South Dakota Department of Revenue informed liquor wholesalers in South Dakota that stocking shelves on behalf of a retailer constituted "the offering of something of financial value to induce the sale of an alcoholic beverage." If this practice were done "for the purpose of illegally inducing the purchase of a certain wholesaler's products," the wholesalers were informed, it could be punished by revocation of the wholesale license. According to affidavits of Gary Viger and other Premier employees, Gallo sought to have Premier set shelves in violation of the directive and therefore in apparent violation of the consent order.

In 1983 Chester Matteson, the president of Premier in 1977 and the signatory on the 1977 agreement, sold all his stock in Premier. In 1984 Gallo gave Premier a written notice of termination in 30 days, noting that it could also have terminated immediately. Thereafter, Gallo products formerly distributed by Premier were distributed by Famous Brands Distributing Co. Premier began distributing Inglenook Wines on behalf of Hublein and continued to distribute the wines of Paul Masson and Taylor California Cellars that it had carried even before the termination.

The current president of Premier, Gary Viger, testified in a deposition that it was his opinion that Gallo discontinued Premier because it wanted to be with Famous Brands, that the principal of Famous Brands was a close friend of the Gallos, and that he was unaware of any other reason for Gallo's decision to move from Premier to Famous Brands. John R. McDowell, Premier's general counsel, and an officer, director and shareholder of Premier since 1963, also testified that he believed Premier was terminated because of Gallo's desire to do business with Famous Brands; he added that there was a lack of harmony between Viger and the Gallo representatives. Chester Matteson testified that he believed the termination occurred...