Specialty Bev. V. Va. Alc. Bev. Control

• Decision Date: 22 January 2008
• Docket Number: Record No. 0026-07-2.
• Citation: 51 Va. App. 154,655 S.E.2d 740
• Parties: SPECIALTY BEVERAGE COMPANY, INC. v. VIRGINIA ALCOHOLIC BEVERAGE CONTROL BOARD and Breckenridge Brewery of Colorado, LLC.
• Court: Virginia Court of Appeals

655 S.E.2d 740

51 Va. App. 154

SPECIALTY BEVERAGE COMPANY, INC. v. VIRGINIA ALCOHOLIC BEVERAGE CONTROL BOARD and Breckenridge Brewery of Colorado, LLC.

Record No. 0026-07-2.

Court of Appeals of Virginia, Richmond.

January 22, 2008.

Mark C. Shuford (Megan B. Larkin; Kaufman & Canoles, P.C., on briefs), for appellant.

K. Michelle Welch, Assistant Attorney General (Robert F. McDonnell, Attorney General; Frank S. Ferguson, Deputy Attorney General, on brief), for appellee Virginia Alcoholic Beverage Control Board.

(Kimberley Ann Murphy; Hale Carlson Penn, PLC, on brief), for appellee Breckenridge Brewery of Colorado, LLC. Appellee Breckenridge Brewery of Colorado, LLC submitting on brief.

Present: FRANK and CLEMENTS, JJ. and COLEMAN, S.J.

CLEMENTS, Judge.

This appeal arises from an order of the Circuit Court of the City of Richmond (circuit court) affirming the decision of the Alcoholic Beverage Control Board (ABC Board) that the distributor agreement between Specialty Beverage Company Inc. (Specialty Beverage) and Breckenridge Brewery of Colorado, LLC (Breckenridge) was terminated under the Beer Franchise Act, Code §§ 4.1-500 to 4.1-517, upon Specialty Beverage's failure to timely file a cure letter or request a hearing on the issue of good cause in response to Breckenridge's notice of its intent to terminate the distributor agreement. On appeal, Specialty Beverage contends the circuit court erred in affirming the ABC Board's rulings that (1) Breckenridge's notice of intent to terminate was sufficient to trigger a termination under the Beer Franchise Act and (2) Specialty Beverage's timely written response to that notice of intent to terminate did not constitute a valid notice of cure under the Beer Franchise Act. Holding that Breckenridge's notice of intent to terminate was insufficient, as a matter of law, to trigger the termination of the distributor agreement, we reverse the circuit court's judgment and remand the case for further proceedings.

I. BACKGROUND

The facts relevant to this appeal are not in dispute. Specialty Beverage, a "distributor" and "wholesaler" as those terms are defined in Code § 4.1-500, and Breckenridge, a "brewery," as that term is defined in Code § 4.1-500, entered into a distributor agreement on November 26, 1996, giving Specialty Beverage the exclusive right to distribute Breckenridge beer in certain designated sales territories in Virginia. However, by letter dated February 13, 2006, Breckenridge notified Specialty Beverage and the ABC Board of its intent to terminate the November 26, 1996 distributor agreement in accordance with Code § 4.1-506. The letter identified the following reasons for the termination:

Specialty Beverage has consistently failed to meet the performance standards under Section 11 of the Distributor Agreement,¹ and repeatedly failed to timely pay monies due Breckenridge. In addition, Specialty Beverage has failed to operate its business in accordance with the operating standards set forth in Section 6 of the Distributor Agreement,² even after market visits by our staff and receiving notice of such deficiencies from Breckenridge.

(Footnotes added.) No other reasons for the termination were given, and no further details of the referenced deficiencies were provided. Moreover, nothing in or with the letter showed what specific deficiencies, if any, Specialty Beverage had previously received notice of from Breckenridge.

In a letter dated February 21, 2006, Specialty Beverage notified Breckenridge that, because Breckenridge's February 13, 2006 letter did not "identif[y] any specific condition or conditions for [Specialty Beverage] to rectify," Specialty Beverage did not accept the letter as a valid notice of termination under Code § 4.1-506. Specialty Beverage also denied Breckenridge's assertions that Specialty Beverage had failed to comply with the distributor agreement and that Specialty Beverage had received previous notice from Breckenridge of any such failings:

At all times, Specialty Beverage has conformed with all of the performance standards set forth in the Distributor Agreement and it has otherwise fully complied with the terms of that agreement, including, but not limited to, the timely payment of all funds due Breckenridge. Contrary to the last sentence of the second paragraph of your letter, we have not received any formal or information notices of deficiencies from Breckenridge.

Neither Specialty Beverage nor Breckenridge requested a hearing before the ABC Board at that time. By letter dated May 17, 2006, the ABC Board notified Breckenridge and Specialty Beverage that, because Specialty Beverage "failed to request a hearing to determine whether good cause exist[ed] for the termination within the requisite 90 days," the distributor agreement between Breckenridge and Specialty Beverage was terminated and Breckenridge could appoint another Virginia distributor for its beer.

On May 31, 2006, Specialty Beverage wrote to the ABC Board asking it to retract its decision that the distributor agreement was terminated. By letter dated June 14, 2006, the ABC Board denied Specialty Beverage's request, reasoning that its decision was correct because Specialty Beverage neither timely requested "a hearing on the issue of good cause for the termination" nor timely provided "notice to Breckenridge that [the] conditions providing cause for the termination [were] rectified" by Specialty Beverage. Referring to Specialty Beverage's February 21, 2006 letter, the ABC Board further explained:

Your letter to Breckenridge put them on notice that you felt their notice was insufficient and you did not believe that Specialty [Beverage] was responsible for any material deficiency in its performance under the distribution agreement. Under these circumstances, a request for a hearing on the issue of good cause within the 90-day notice period would have been appropriate, and if one had been received, the matter would have been referred for hearing. However, your letter did not request such a hearing, nor did it indicate any corrective action which would have shifted the burden to request a hearing to Breckenridge.

Therefore, we are not retracting our May 17, 2006 letter on this matter.

Specialty Beverage appealed the ABC Board's decision to the circuit court, arguing (1) that Breckenridge's February 13, 2006 letter was not sufficient to trigger the termination of the distributor agreement because it failed to identify any specific performance or operating standards that Specialty Beverage had allegedly violated and (2) that, even if the February 13, 2006 letter was a valid notice of intent to terminate, Specialty Beverage's February 21, 2006 letter constituted a valid notice of cure under Code § 4.1-506. After hearing argument on the matter, the circuit court rejected Specialty Beverage's arguments and affirmed the ABC Board's decision. The court held that the distributor agreement between Specialty Beverage and Breckenridge was terminated under the Beer Franchise Act because Specialty Beverage neither timely filed a cure letter nor timely requested a hearing before the ABC Board to determine whether there was good cause to terminate the distributor agreement. In reaching that conclusion, the court initially stated that it agreed with Specialty Beverage that Breckenridge's February 13, 2006 notice of intent to terminate "contained merely conclusions to which [Specialty Beverage] could not intelligently respond for corrective action." Nevertheless, the court went on to state that Specialty Beverage's February 21, 2006 letter "was not a cure letter" under Code § 4.1-506(B) and that Specialty Beverage should have "demand[ed] a hearing before the [ABC] Board under ... Code § 4.1-506(C) on the basis that Breckenridge was attempting to terminate without good cause." The court concluded that, because Specialty Beverage failed to request such a hearing, the distributor agreement terminated ninety days after Breckenridge notified Specialty Beverage and the ABC Board of its intent to terminate the agreement.

This appeal by Specialty Beverage followed.

II. ANALYSIS

On appeal, Specialty Beverage first contends Breckenridge's February 13, 2006 letter notifying Specialty Beverage of its intent to terminate the distributor agreement was insufficient, as a matter of law, to constitute a valid notice of intent to terminate under the Beer Franchise Act because it failed to identify any specific deficiencies that Specialty Beverage needed to rectify to reestablish its compliance with the agreement. The letter's general, conclusory accusations were insufficient, Specialty Beverage argues, to render the letter a proper notice under Code § 4.1-506(A). Thus, Specialty Beverage concludes, the circuit court erred in upholding the ABC Board's decision that Breckenridge's February 13, 2006 letter was sufficient to trigger the termination of the distributor agreement.

In response, Breckenridge and the ABC Board contend the circuit court and the ABC Board correctly concluded that Breckenridge's February 13, 2006 letter constituted a valid notice of intent to terminate under the Beer Franchise Act and was thus sufficient to trigger the termination of the distributor agreement. Breckenridge and the ABC Board argue that, if Specialty Beverage believed Breckenridge's February 13, 2006 letter was legally flawed, it should have requested a hearing under Code § 4.1-506(C) to compel Breckenridge to show good cause for the termination. Because Specialty Beverage failed to request such a hearing, the termination was valid, Breckenridge and the ABC Board conclude. We disagree with Breckenridge and the ABC Board.

The question before us—whether Breckenridge's February 13, 2006 notice of intent to terminate the distributor agreement with Specialty Beverage was legally sufficient to trigger the termination of the distributor agreement—involves an issue of statutory interpretation requiring us to examine...