United Wholesale Liquor Co. v. Brown-Forman Distillers Corp.

• Decision Date: 17 May 1989
• Docket Number: BROWN-FORMAN,No. 17839,17839
• Parties: , 9 UCC Rep.Serv.2d 18 UNITED WHOLESALE LIQUOR COMPANY and Michael J. Chiordi, Plaintiffs-Appellants and Cross-Appellees, v.DISTILLERS CORPORATION, Brown-Forman Beverage Company, and Quality Import Company, Defendants-Appellees and Cross-Appellants.
• Court: New Mexico Supreme Court

Page 233

775 P.2d 233

108 N.M. 467, 9 UCC Rep.Serv.2d 18

UNITED WHOLESALE LIQUOR COMPANY and Michael J. Chiordi Plaintiffs-Appellants and Cross-Appellees, v. BROWN-FORMAN DISTILLERS CORPORATION, Brown-Forman Beverage Company, and Quality Import Company Defendants-Appellees and Cross-Appellants.

No. 17839.

Supreme Court of New Mexico.

May 17, 1989.

Rehearing Denied July 3, 1989.

[108 NM 468] James A. Branch, Jr., Albuquerque, for plaintiffs-appellants and cross-appellees.

Kemp, Smith, Duncan & Hammond, John P. Eastham, Celia F. Rankin, Albuquerque, Douglas W. Metz, Washington, D.C., Alice E. Herter, Santa Fe, for amicus curiae Wine & Spirits Wholesalers of America.

Eaves, Darling & Porter, P.A., John T. Porter, Albuquerque, for amicus curiae Quality Import Co.

OPINION

STOWERS, Justice.

Plaintiffs-appellants, United Wholesale Liquor Company (United) and Michael J. Chiordi, appeal from the judgment of the district court granting summary judgment in favor of defendants-appellees, Brown-Forman Distillers Corporation (Brown-Forman) and Quality Import Company (Quality), on the choice of law provision that Kentucky and not New Mexico law is controlling in this case. Brown-Forman and Quality cross-appeal the trial court's judgment granting partial summary judgment in favor of United on the issue of liability that Brown-Forman's decision to terminate United as its distributor did not constitute "good cause" under the New Mexico Alcohol Beverage Franchise Act (Franchise Act), NMSA 1978, Sections 60-8A-7 to -11 (Repl.Pamp.1987), if New Mexico law is applicable to this dispute. Since we affirm the district court on the choice of law question, we need not decide whether Brown-Forman's termination of United fell within the purview of NMSA 1978, Sections 60-8A-7 and -8.

Brown-Forman, a Delaware corporation with its principle place of business in Louisville, Kentucky, is engaged in the business of producing and supplying certain brands of alcoholic beverages to wholesalers. United, a New Mexico corporation with its principle place of business in Albuquerque, is a wholesaler of alcoholic beverages and is licensed to distribute products to retail outlets in New Mexico. On June 10, 1965, Brown-Forman entered into a distributor contract or franchise agreement with United in which United would distribute certain lines of Brown-Forman's products in northern New Mexico.

In 1983, United was to be sold to Star Corporation. Upon learning of this proposed sale, Brown-Forman entered into another distributor contract with United. In this agreement United's distribution territory was expanded to include the southern part of New Mexico and new lines of Brown-Forman products were specificed therein for distribution. The agreement also stated that Michael Chiordi remain with United as sales manager, that United add more sales staff, construct a new warehouse and increase its fleet of delivery trucks.

In 1986, Brown-Forman concluded that to remain competitive in the marketplace it had to consolidate its brands into one distributor in each state or large geographical area. In order to accomplish this goal Brown-Forman requested its three New Mexico wholesale distributors, United, Southwest Distributor and Quality, to make a presentation on their ability to market all Brown-Forman brands in New Mexico. The winner of the presentation was to become the sole distributor for Brown-Forman's entire line of products in New Mexico. After the presentation was held in June of 1987, Brown-Forman concluded that Quality had the most efficient operation and that all brands should be consolidated into that company. In a letter dated December 29, 1987, Brown-Forman informed United of its decision to terminate their franchise agreement, effective December 31, 1988.

As a result of this decision, United filed the present lawsuit alleging, among other things, that Brown-Forman's termination of the 1983 distributor contract was not for good cause and in good faith as required by Section 60-8A-7 and Section 60-8A-8 of the New Mexico Franchise Act. In moving for summary judgment, United argued that it was entitled to judgment as a matter of law on the issue of liability on the grounds that Brown-Forman violated the Franchise Act; that United had an implied-in-fact or quasi contract with Brown-Forman for the distribution of Bols and Garneau products from 1983 to the present; and, that Michael Chiordi had a quasi or constructive contract for the benefit of Brown-Forman. In its opposition motion and cross-motion for summary judgment, Brown-Forman claimed that since the contracts had to be construed by the laws of Kentucky, it had the right to terminate the contracts as it did; that even if New Mexico law applied, the Franchise Act, which was to be applied prospectively, was inapplicable to the Bols and Garneau products; that the termination of the franchise was for good cause and in good faith; and all the remaining claims were invalid. From the judgment of the district court granting summary judgment in favor of Brown-Forman on the conflicts of law issue, and also granting partial summary judgment in favor of United on the issue of its termination by Brown-Forman under New Mexico law, all parties appeal to this court.

The appeal involves the same issues set forth by all parties in their motions for summary judgment. Since we conclude that the dispositive issue in this case is the choice of law question, we need not decide the other issues raised.

The terms of the distributor agreement between Brown-Forman and United are set forth in the written contracts of June 10, 1965, and April 19, 1983. These agreements provide in paragraph eighteen that the contract is to be construed according to the laws of Kentucky. They further provide for a ninety-day written notice to be given by either party to cancel the contract without cause. And in the event the contracts are terminated by Brown-Forman with notice, United is entitled to compensation as set forth in paragraph thirteen.

United claims that the New Mexico Uniform Commercial Code (UCC) provision, NMSA 1978, Section 55-1-105 (Orig.Pamp. and Cum.Supp.1988), is not the proper choice of law rule in the present case. Further, United maintains that enforcement of paragraph eighteen and application of Kentucky law defeats the purpose of the Franchise Act and violates the public policy of New Mexico. Brown-Forman in its cross-appeal argues that the application of Kentucky law respects the parties' choice of law, upholds New Mexico's strong public policy of freedom to contract and is not violative of the Franchise Act. We agree with the position of Brown-Forman.

New Mexico adheres to a traditional conflicts of law analysis contained in Restatement (First) of Conflicts of Law (1934). See Ratzlaff v. Seven Bar Flying Service, Inc., 98 N.M. 159, 162, 646 P.2d 586, 589 (Ct.App.), cert. denied, 98 N.M. 336, 648 P.2d 794 (1982). Under a traditional conflict of laws approach, the court must first determine under what area of law the dispute arises. Id.

United argues that a distributor agreement is contractual in nature, and therefore, governed by the laws of contracts. Brown-Forman, on the other hand, argues that distributor contracts are really contracts for sale and governed by Article 2 of the UCC. There are no New Mexico cases on point that state these contracts are within the purview of the UCC. Section 55-2-106(1) of the UCC defines a contract for sale to include both a present sale of goods and a contract to sell goods at a future time and states that a sale consists in the passage of title from the seller to the buyer for a price. A majority of the jurisdictions that have looked at this issue, however, have concluded that a distributor contract is subject to...