VIRGINIA IMPORTS v. KIRIN BREW. OF AMERICA

• Decision Date: 16 December 2003
• Docket Number: Record No. 2751-02-4.
• Citation: 589 S.E.2d 470,41 Va. App. 806
• Parties: VIRGINIA IMPORTS LIMITED v. KIRIN BREWERY OF AMERICA, LLC.
• Court: Virginia Court of Appeals

589 S.E.2d 470

41 Va. App. 806

VIRGINIA IMPORTS LIMITED v. KIRIN BREWERY OF AMERICA, LLC.

Record No. 2751-02-4.

Court of Appeals of Virginia, Alexandria.

December 16, 2003.

Walter A. Marston, Jr., Richmond (George E. Kostel, Falls Church; Megan O. Barry; Reed Smith, LLP, Richmond, on briefs), for appellant.

Warwick R. Furr, II, Tampa, FL (David S. Black, McLean; Richard M. Blau; Elizabeth A. DeConti; Holland & Knight, LLP, Tampa, FL, on brief), for appellee.

Present: FITZPATRICK, C.J., ANNUNZIATA and CLEMENTS, JJ.

JEAN HARRISON CLEMENTS, Judge.

This appeal arises from an order of the Circuit Court of Fairfax County (circuit court) reversing the ruling by the Alcoholic Beverage Control Board (ABC Board) that Kirin Brewery of America, LLC (Kirin) violated the Beer Franchise Act, Code §§ 4.1-500 to 4.1-517, a part of the Alcoholic Beverage Control Act, in terminating its distributorship agreement with Virginia Imports Limited (Virginia Imports). Virginia Imports challenges the circuit court's reversal of the ABC Board's decision, contending the circuit court erred in determining (1) that, because Virginia Imports did not timely notify the ABC Board under Code § 4.1-506(B) that it was attempting to cure the deficiencies identified by Kirin as grounds for terminating the distributorship agreement and did not timely request a hearing under Code § 4.1-506(D), the ABC Board did not have authority to hold hearings and render a decision in this case and (2) that, even if the ABC Board were authorized to adjudicate the dispute between Kirin and Virginia Imports, the evidence in the record was insufficient to support the ABC Board's findings that Kirin lacked good cause to terminate the agreement and acted in bad faith in doing so. For the reasons that follow, we affirm the circuit court's judgment in part, reverse the circuit court's judgment in part, and remand the case for further proceedings.

I. BACKGROUND

Kirin, a "brewery," as that term is defined in Code § 4.1-500, and Virginia Imports, a "distributor," as that term is defined in Code § 4.1-500, had a long-standing distributorship agreement giving Virginia Imports the exclusive right to distribute particular brands of Kirin beer in certain designated sales territories in Virginia.¹ However, by letter dated August 3, 1999, Kirin notified Virginia Imports and the ABC Board of its intent to terminate the distributorship agreement in accordance with Code § 4.1-506. That termination letter, which Virginia Imports received on or about August 5, 1999, specifically identified several reasons for the termination that had been previously raised by Kirin in earlier letters to Virginia Imports. Those reasons included Virginia Imports' failure to remove stale beer from retail stores in conformance with Kirin's freshness policy; Virginia Imports' unauthorized sales of Kirin beer outside its designated sales territories and of Kirin brands not assigned to it; and Virginia Imports' failure "to invest in the Kirin brands," "monitor pricing data on competitors' products," "keep chain store reports," and "to commit part of [its] truck fleet to Kirin decal programs." The letter went on to state that Virginia Imports' sale of stale beer and its sale of Kirin products outside of its designated sales territories were the "most egregious" of the cited deficiencies. The letter further stated as follows:

Section 4.1-506 requires [Kirin] to give [Virginia Imports] 90 days written notice of its intent to terminate. Pursuant to that section, [Virginia Imports] has 60 days to correct all of the above-cited deficiencies. Should [Virginia Imports] fail to correct completely the deficiencies cited within the statutory period, [Kirin] shall immediately request a hearing before the [ABC Board] in order to terminate [Virginia Imports].

By letter dated October 4, 1999, Virginia Imports notified Kirin that it had cured all of the deficiencies cited in Kirin's termination letter.² Virginia Imports, however, failed to send a copy of that cure notice to the ABC Board, as required by Code § 4.1-506(B), which provides that "[a] copy of the [cure] notice shall be mailed at the same time to the Board." Thus, the ABC Board was not notified that Virginia Imports had cured the deficiencies identified by Kirin in its August 3, 1999 termination letter.

By letter dated October 22, 1999, Kirin requested a hearing before the ABC Board pursuant to Code § 4.1-506(D).³ In pertinent part, that letter, addressed to Virginia Imports and sent to both Virginia Imports and the ABC Board, stated as follows:

On August 3, 1999, we sent you a letter detailing the numerous problems Kirin . . . has experienced and continues to experience with Virginia Imports. . . . The most egregious of these deficiencies continues to be out-of-code product on the shelves of retail accounts in your market. . . .

Included with our August 3, 1999 letter to you were four previous letters . . . . Throughout our dealings with [Virginia Imports], we informed you of our concerns over out of code beer and our dissatisfaction [with Virginia Imports'] poor service, and sought improvements from you. Pursuant to our statutory right, we copied the August 3, 1999 letter to the [ABC Board], and informed you that we were invoking the ninety (90) day written notice provision of Virginia Code Section 4.1-506, which allows a manufacturer to give a distributor written notice of its intent to terminate. Out of code product remains a problem in your market, and we have not seen any material improvement in service. . . .

* * * * * *

... As a result, we are compelled to request that the [ABC Board] grant us a hearing to terminate Virginia Imports.

By copy of this letter to [the ABC Board Secretary], we hereby request pursuant to Virginia Code Section 4.1-506(D) that the [ABC Board] grant Kirin an appropriate hearing for consideration of these issues.

By letter of February 9, 2000, the ABC Board Secretary wrote to Kirin as follows:

Our records indicate that by letter dated August 3, 1999, your company gave notice to Virginia Imports, Ltd., of your intent to terminate your agreement designating Virginia Imports, Ltd., as the wholesale distributor of Kirin brands in certain territories in Virginia. More than ninety days have now passed since that notice, and we have received neither a notice from the wholesaler that it has taken action to rectify the conditions constituting the reason for the termination, nor a request for a hearing on the issue of reasonable cause. Therefore, under the provisions of the Beer Franchise Act, the agreement between Kirin and Virginia Imports, Ltd., was effectively terminated ninety days after the August 3, 1999, notice.

Kirin is free to appoint other distributors for the territories formerly held by Virginia Imports, Ltd.

In response, Kirin wrote to the ABC Board Secretary on February 10, 2000, indicating that Kirin was designating Anheuser-Busch, Inc., as its distributor in the sales territories previously served by Virginia Imports.

By letter dated February 11, 2000, Virginia Imports informed the ABC Board Secretary that it had timely notified Kirin in its letter of October 4, 1999, that it had cured the deficiencies identified in Kirin's termination letter of August 3, 1999. Consequently, Virginia Imports asserted, the burden shifted, upon receipt of that letter, to Kirin to request a hearing within fifteen days of the expiration of the cure period if it was not satisfied with Virginia Imports' cure, which Kirin did not do. Virginia Imports asked the ABC Board Secretary to thus suspend the effectiveness of his February 9, 2000 letter until the matter could be clarified. That request was not granted.

By letter dated February 16, 2000, Kirin advised the ABC Board Secretary that the Secretary's February 9, 2000 determination regarding the termination of the distributorship agreement was correct, because Virginia Imports failed to send a copy of its October 4, 2000 letter to the ABC Board. Kirin also informed the ABC Board Secretary that Virginia Imports had failed to cure the deficiencies set forth in Kirin's termination letter and that Virginia Imports had incorrectly stated in its February 11, 2000 letter that Kirin did not timely request a hearing before the ABC Board. "In fact," Kirin wrote, "on October 22, 1999 Kirin sent a letter to . . . Virginia Imports, informing [it] that no cure had been achieved, and requesting that the [ABC Board] convene a hearing to review Kirin's request for termination."

By letter dated April 17, 2000, the ABC Board Secretary informed the parties that, after carefully reviewing the parties' letters regarding his February 9, 2000 letter, he was referring the matter for a hearing. The Secretary wrote as follows:

It appears that both parties have made procedural errors. Virginia Imports . . . failed to mail its October 4, 1999 cure notice to the Board within the sixty-day cure period as required by subsection B of § 4.1-506 of the Code. Kirin['s] . . . October 22, 1999 request for a hearing before the Board to determine if the conditions have been rectified by the wholesaler failed to be made within fifteen days after expiration of the sixty-day cure period as required by § 4.1-506 B.

Nevertheless, Kirin did send the Board a written request for a hearing within the ninety-day period provided by subsection A of § 4.1-506. Pursuant to subsection D of § 4.1-506[], the matter is being referred to the Adjudication Division to determine if the actions of the wholesaler have rectified the conditions.

By order dated May 15, 2000, the Adjudication Division denied Virginia Imports' motion to reinstate the distributorship agreement between Kirin and Virginia Imports in order to maintain the status quo. By order dated June 23, 2000, the Adjudication Division denied Virginia Import's motion to reconsider the Adjudication Division's May 15, 2000 order.

A hearing panel of the ABC Board held hearings in...