First Substitute S.B. 157

1

BEER INDUSTRY FAIR DEALING ACT
2 1997 GENERAL SESSION
3 STATE OF UTAH
4 Sponsor: Leonard M. Blackham
5 AN ACT RELATING TO ALCOHOLIC BEVERAGES; ENACTING THE BEER INDUSTRY
6 FAIR DEALING ACT; PROVIDING LEGISLATIVE INTENT; ENACTING DEFINITIONS;
7 PROVIDING LIMITS ON AND PROCEDURES FOR TERMINATION OF A
8 DISTRIBUTORSHIP AGREEMENT; PROHIBITING CERTAIN CONDUCT; REQUIRING
9 COMPENSATION BE PAID FOR CERTAIN ACTS; PROVIDING REQUIREMENTS FOR
10 WHOLESALERS; PROVIDING REMEDIES; ADDRESSING APPLICABILITY;
11 PROVIDING FOR SEVERABILITY; AND PROVIDING AN EFFECTIVE DATE.
12 This act affects sections of Utah Code Annotated 1953 as follows:
13 ENACTS:
14 32A-11a-101, Utah Code Annotated 1953
15 32A-11a-102, Utah Code Annotated 1953
16 32A-11a-103, Utah Code Annotated 1953
17 32A-11a-104, Utah Code Annotated 1953
18 32A-11a-105, Utah Code Annotated 1953
19 32A-11a-106, Utah Code Annotated 1953
20 32A-11a-107, Utah Code Annotated 1953
21 32A-11a-108, Utah Code Annotated 1953
22 32A-11a-109, Utah Code Annotated 1953
23 32A-11a-110, Utah Code Annotated 1953
24 32A-11a-111, Utah Code Annotated 1953
25 Be it enacted by the Legislature of the state of Utah:
26 Section 1. Section 32A-11a-101 is enacted to read:
27 CHAPTER 11a. UTAH BEER INDUSTRY FAIR DEALING ACT

1 32A-11a-101. Title -- Legislative intent.
2 (1) This chapter shall be known as the "Utah Beer Industry Fair Dealing Act."
3 (2) The Legislature finds that:
4 (a) under the Twenty-first Amendment to the Constitution of the United States the state
5 has the authority to control and stabilize the distribution of beer within the state;
6 (b) the fair, efficient, orderly, and competitive distribution of beer within the state in
7 accordance with this chapter affects the public interest and public welfare;
8 (c) the relative bargaining power between brewers and wholesalers enables a brewer:
9 (i) to compel a wholesaler to execute agreements that contain terms and conditions to
10 which the wholesaler generally would not agree absent the relative bargaining power, including:
11 (A) establishment of prices;
12 (B) requiring the purchase of products; or
13 (C) requiring a wholesaler to engage in marketing programs that are not in the public
14 interest; and
15 (ii) to terminate a wholesaler's distributorship agreement without good cause or by unfair
16 means;
17 (d) it is in the public interest to require brewers and wholesalers to conduct their business
18 relations so as to assure:
19 (i) that the wholesaler is free to manage its business enterprise, including the right to
20 independently establish its selling prices; and
21 (ii) that the public, retailers, and brewers are served by wholesalers who will comply in
22 good faith with the requirements of a distributorship agreement with a brewer.
23 Section 2. Section 32A-11a-102 is enacted to read:
24 32A-11a-102. Definitions.
25 As used in this chapter:
26 (1) "Affected party" means a brewer or wholesaler who is a party to a distribution
27 agreement that a terminating party seeks to terminate or not renew.
28 (2) (a) "Distributorship agreement" means any contract, agreement, or arrangement
29 between a brewer and a wholesaler pursuant to which the wholesaler has the right to purchase,
30 resell, and distribute in a designated geographical area any brand of beer manufactured by the
31 brewer.

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1 (b) A distributorship agreement may be:
2 (i) express or implied;
3 (ii) oral or written; or
4 (iii) for a definite or indefinite period.
5 (3) "Good cause" means the failure by either party to a distributorship agreement to
6 comply with a provision of the agreement or applicable law that is both reasonable and of material
7 significance to the business relationship between the brewer and the wholesaler.
8 (4) "Sales territory" means the geographic area of distribution and sale responsibility
9 designated by a distributorship agreement.
10 (5) "Terminating party" means a brewer or wholesaler who is a party to a distribution
11 agreement who seeks to terminate or not renew the distribution agreement.
12 Section 3. Section 32A-11a-103 is enacted to read:
13 32A-11a-103. Termination of distributorship agreements.
14 (1) Except as provided in Subsection (2) or (3), a brewer or wholesaler may not:
15 (a) terminate a distributorship agreement; or
16 (b) fail to renew a distributorship agreement.
17 (2) A brewer or wholesaler may take an action prohibited by Section (1) if:
18 (a) the brewer or wholesaler has good cause for the action; and
19 (b) if notification is required by Section 32A-11a-104:
20 (i) the terminating party provides the affected party prior notification in accordance with
21 Section 32A-11a-104; and
22 (ii) the affected party has not eliminated within 90 days after the receipt of the notification
23 the reasons specified in the notification as the reasons for the action.
24 (3) A brewer may terminate or not renew a distributorship agreement if:
25 (a) the brewer gives the wholesaler 30 days written notice before termination or
26 nonrenewal;
27 (b) the brewer discontinues production or discontinues distribution throughout the state
28 of all brands of beer sold by the brewer to the wholesaler; and
29 (c) the termination or nonrenewal does not violate the distributorship agreement.
30 Section 4. Section 32A-11a-104 is enacted to read:
31 32A-11a-104. Notice of termination.

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1 (1) Except as provided in Subsection (3), a terminating party may not take an action
2 described in Subsection 32A-11a-103(1) unless the terminating party provides prior notification
3 in accordance with Subsection (2) to the affected party.
4 (2) The notification required under Subsection (1) shall:
5 (a) be in writing;
6 (b) be received by the affected party not less than 90 days before the date on which the
7 distributorship agreement will be terminated or not renewed;
8 (c) state the intention to terminate or not renew;
9 (d) state the reasons for the termination or nonrenewal; and
10 (e) contain the date on which the termination or nonrenewal shall take effect if the reasons
11 for the action are not eliminated by that date.
12 (3) A brewer or wholesaler may take an action described in Subsection 32A-11a-103(1)
13 without furnishing any prior notification if:
14 (a) the affected party is insolvent, bankrupt, in dissolution, or in liquidation;
15 (b) the affected party makes an assignment for the benefit of creditors or similar
16 disposition of substantially all of the assets of the affected party's business; or
17 (c) the affected party or a person owning more than 10% of the stock or other ownership
18 interest in the affected party:
19 (i) is convicted of, pleas guilty to, or pleas no contest to a charge of violating a law or rule;
20 or
21 (ii) has its license or permit revoked or suspended if the revocation or suspension:
22 (A) is for a period of 20 days or more;
23 (B) relates to the affected party's business as a brewer or wholesaler; and
24 (C) materially and adversely affects the affected party's ability to continue in the business;
25 or
26 (iii) after the distribution agreement is entered into by the brewer and wholesaler, has
27 entered against it a permanent injunction, final judgment, or final administrative order involving
28 fraudulent conduct.
29 Section 5. Section 32A-11a-105 is enacted to read:
30 32A-11a-105. Prohibited conduct of brewer.
31 (1) A brewer may not:

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1 (a) induce, coerce, or attempt to induce or coerce, any wholesaler to engage in any illegal
2 act or course of conduct;
3 (b) require a wholesaler to agree to an unreasonable requirement under a distributorship
4 agreement;
5 (c) prohibit a wholesaler from selling the product of any other brewer;
6 (d) fix or maintain the price at which a wholesaler may resell beer;
7 (e) fail to execute with each wholesaler of its brands a written distributorship agreement;
8 (f) require any wholesaler to accept delivery of any beer or any other item, that is not
9 voluntarily ordered by the wholesaler;
10 (g) restrict or inhibit, directly or indirectly, the right of a wholesaler to participate in an
11 organization representing interests of wholesalers for any lawful purpose;
12 (h) require a wholesaler to participate in or contribute to any local or national advertising
13 fund or other promotional activity;
14 (i) retaliate against a wholesaler that files a complaint with the department or the
15 applicable federal agency regarding an alleged violation by the brewer of a state or federal law or
16 administrative rule;
17 (j) require without good cause any change in the manager or successor manager of any
18 wholesaler who has previously been approved by the brewer;
19 (k) if a wholesaler changes its approved manager or successor manager, prohibit the
20 change unless the new manager fails to meet the reasonable standards for similarly situated
21 wholesalers of the brewer; or
22 (l) refuse to deliver beer products covered by a distribution agreement to the wholesaler:
23 (i) in reasonable quantities; and
24 (ii) within a reasonable time after receipt of the wholesaler's order.
25 (2) Notwithstanding Subsection (1)(l), the brewer may refuse to deliver products if the
26 refusal is due to:
27 (a) the wholesaler's failure to pay the brewer pursuant to the distributorship agreement;
28 (b) an unforeseeable event beyond either party's control;
29 (c) a work stoppage or delay due to a strike or labor problem;
30 (d) a bona fide shortage of materials; or
31 (e) a freight embargo.

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1 Section 6. Section 32A-11a-106 is enacted to read:
2 32A-11a-106. Transfer of business assets or stock.
3 (1) (a) Except as provided in Subsection (1)(b), a brewer may not prohibit or withhold
4 approval of any assignment, sale, or transfer of all or any portion of:
5 (i) the voting or nonvoting stock of a wholesaler;
6 (ii) the wholesaler's assets;
7 (iii) the voting stock of any parent corporation; or
8 (iv) the beneficial ownership or control of any other entity owning or controlling the
9 wholesaler, including the wholesaler's rights and obligations under the terms of a distributorship
10 agreement.
11 (b) If an assignment, sale, or transfer described in Subsections (1)(a)(i) through (iv) results
12 in a person being substituted for the wholesaler, the brewer may not unreasonably withhold or
13 delay its approval of the assignment, sale, or transfer:
14 (i) if that person meets reasonable standards that are imposed on the wholesaler; and
15 (ii) the standards imposed on the wholesaler are imposed on all other wholesalers of that
16 brewer of the same general class, taking into account the size and location of the sales territory and
17 market to be served.
18 (2) Upon the death of one of the partners of a partnership operating the business of a
19 wholesaler, a brewer may not deny the surviving partner or partners of the partnership the right to
20 become a successor-in-interest to the distributorship agreement between the brewer and the
21 partnership, if:
22 (a) the survivor:
23 (i) has been active in the management of the partnership; or
24 (ii) is capable of carrying on the business of the partnership; and
25 (b) the survivor meets reasonable standards of financial stability.
26 (3) (a) Notwithstanding Subsection (1) or (2), if a wholesaler dies, a brewer may not
27 disapprove any transfer of ownership to a surviving spouse or adult child of an owner of the
28 wholesaler if the surviving spouse or adult child:
29 (i) is capable of carrying on the business; and
30 (ii) meets reasonable standards of financial stability.
31 (b) A transfer of ownership by the surviving spouse or adult child subsequent to the

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1 transfer under Subsection (3)(a) is subject to Subsection (1).
2 Section 7. Section 32A-11a-107 is enacted to read:
3 32A-11a-107. Reasonable compensation.
4 (1) If a brewer violates Section 32A-11a-103 or 32A-11a-106, the brewer shall pay the
5 wholesaler the fair market value of the wholesaler's business with relation to the affected brands.
6 In determining fair market value, consideration shall be given to all elements of value, including
7 good will and going concern value.
8 (2) (a) Either the brewer or the wholesaler may request arbitration if a brewer and a
9 wholesaler are unable to mutually agree on:
10 (i) whether or not good cause exists for termination, nonrenewal, or refusal to consent to
11 an assignment; or
12 (ii) the reasonable compensation to be paid for the value of the wholesaler's business.
13 (b) If a brewer or wholesaler requests arbitration under Subsection (2)(a), an arbitration
14 panel shall be created with the following members:
15 (i) one member selected by the brewer in a writing delivered to the wholesaler within ten
16 business days of the date arbitration was requested under Subsection (2)(a);
17 (ii) one member selected by the wholesaler in a writing delivered to the brewer within ten
18 business days of the date arbitration was requested under Subsection (2)(a); and
19 (iii) one member selected by the two arbitrators appointed under Subsections (2)(b)(i) and
20 (ii).
21 (c) If the arbitrators selected under Subsection (2)(b)(iii) fail to choose a third arbitrator
22 within ten business days of their selection, a judge of a district court in the county in which the
23 wholesaler's principal place of business is located shall select the third arbitrator.
24 (d) Arbitration costs shall be divided equally between the wholesaler and the brewer.
25 (e) The award of the arbitration panel is binding on the parties unless a motion to modify
26 or vacate the award is filed with the appropriate district court within ten days from the date of the
27 award.
28 (f) Subject to the requirements of this chapter, arbitration, proceedings brought before a
29 district court pursuant to Subsection (2)(e), and any appeal shall be governed by Title 78, Chapter
30 31a, Utah Arbitration Act.
31 Section 8. Section 32A-11a-108 is enacted to read:

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1 32A-11a-108. Sale or transfer of brewer's business.
2 If a brewer sales or transfers its business or assets, the transferee shall become a party to
3 and be bound by the terms of each distribution agreement with a wholesaler to which the brewer
4 was a party immediately prior to the transfer.
5 Section 9. Section 32A-11a-109 is enacted to read:
6 32A-11a-109. Judicial remedies.
7 (1) A brewer or wholesaler who is a party to a distributorship agreement may maintain a
8 civil action against the brewer or wholesaler in a court of competent jurisdiction in the county in
9 which the wholesaler's principal place of business is located if:
10 (a) the brewer or wholesaler violates this chapter; or
11 (b) (i) a brewer and wholesaler are not able to mutually agree on reasonable compensation
12 under Section 32A-15-107; and
13 (ii) neither party elects arbitration in accordance with Section 32A-11a-107 prior to or
14 within 20 days following service of process on the electing party in the civil action.
15 (2) (a) The prevailing party in any action under Subsection (1) shall recover:
16 (i) actual damages, including the value of the wholesaler's business as specified in Section
17 32A-15-107 if applicable; and
18 (ii) reasonable attorneys' fees and court costs.
19 (b) In addition to the amount awarded under Subsection (2)(a), the court may grant such
20 relief in law or equity as the court determines to be necessary or appropriate considering the
21 purposes of this chapter.
22 (3) If either party elects arbitration under Subsection (1)(b)(ii) following service of
23 process, the civil action is stayed pending a decision by the arbitration panel.
24 Section 10. Section 32A-11a-110 is enacted to read:
25 32A-11a-110. Modifying statutory requirements not permitted.
26 (1) The requirements of this chapter may not be modified by agreement.
27 (2) Any agreement that by its terms modifies the requirements of this statute is void and
28 unenforceable to the extent it attempts to modify the requirements of this chapter.
29 Section 11. Section 32A-11a-111 is enacted to read:
30 32A-11a-111. Applicability.
31 This chapter shall apply to distributorship agreements in existence on July 1, 1997, as well

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1 as to distributorship agreements entered into and any cancellation, termination, failure to renew,
2 amendment, or material modification of any distributorship agreement occurring after July 1, 1997.
3 Section 12. Severability clause.
4 If any part, section, or subsection of this chapter, or the application of a part, section, or
5 subsection, is held to be invalid, the remainder of this chapter shall not be affected by the
6 invalidation.
7 Section 13. Effective date.
8 This act takes effect on July 1, 1997.

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