S.B. 73

1

BEER INDUSTRY DISTRIBUTION ACT
2 1998 GENERAL SESSION
3 STATE OF UTAH
4 Sponsor: Leonard M. Blackham
5 AN ACT RELATING TO ALCOHOLIC BEVERAGES; ENACTING THE BEER INDUSTRY
6 DISTRIBUTION 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; S [ ADDRESSING APPLICABILITY; ] s
11 PROVIDING FOR SEVERABILITY; S [ AND ] s PROVIDING AN EFFECTIVE DATE S ; AND
11a PROVIDING A COORDINATION CLAUSE s .
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
18a S 32A-11a-105.5, UTAH CODE ANNOTATED 1953 s
19 32A-11a-106, Utah Code Annotated 1953
20 32A-11a-107, Utah Code Annotated 1953
21 32A-11a-108, Utah Code Annotated 1953
Text Box

Amend on 2_goldenrod January 29, 1998 22 32A-11a-109, Utah Code Annotated 1953
23 32A-11a-110, Utah Code Annotated 1953
24 S [ 32A-11a-111, Utah Code Annotated 1953 ] s
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 DISTRIBUTION ACT

1 32A-11a-101. Title -- Legislative intent.
2 (1) This chapter shall be known as the "Utah Beer Industry Distribution Act."
3 (2) (a) It is the policy of the Legislature to regulate and control the importation, sale, and
4 distribution of beer within the state in the exercise of its powers under the Twenty-first
5 Amendment to the Constitution of the United States and pursuant to the Utah Constitution.
6 (b) In furtherance of the policy described in Subsection (2)(a), this chapter is enacted to:
7 (i) promote good faith and fair dealing in the business relationships between suppliers S
7a [and] , s
8 wholesalers S , AND RETAILERS s of beer; and
9 (ii) provide for the establishment and maintenance of an orderly system for the distribution
10 of beer in accordance with the laws of the state regulating the sale and distribution of beer to the
11 public.
12 Section 2. Section 32A-11a-102 is enacted to read:
13 32A-11a-102. Definitions.
14 As used in this chapter:
15 (1) "Affected party" means a supplier or wholesaler who is a party to a distributorship
16 agreement that a terminating party seeks to terminate or not renew.
17 (2) (a) "Distributorship agreement" means any S WRITTEN s contract, agreement, or
17a arrangement
18 between a supplier and a wholesaler pursuant to which the wholesaler has the right to purchase,
19 resell, and distribute in a designated geographical area any brand of beer manufactured, imported,
20 or distributed by the supplier.
21 (b) S A SEPARATE AGREEMENT BETWEEN A SUPPLIER AND A WHOLESALER THAT
21a RELATES TO THE RELATIONSHIP BETWEEN THE SUPPLIER AND THE WHOLESALER OR THE
21b DUTIES OF EITHER OF THEM UNDER A DISTRIBUTORSHIP AGREEMENT IS CONSIDERED TO BE
21c PART OF THE DISTRIBUTORSHIP AGREEMENT FOR PURPOSES OF THIS CHAPTER.
21d (c) s A distributorship agreement may be for a definite or indefinite period.
22 (3) "Good cause" means the material failure by a supplier or a wholesaler to comply with
23 an essential, reasonable, and lawful requirement imposed by a distributorship agreement if the
24 failure occurs after the supplier or wholesaler acting in good faith provides notice of deficiency
Text Box

Amend on 2_goldenrod January 29, 1998 25 and an opportunity to correct in accordance with Sections 32A-11a-103 and 32A-11a-104.

- 2 -

26 (4) "Good faith" is as defined in Section 70A-2-103.
26a S (5) "RETAILER" MEANS A PERSON SUBJECT TO LICENSE UNDER CHAPTER 10, BEER
26b RETAILER LICENSES.
27 [(5)] (6) s "Sales territory" means the geographic area of distribution and sale
27a responsibility
28 designated by a distributorship agreement.
Text Box

Amend on 2_goldenrod January 29, 1998 29 S [(6)] (7) s "Supplier," notwithstanding Section 32A-1-107, means a brewer or other person
29a who
30 sells beer to a wholesaler for resale in this state.
31 S [(7)] (8) s "Terminating party" means a supplier or wholesaler who:

- 2a -

1 (a) is a party to a distributorship agreement; and
2 (b) seeks to terminate or not renew the distributorship agreement.
3 Section 3. Section 32A-11a-103 is enacted to read:
4 32A-11a-103. Termination of distributorship agreements.
5 (1) Except as provided in Subsection (2) or (3), a supplier or wholesaler may not:
6 (a) terminate a distributorship agreement; or
7 (b) fail to renew a distributorship agreement.
8 (2) A supplier or wholesaler may take an action prohibited by Section (1) if:
9 (a) the supplier or wholesaler has good cause for the action; and
10 (b) if notification is required by Section 32A-11a-104:
11 (i) the terminating party provides the affected party prior notification in accordance with
12 Section 32A-11a-104; and
13 (ii) the affected party has not eliminated the reasons specified in the notification as the
14 reasons for the action within 90 days after the date the notification is mailed in accordance with
15 Section 32A-11a-104.
16 (3) A supplier may terminate or not renew a distributorship agreement if:
17 (a) the supplier gives the wholesaler 30 days written notice before termination or
18 nonrenewal;
19 (b) the supplier discontinues production or discontinues distribution throughout the state
20 of all brands of beer sold by the supplier to the wholesaler; and
21 (c) the termination or nonrenewal does not violate the distributorship agreement.
22 Section 4. Section 32A-11a-104 is enacted to read:
23 32A-11a-104. Notice of termination.
24 (1) Except as provided in Subsection (3), a terminating party may not take an action
25 described in Subsection 32A-11a-103(1) unless the terminating party provides prior notification
26 in accordance with Subsection (2) to the affected party.
27 (2) The notification required under Subsection (1) shall:
28 (a) be in writing;
29 (b) be mailed by registered mail, return receipt requested, to the affected party not less than
30 90 days before the date on which the distributorship agreement will be terminated or not renewed;
31 (c) state the intention to terminate or not renew;

- 3 -

1 (d) state the reasons for the termination or nonrenewal; and
2 (e) state the date, not less than 90 days from the date of mailing, on which the termination
3 or nonrenewal shall take effect if the reasons for the action are not eliminated by that date.
4 (3) A supplier or wholesaler may take an action described in Subsection 32A-11a-103(1)
5 without furnishing any prior notification if:
6 (a) the affected party is insolvent, bankrupt, in dissolution, or in liquidation;
7 (b) the affected party makes an assignment for the benefit of creditors or similar
8 disposition of substantially all of the assets of the affected party's business;
9 (c) the affected party or a person owning more than S [20%] 10% s of the stock or other
9a ownership
10 interest in the affected party:
11 (i) is convicted of, pleads guilty to, or pleads no contest to a felony under the laws of the
12 United States or this state that in the reasonable, good faith judgment of the terminating party
13 materially and adversely affects the good will or business of the terminating party;
Text Box

Amend on 2_goldenrod January 29, 1998 14 (ii) has its license or permit revoked or suspended for a period of 31 days or more; or
15 (iii) S [ has entered against it a permanent injunction, final judgment, or final administrative
16 order involving ] ENGAGES IN INTENTIONAL s fraudulent conduct in its dealings with the
16a terminating party that in the reasonable,
17 good faith judgment of the terminating party materially and adversely affects the good will or
18 business of the terminating party.
19 (4) Subsection (3)(c)(iii) does not apply to conduct by a non-owner employee or
20 representative of the affected party if the conduct occurred without the prior knowledge or consent
21 of an owner of the affected party.
22 (5) Notwithstanding Subsection (3)(c)(i), a supplier may not take an action under
23 Subsection (3)(c)(i) because of a conviction or plea by an owner of the affected party, if:
24 (a) any other approved owner of the affected party purchases the ownership interest of the
25 offending owner; S [ and ] s
26 (b) S THE OFFENDING OWNER WAS NOT MATERIALLY INVOLVED IN THE MANAGEMENT OF
26a THE AFFECTED PARTY; AND
26b (c) s the purchase described in Subsection (5)(a) is completed within 90 days after the
27 conviction or plea.

- 4 -

28 Section 5. Section 32A-11a-105 is enacted to read:
29 32A-11a-105. Prohibited conduct of supplier.
30 (1) A supplier may not:
Text Box

Amend on 2_goldenrod January 29, 1998 31 (a) induce, coerce, or attempt to induce or coerce, any wholesaler to engage in any illegal

- 4a -

1 act or course of conduct;
2 (b) impose a requirement that is discriminatory by its terms or in the methods of
3 enforcement as compared to requirements imposed by the supplier on similarly situated
4 wholesalers;
5 (c) prohibit a wholesaler from selling the product of any other supplier;
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, regional, or national
13 advertising fund or other promotional activity that:
14 (i) is not used for advertising or promotional activities in the wholesaler's sales territory;
15 or
16 (ii) would require contributions by the wholesaler in excess of the amounts specified in
17 the distributorship agreement;
18 (i) retaliate against a wholesaler that files a complaint with the department or the
19 applicable federal agency regarding an alleged violation by the supplier of a state or federal law
20 or administrative rule;
21 (j) require without good cause any change in the manager of a wholesaler who has
22 previously been approved by the supplier;
23 (k) if a wholesaler changes its approved manager, prohibit the change unless the new
24 manager fails to meet the reasonable standards for similarly situated wholesalers of the supplier
25 as stated in the distributorship agreement; or
26 (l) refuse to deliver beer products covered by a distributorship agreement to the
27 wholesaler:
28 (i) in reasonable quantities; and
29 (ii) within a reasonable time after receipt of the wholesaler's order.
30 (2) Notwithstanding Subsection (1)(l), the supplier may refuse to deliver products if the
31 refusal is due to:

- 5 -

1 (a) the wholesaler's failure to pay the supplier pursuant to the distributorship agreement;
2 (b) an unforeseeable event beyond the supplier's control;
3 (c) a work stoppage or delay due to a strike or labor problem;
4 (d) a bona fide shortage of materials; or
5 (e) a freight embargo.
5a S SECTION 6. SECTION 32A-11A-105.5 IS ENACTED TO READ:
5b 32A-11A-105.5. PROHIBITED CONDUCT OF WHOLESALER.
5c (1) A WHOLESALER MAY NOT:
5d (a) INDUCE, COERCE, OR ATTEMPT TO INDUCE OR COERCE, ANY RETAILER TO ENGAGE IN
5e ANY ILLEGAL ACT OR COURSE OF CONDUCT;
5f (b) IMPOSE A REQUIREMENT THAT IS DISCRIMINATORY BY ITS TERMS OR IN THE METHODS
5g OF ENFORCEMENT AS COMPARED TO REQUIREMENTS IMPOSED BY THE WHOLESALER ON
5h SIMILARLY SITUATED RETAILERS;
5i (c) PROHIBIT A RETAILER FROM SELLING THE PRODUCT OF ANY OTHER WHOLESALER;
5j (d) FIX OR MAINTAIN THE PRICE AT WHICH A RETAILER MAY RESELL BEER;
5k (e) REQUIRE ANY RETAILER TO ACCEPT DELIVERY OF ANY BEER OR ANY OTHER ITEM
5l THAT IS NOT VOLUNTARILY ORDERED BY THE RETAILER;
5m (f) RESTRICT OR INHIBIT, DIRECTLY OR INDIRECTLY, THE RIGHT OF A RETAILER TO
5n PARTICIPATE IN AN ORGANIZATION REPRESENTING INTERESTS OF RETAILERS FOR ANY LAWFUL
5o PURPOSE;
5p (g) REQUIRE A RETAILER TO PARTICIPATE IN OR CONTRIBUTE TO ANY LOCAL,
5q REGIONAL, OR NATIONAL ADVERTISING FUND OR OTHER PROMOTIONAL ACTIVITY;
5r (h) RETALIATE AGAINST A RETAILER THAT FILES A COMPLAINT WITH THE DEPARTMENT
5s OR THE APPLICABLE FEDERAL AGENCY REGARDING AN ALLEGED VIOLATION BY THE
5t WHOLESALER OF A STATE OR FEDERAL LAW OR ADMINISTRATIVE RULE;
5u (i) REFUSE TO DELIVER BEER PRODUCTS CARRIED BY THE WHOLESALER TO A PROPERLY
5v LICENSED RETAILER WHO RESIDES WITH THE WHOLESALER'S SALES TERRITORY:
5w (i) IN REASONABLE QUANTITIES; AND
5x (ii) WITHIN A REASONABLE TIME AFTER RECEIPT OF THE RETAILER'S ORDER.
Text Box

Amend on 2_goldenrod January 29, 1998 5y (2) NOTWITHSTANDING SUBSECTION (1)(I), THE WHOLESALER MAY REFUSE TO DELIVER
5z PRODUCTS IF THE REFUSAL IS DUE TO:

- 6 -

5aa (a) THE RETAILER'S FAILURE TO PAY THE WHOLESALER PURSUANT TO SUBSECTION
5ab 32A-12-603(17);
5ac Text Box

Amend on 2_goldenrod January 29, 1998 (b) AN UNFORESEEABLE EVENT BEYOND THE WHOLESALER'S CONTROL;
5ad (c) A WORK STOPPAGE OR DELAY DUE TO A STRIKE OR LABOR PROBLEM;
5ae (d) A BONA FIDE SHORTAGE OF MATERIALS; OR
5af (e) A FREIGHT EMBARGO. s

6 Section S [6] 7 s . Section 32A-11a-106 is enacted to read:
7 32A-11a-106. Sale or transfer of business assets or ownership.
8 (1) Without the prior written approval of a sale or transfer by the supplier:
9 (a) a wholesaler may not sell or transfer its business, or any portion of its business,
10 including the distributorship agreement to a successor in interest; and
11 (b) the owner of S [ a 10% or more ] AN s interest in a wholesaler may not sell or transfer all
11a or part
12 of the owner's interest in the wholesaler to a successor in interest.
13 (2) A supplier may not unreasonably withhold or delay its approval of a sale or transfer,
14 including the wholesaler's rights and obligations under the terms of the distributorship agreement,
15 if the person to be substituted meets reasonable standards that are imposed:
16 (a) by the supplier pursuant to the distributorship agreement; and
17 (b) on other wholesalers of that supplier of the same general class, taking into account the
18 size and location of the sales territory and market to be served.
19 (3) Notwithstanding Subsection (1), a wholesaler may not assign or transfer its license in
20 violation of Subsection 32A-11-106(1)(g).
21 Section S [7] 8 s . Section 32A-11a-107 is enacted to read:
22 32A-11a-107. Reasonable compensation.
23 (1) If a supplier violates Section 32A-11a-103 or 32A-11a-106, the supplier shall S [ pay the s
24 wholesaler ] BE LIABLE TO THE WHOLESALER FOR THE LAID-IN COST OF INVENTORY OF THE
24a AFFECTED BRANDS PLUS ANY DIMINUTION IN s the fair market value of the wholesaler's business
24b with relation to the affected brands.
25 In determining fair market value, consideration shall be given to all elements of value, including
26 good will and going concern value.
27 (2) (a) S [Either] A DISTRIBUTORSHIP AGREEMENT MAY REQUIRE THAT ANY OR ALL
27a DISPUTES BETWEEN A SUPPLIER AND A WHOLESALER BE SUBMITTED TO BINDING ARBITRATION.
- 6a -
27b IN THE ABSENCE OF AN APPLICABLE ARBITRATION PROVISION IN THE DISTRIBUTORSHIP
27c AGREEMENT, EITHER s the supplier or the wholesaler may request arbitration if a supplier and a
28 wholesaler are unable to mutually agree on:
29 (i) whether or not good cause exists for termination or nonrenewal;
Text Box

Amend on 2_goldenrod January 29, 1998 30 (ii) whether or not the supplier unreasonably withheld approval of a sale or transfer under
31 Section 32A-11a-106; or

- 6b -

1 (iii) the reasonable compensation to be paid for the value of the wholesaler's business in
2 accordance with Subsection (1).
3 (b) If a supplier or wholesaler requests arbitration under Subsection (2)(a) S AND THE OTHER
3a PARTY AGREES TO SUBMIT THE MATTER TO ARBITRATION s , an arbitration
4 panel shall be created with the following members:
5 (i) one member selected by the supplier in a writing delivered to the wholesaler within ten
6 business days of the date arbitration was requested under Subsection (2)(a);
7 (ii) one member selected by the wholesaler in a writing delivered to the supplier within
8 ten business days of the date arbitration was requested under Subsection (2)(a); and
9 (iii) one member selected by the two arbitrators appointed under Subsections (2)(b)(i) and
10 (ii).
11 (c) If the arbitrators selected under Subsection (2)(b)(iii) fail to choose a third arbitrator
12 within ten business days of their selection, a judge of a district court in the county in which the
13 wholesaler's principal place of business is located shall select the third arbitrator.
14 (d) Arbitration costs shall be divided equally between the wholesaler and the supplier.
15 (e) The award of the arbitration panel is binding on the parties unless appealed within 20
16 days from the date of the award.
17 (f) Subject to the requirements of this chapter, arbitration and all proceedings on appeal
18 shall be governed by Title 78, Chapter 31a, Utah Arbitration Act.
19 Section S [8] 9 s . Section 32A-11a-108 is enacted to read:
20 32A-11a-108. Sale or transfer of supplier's business.
21 (1) (a) A successor to a supplier that after July 1, 1998, acquires a supplier's products or
22 brands in this state shall be bound by all of the terms and conditions of each distributorship
23 agreement with a wholesaler in this state that was in effect on the date on which the successor
24 received the assets or rights of the previous supplier.
25 (b) Notwithstanding Subsection (1)(a), a successor may contractually require its
26 wholesalers to S :
26a (i) EXECUTE A NEW DISTRIBUTORSHIP AGREEMENT; AND
26b (ii) s comply with the successor's operational standards of performance if:
Text Box

Amend on 2_goldenrod January 29, 1998 27 S [(i)] (A) s the operational standards of performance are consistent with this chapter;
28 S [(ii)] (B) s the operational standards of performance are uniformly imposed by the
28a successor on

- 7 -
29 similarly situated wholesalers; and
30 S [(iii)] (C) s the successor provides the wholesaler at least one year to S :
30a (I) EXECUTE A NEW DISTRIBUTORSHIP AGREEMENT; AND
Text Box

Amend on 2_goldenrod January 29, 1998 30b (II) s comply with the operational
31 standards of performance.

- 7a -

1 (2) (a) For purposes of this section, "successor" means a supplier who obtains the
2 distribution rights of a brand that a wholesaler distributes in this state pursuant to a distributorship
3 agreement with another supplier who previously had the distribution rights of the brand.
4 (b) For purposes of Subsection (2)(a), the successor may obtain the distribution right:
5 (i) by any means, including:
6 (A) merger;
7 (B) purchase of corporate shares; or
8 (C) purchase of assets; and
9 (ii) from:
10 (A) a supplier; or
11 (B) a person acting in an official capacity who is not a supplier including a nominee,
12 representative, or fiduciary.
13 Section S [9] 10 s . Section 32A-11a-109 is enacted to read:
14 32A-11a-109. Judicial remedies.
15 (1) A supplier or wholesaler who is a party to a distributorship agreement may maintain
16 a civil action against the supplier or wholesaler in a court of competent jurisdiction in the county
17 in which the wholesaler's principal place of business is located if:
18 (a) the supplier or wholesaler violates this chapter; or
19 (b) (i) the supplier and wholesaler are not able to mutually agree on reasonable
20 compensation under Section 32A-11a-107; and
21 (ii) S [neither party elects] THE PARTIES DO NOT AGREE TO SUBMIT THE MATTER TO s
21a arbitration in accordance with Section 32A-11a-107 prior to or
22 within 20 days following service of process on the electing party in the civil action.
23 (2) (a) The prevailing party in any action under Subsection (1) shall recover:
24 (i) actual damages, including the value of the wholesaler's business as specified in Section
25 32A-11a-107 if applicable; and
26 (ii) reasonable attorneys' fees and court costs.
27 (b) In addition to the amount awarded under Subsection (2)(a), the court may grant such
28 relief in law or equity as the court determines to be necessary or appropriate considering the
29 purposes of this chapter.
30 (3) If either party elects arbitration under Subsection (1)(b)(ii) following service of
Text Box

Amend on 2_goldenrod January 29, 1998 31 process, the civil action is stayed pending a decision by the arbitration panel.

- 8 -

1 Section S [10] 11 s . Section 32A-11a-110 is enacted to read:
2 32A-11a-110. Modifying statutory requirements not permitted.
3 (1) Nothing in this chapter is intended to restrict the right of a supplier to contractually
4 require its wholesaler to comply with the supplier's operational standards of performance that are:
5 (a) consistent with this chapter; and
6 (b) uniformly established for its wholesalers according to the supplier's good faith business
7 judgment.
8 (2) Notwithstanding Subsection (1), the requirements of this chapter may not be modified
9 by agreement.
10 (3) Any agreement that by its terms modifies the requirements of this chapter is void and
11 unenforceable to the extent it attempts to modify the requirements of this chapter.
12 S [ Section 11. Section 32A-11a-111 is enacted to read:
13 32A-11a-111. Applicability.
14 This chapter shall apply to distributorship agreements in existence on July 1, 1998, as well
15 as to distributorship agreements entered into and any cancellation, termination, failure to renew,
16 amendment, or material modification of any distributorship agreement occurring after July 1, 1998. ] s
17 Section 12. Severability clause.
18 If any provision of this act, or the application of any provision to any person or
19 circumstance, is held invalid, the remainder of this act is given effect without the invalid provision
20 or application.
21 Section 13. Effective date.
22 This act takes effect on July 1, 1998.
22a S SECTION 14. COORDINATING CLAUSE.
22b IT IS THE INTENT OF THE LEGISLATURE THAT THE OFFICE OF LEGISLATIVE RESEARCH
22c AND GENERAL COUNSEL, AS PART OF ENROLLING, SHALL:
22d (1) RENUMBER THE SECTIONS AS WHOLE NUMBERS; AND
22e (2) CORRESPONDINGLY CHANGE THE CROSS REFERENCES TO THE SECTIONS
Text Box

Amend on 2_goldenrod January 29, 1998 22f RENUMBERED BY THIS COORDINATING CLAUSE. s

- 9 -






Legislative Review Note
as of 9-4-97 12:16 PM

A limited legal review of this bill raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel

Text Box

Amend on 2_goldenrod January 29, 1998 - 9a -

Committee Note

The Business, Labor, and Economic Development Interim Committee recommended this bill.

- 10 -