Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Cal. App.: Unreasonably withholding consent to transfer of beer distributorship not an independently wrongful act, (Feb 21, 2014)

By Edward L. Puzzo, J.D.

A California statute, providing for damages against beer manufacturers who unreasonably withhold consent for the transfer of beer distributorships, cannot be used as the basis of an “independently wrongful act” required for a claim of interference with prospective economic advantage, the California Court of Appeal in Los Angeles has ruled (Crown Imports, LLC v. Superior Court of Los Angeles County, February 19, 2014, Croskey, W.).

Background. In 2008 and again in 2010, Classic Distributing & Beverage Group (Classic), a local distributor for beer importer Crown Imports, LLC (Crown), sought to purchase Haralambos Beverage Company (HBC), another local distributor for Crown. In both cases, Crown disapproved the sale. Classic alleged that Crown’s actual, as opposed to pretextual, reason for withholding its approval for Classic’s purchase of HBC was that Crown preferred that HBC be sold to Anheuser-Busch Sales Pomona (AB Pomona), a distributor affiliated with its part-owner, Anheuser-Busch.

Classic brought an action against Crown for intentional and negligent interference with prospective economic advantage under the California beer distribution law. At the trial court level, these assertions survived Crown’s motion for summary judgment. The trial court ruled that Classic could pursue its argument that the interference with its proposed agreement with HBC was an independent wrongful act under the Business and Professions Code. At this point in the litigation, Crown appeals the denial of its motion for summary judgment, bringing a petition for writ of mandate.

Unreasonable denial of approval. California Business and Professions Code section 25000.9, the appellate court explained, provides a cause of action against a beer manufacturer who unreasonably withholds consent for the transfer of an ownership interest in a distributorship. The appellate court concluded that the statute did not provide a basis for deeming Crown’s denial of approval, even if unreasonable, to be an “independently wrongful act.”

The statute, which provides a limited and conditional remedy for a disappointed seller, does not render the unreasonable denial of approval wrongful, the court stated. Instead, the statute can be read as permitting a beer manufacturer to unreasonably deny approval for a transfer as long as the manufacturer compensates the disappointed seller for the compensatory damages lost. As long as the seller receives adequate compensation, either from a successor purchaser or the manufacturer itself, there is no violation of the statute, the appellate court stated.

In drafting this portion of the California beer distribution law to provide only a limited remedy to disappointed sellers, the legislature was protecting the beer manufacturers’ right to select the distributors with whom they choose to do business, the court explained. Section 25000.9 cannot be read to convert an unreasonable denial of approval by Crown into an independently wrongful act. Therefore, it cannot be used as the basis for an interference with prospective economic advantage cause of action, the appellate court ruled.

The case is Civil Action No. B248624.

Attorneys: Terry P. Anastassiou (Ropers, Majeski, Kohn & Bentley) and McDermott, Will & Emery LLP (Derek J. Meyer) for Crown Imports, LLC. Terry P. Anastassiou (Ropers, Majeski, Kohn & Bentley) for Stanley Rowley. Frederick Bennett, Superior Court of Los Angeles County, for Superior Court of Los Angeles County.

Companies: Crown Imports, LLC; Classic Distributing & Beverage Group, Inc.

Cases: FranchisingDistribution CaliforniaNews