Termination of Florida Beer Distribution Agreements

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This article is Part 1 of our two-part series on the termination of beer franchise rights in Florida. For Part 2, see Florida Distribution Agreements: Buyouts and Buybacks.

Florida’s Beer Franchise Statute (Fla. Stat. s. 563.022) puts severe controls on the contractual relationship between beer suppliers and beer distributors. Implicit to these controls is recognition of the beer franchise–a valuable and defensible right of the distributor that is created the moment a supplier agrees to sell beer to the distributor.

Although the beer franchise right owes its creation to the contract between supplier and distributor, the contract itself does little to shape the nature and extent of that right. Instead, the Beer Franchise Statute provides strict terms that apply to all Florida beer franchises, regardless of the terms of the underlying contract. Among those strict statutory terms are the requirements for terminating the beer franchise.

Beer suppliers do have the right to unilaterally terminate a Florida distributor’s beer franchise; provide, however, termination may cost the supplier. Under the Beer Franchise Statute, unilateral termination by a beer supplier is either compensable or non-compensable.

Termination, Broadly Defined

Before reviewing the distinctions between compensable and non-compensable terminations, it’s important to understand what is meant by “termination” in this context. Under Florida’s Beer Franchise Statute termination means and includes not only cancelation of termination of a distribution agreement, but also failure or refusal by the beer supplier to renew or continue the agreement regardless of any specific duration described in the agreement. A supplier also “terminates” a beer franchise when it denies approval of or unreasonably withholds consent to any assignment, transfer, or sale of a distributor’s business assets or stock. In essence, any action or inaction by a beer supplier that brings to an end the distributor’s right to sell the supplier’s beer is a termination for this purpose.

Termination with Compensation to Distributor

A beer supplier’s termination of a Florida distributor’s beer franchise is compensable if (1) a written distribution agreement exists between beer supplier and distributor, and (2) the beer supplier failed in any way to meet the requirements for a statutory termination of the beer franchise.  Accordingly, the requirements for a beer supplier’s non-compensable termination are of utmost importance.

Part 2 of this series covers determination of the amount that must be paid to the distributor in a compensable distribution under Florida’s Beer Franchise Statute.

Narrow Path to Non-Compensable Termination

Unilateral non-compensable termination of a Florida beer franchise by the supplier requires all of the following: (1) good faith and good cause, or (2) immediate cause. In all cases, the supplier has the burden of showing that it’s termination of the beer franchise complies with these requirements.

“Good faith” is defined as “honesty in fact in the conduct or transaction concerned” within the meaning of the Uniform Commercial Code (Fla. Stat. s. 671.201(20)).

“Good cause” for non-compensable termination requires that all of the following factors be met:

  1. The distributor failed to comply with a provision of the distribution agreement which is reasonable and of material significance to the business relationship.
  2. The supplier first acquired knowledge of the failure described in 1. not more than 18 months prior to notifying the distributor.
  3. The distributor was given 30 days in which to submit a plan of corrective action to comply with the agreement and an additional 90 days to cure such noncompliance in accordance with the plan or to sell its franchise rights.
  4. The distributor was given a reasonable opportunity to assert good faith efforts to comply the agreement.
  5. The supplier provides written notice of its intention to terminate the distribution agreement, sent by certified mail to the distributor not less than 90 days before the effective date of the termination. This written notice must include all of the following:
    1. A statement of the supplier’s intention to terminate, cancel, not renew or discontinue the agreement.
    2. A statement of the reason for the termination, cancellation, nonrenewal or discontinuance.
    3. The date on which the termination, cancellation, nonrenewal or discontinuance takes effect.

Immediate cause for a supplier’s unilateral termination of a Florida distributor’s beer franchise right is non-compensable if the following conditions are met:

  1. The termination is for one or more of the following reasons:
    1. Insolvency of the distributor, filing of a bankruptcy petition by or against the distributor, or the dissolution or liquidation of the distributor which materially affects its ability to remain in business.
    2. Revocation of the distributor’s license by federal authorities whereby the distributor cannot distribute beer for more than 60 days.
    3. The distributor of a partner or individual who owns 10% or more of the distributor has been convicted of a felony under federal law or the laws of any state which reasonably may adversely affect the good will or interest of the distributor or supplier.
    4. Fraudulent conduct on the part of the distributor relating to a material matter in dealings with the suppler or its products.
    5. The principal of the distributor intentionally and willfully sells the supplier’s products to a retailer or retailers located outside a distributor’s territory, but only if the supplier has assigned exclusive territories to its distributors in Florida.
    6. The distributor fails to pay for the supplier’s products ordered and delivered in accordance with the terms established with the supplier and has continued to fail to make payment within 15 business days after receive of notice of the delinquency and demand for immediate payment.
    7. The distributor sells, transfers, or assigns the franchise or control thereunder without the written consent of the supplier.
  2. The supplier provides written notice of its intention to terminate the distribution agreement, sent by certified mail to the distributor not less than 15 days before the effective date of the termination. This written notice must include all of the following:
    1. A statement of the supplier’s intention to terminate, cancel, not renew or discontinue the agreement.
    2. A statement of the reason for the termination, cancellation, nonrenewal or discontinuance.
    3. The date on which the termination, cancellation, nonrenewal or discontinuance takes effect.

Do you have any questions about the termination of beer distribution agreements in Florida? Contact us at contact@brewerlong.com to schedule a consultation with a beverage attorney.

Because we’re attorneys: Disclaimer.

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