New North Carolina Beer Franchise Act Now Effective

Revisions to the North Carolina malt beverages franchise act became effective yesterday when the Governor signed Senate Bill 745. Last year’s similar bill was stalled after brewers took issues with some of the terms. Senate Bill 745 is a compromise bill that passed the legislature with wide margins. Among the changes, the new law explicitly states that the meaning of “good cause” for termination purposes cannot be modified from the definition set forth in North Carolina law; however, there is a provision in the law that allows brewers that obtain self-distribution approval from the North Carolina Alcoholic Beverage Control Commission to terminate a wholesaler franchise relationship without good cause if “fair market value for the distribution rights for the affected brand” is paid to the wholesaler. Fair market value is determined not as an average price, but must be “highest dollar amount at which a seller would be willing to sell and a buyer willing to buy.” See Senate Bill 745, § 18B-1305(a1). The bill also revises what constitutes good cause, what factors a supplier may consider when approving an assignment, transfer or merger of a wholesaler, treatment of brand extensions, and prohibited acts by suppliers.

The new law also introduces a mandatory mediation requirement. If a dispute arises among a supplier and a wholesaler that is likely to lead to litigation, then the North Carolina Alcoholic Beverage Control Commission can require the parties to submit to mediation in an effort to resolve the dispute. This requirement may arise solely by the initiative of the Commission, or either party to the dispute may request that the Commission mandate the mediation. See Senate Bill 745, § 18B-1309. This new provision makes North Carolina one of the few states with laws on mediation for resolution of conflicts between beer suppliers and wholesalers. California and Maryland are the only other two states that discuss mediation in their beer franchise acts. See Cal. Bus & Prof. Code § 25000.2; Md. Code Ann. § 21-103.

It remains imperative for suppliers to review a state’s laws and regulations when entering into a distribution agreement and also to give oneself enough time for review and negotiation of the agreement, especially in light of the fact that states like North Carolina are further restricting the ability of suppliers and wholesalers to contract around franchise act laws. For more information about distribution agreements and franchise acts, please see our prior post available here or feel free to contact an attorney at Strike Kerr & Johns.

Tagged in:
Alcohol Beverage Law alcohol legislation distributors North Carolina Wholesalers

This entry was posted on June 15, 2012.