BILL REQ. #:  H-0741.2 

Read first time 01/21/09.   Referred to Committee on Commerce & Labor.

     AN ACT Relating to the contractual relationships between distributors and producers of malt beverages; and amending RCW 19.126.010, 19.126.020, 19.126.030, 19.126.040, 19.126.060, and 19.126.080.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 19.126.010 and 2003 c 59 s 1 are each amended to read as follows:
     (1) The legislature recognizes that preservation of three viable, independent tiers of entities involved in the distribution and sale of malt beverages and wine in the state of Washington is necessary to facilitate orderly marketing of alcohol in the state, encourage moderation in the consumption of alcohol by citizens of the state, protect the public interest in limiting consumption of alcohol by minors and in limiting other abusive consumption of alcohol, and facilitate collection of taxes by the state. The legislature further recognizes that both suppliers and wholesale distributors of malt beverages are interested in the goal of best serving the public interest through the fair, efficient, and competitive distribution of such beverages. The legislature encourages them to achieve this goal by:
     (a) Assuring the wholesale distributor's freedom to manage the business enterprise, including the wholesale distributor's right to independently establish its selling prices; and
     (b) Assuring the supplier and the public of service from wholesale distributors who will devote their best competitive efforts and resources to sales and distribution of the supplier's products which the wholesale distributor has been granted the right to sell and distribute.
     (2) This chapter governs the relationship between suppliers of malt beverages and their wholesale distributors to the full extent consistent with the Constitution and laws of this state and of the United States.

Sec. 2   RCW 19.126.020 and 2004 c 160 s 19 are each amended to read as follows:
     The definitions ((set forth)) in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Agreement of distributorship" means any contract, agreement, commercial relationship, license, association, or any other arrangement, for a definite or indefinite period, between a supplier and distributor.
     (2) "Brand" means any word, name, group of letters, symbol, or combination thereof, including the name of the brewer if the brewer's name is also a significant part of the product name, adopted and used by a supplier to identify a specific malt beverage product and to distinguish that product from other malt beverages produced by that supplier or other suppliers.
     (3) "Distributor" means any person, including but not limited to a component of a supplier's distribution system constituted as an independent business, importing or causing to be imported into this state, or purchasing or causing to be purchased within this state, any malt beverage for sale or resale to retailers licensed under the laws of this state, regardless of whether the business of such person is conducted under the terms of any agreement with a malt beverage manufacturer.
     (((3))) (4) "Supplier" means any malt beverage manufacturer or importer who enters into or is a party to any agreement of distributorship with a wholesale distributor. "Supplier" does not include: (a) Any domestic brewery or microbrewery licensed under RCW 66.24.240 and producing less than ((fifty)) two hundred thousand barrels of malt liquor annually; (b) any brewer or manufacturer of malt liquor producing less than ((fifty)) two hundred thousand barrels of malt liquor annually and holding a certificate of approval issued under RCW 66.24.270; or (c) any authorized representative of malt liquor manufacturers who holds an appointment from one or more malt liquor manufacturers which, in the aggregate, produce less than ((fifty)) two hundred thousand barrels of malt liquor.
     (((4))) (5) "Malt beverage manufacturer" means every brewer, fermenter, processor, bottler, or packager of malt beverages located within or outside this state, or any other person, whether located within or outside this state, who enters into an agreement of distributorship for the resale of malt beverages in this state with any wholesale distributor doing business in the state of Washington.
     (((5))) (6) "Importer" means any distributor importing beer into this state for sale to retailer accounts or for sale to other distributors designated as "subjobbers" for resale.
     (((6))) (7) "Authorized representative" has the same meaning as "authorized representative" as defined in RCW 66.04.010.
     (((7))) (8) "Person" means any natural person, corporation, partnership, trust, agency, or other entity, as well as any individual officers, directors, or other persons in active control of the activities of such entity.
     (9) "Successor distributor" means any distributor who enters into an agreement, whether oral or written, to distribute a brand of malt beverages after the supplier with whom such agreement is made or the person from whom that supplier acquired the right to manufacture or distribute the brand has terminated, cancelled, or failed to renew an agreement of distributorship, whether oral or written, with another distributor to distribute that same brand of malt beverages.
     (10) "Terminated distributor" means a distributor whose agreement of distributorship with respect to a brand of malt beverages, whether oral or written, has been terminated, cancelled, or not renewed.

Sec. 3   RCW 19.126.030 and 1984 c 169 s 3 are each amended to read as follows:
     Suppliers are entitled to the following protections which ((shall be)) are deemed to be incorporated ((in the)) into every agreement of distributorship, whether oral or written:
     (1) Agreements between suppliers and wholesale distributors shall be in writing;
     (2) A wholesale distributor shall maintain the financial and competitive capability necessary to achieve efficient and effective distribution of the supplier's products;
     (3) A wholesale distributor shall maintain the quality and integrity of the supplier's product in the manner set forth by the supplier;
     (4) A wholesale distributor shall exert its best efforts to sell the product of the supplier and shall merchandise such products in the stores of its retail customers as agreed between the wholesale distributor and supplier;
     (5) The supplier may cancel or otherwise terminate any agreement with a wholesale distributor immediately and without notice if the reason for such termination is fraudulent conduct in any of the wholesale distributor's dealings with the supplier or its products, insolvency, the occurrence of an assignment for the benefit of creditors, bankruptcy, or suspension in excess of fourteen days or revocation of a license issued by the state liquor board;
     (6) A wholesale distributor shall give the supplier prior written notice, of not less than ninety days, of any material change in its ownership or management and the supplier has the right to reasonable prior approval of any such change; and
     (7) A wholesale distributor shall give the supplier prior written notice, of not less than ninety days, of the wholesale distributor's intent to cancel or otherwise terminate the distributorship agreement.

Sec. 4   RCW 19.126.040 and 1984 c 169 s 4 are each amended to read as follows:
     Wholesale distributors are entitled to the following protections which ((shall be)) are deemed to be incorporated ((in the)) into every agreement of distributorship, whether oral or written:
     (1) Agreements between wholesale distributors and suppliers shall be in writing;
     (2) A supplier shall give the wholesale distributor at least sixty days prior written notice of the supplier's intent to cancel or otherwise terminate the agreement, unless such termination is based on a reason set forth in RCW 19.126.030(5) or results from a supplier acquiring the right to manufacture or distribute a particular brand and electing to have that brand handled by a different distributor. The notice shall state all the reasons for the intended termination or cancellation. Upon receipt of notice, the wholesale distributor shall have sixty days in which to rectify any claimed deficiency. If the deficiency is rectified within this sixty-day period, the proposed termination or cancellation is null and void and without legal effect;
     (3) ((The wholesale distributor is entitled to compensation for the laid-in cost of inventory and liquidated damages measured on the fair market price of the business as provided for in the agreement for any termination of the agreement by the supplier other than termination for cause, for failure to live up to the terms and conditions of the agreement, or any reason set forth in RCW 19.126.030(5); and
     (4))) The wholesale distributor may sell or transfer its business, or any portion thereof, including the agreement, to successors in interest upon prior approval of the transfer by the supplier. No supplier may unreasonably withhold or delay its approval of any transfer, including wholesaler's rights and obligations under the terms of the agreement, if the person or persons to be substituted meet reasonable standards imposed by the supplier.
     (4) If an agreement of distributorship is terminated, cancelled, or not renewed for any reason other than failure to live up to the terms and conditions of the agreement or a reason set forth in RCW 19.126.030(5), the wholesale distributor is entitled to compensation from the successor distributor for the laid-in cost of inventory and for the fair market value of the terminated distribution rights. For purposes of this section, termination, cancellation, or nonrenewal of a distributor's right to distribute a particular brand constitutes termination, cancellation, or nonrenewal of an agreement of distributorship whether or not the distributor retains the right to continue distribution of other brands for the supplier. In the case of a termination resulting from a supplier acquiring the right to manufacture or distribute a particular brand and electing to have that brand handled by a different distributor, the affected distribution rights will not transfer until such time as the compensation to be paid to the terminated distributor has been finally determined by agreement or arbitration.
     (5) When a terminated distributor is entitled to compensation under subsection (4) of this section, a successor distributor must compensate the terminated distributor for the fair market value of the terminated distributor's rights to distribute the brand, less any amount paid to the terminated distributor by a supplier or other person with respect to the termination of distribution rights for the brand. If the terminated distributor's distribution rights to a brand of malt beverages are divided among two or more successor distributors, each successor distributor must compensate the terminated distributor for the fair market value of the distribution rights assumed by that successor distributor, less a proportionate share of any amount paid to the terminated distributor by a supplier or other person with respect to the termination of distribution rights for the brand. A terminated distributor may not receive total compensation under this subsection that exceeds the fair market value of the terminated distributor's distribution rights with respect to the affected brand.
     (6) For purposes of this section, the "fair market value" of distribution rights as to a particular brand means the amount that a willing buyer would pay and a willing seller would accept for such distribution rights when neither is acting under compulsion and both have knowledge of all facts material to the transaction. "Fair market value" is determined as of the date on which the distribution rights are to be transferred in accordance with subsection (4) of this section.
     (7) In the event the terminated distributor and the successor distributor do not agree on the fair market value of the affected distribution rights within thirty days after the terminated distributor is given notice of termination pursuant to subsection (2) of this section, the matter must be submitted to binding arbitration. Unless the parties agree otherwise, such arbitration must be conducted in accordance with the American arbitration association commercial arbitration rules.
     (8) In the event of a material change in the terms of an agreement of distribution, the revised agreement must be considered a new agreement for purposes of determining the law applicable to the agreement after the date of the material change, whether or not the agreement of distribution is or purports to be a continuing agreement and without regard to the process by which the material change is effected.

Sec. 5   RCW 19.126.060 and 1984 c 169 s 6 are each amended to read as follows:
     In any action or arbitration brought by a wholesale distributor or a supplier pursuant to this chapter, the prevailing party shall be awarded its reasonable attorney's fees and costs.

Sec. 6   RCW 19.126.080 and 1985 c 440 s 3 are each amended to read as follows:
     A person injured by a violation of this chapter, other than a person seeking only a determination of the compensation due to a terminated distributor under RCW 19.126.040(4), may bring a civil action in a court of competent jurisdiction to enjoin further violations. Injunctive relief may be granted in an action brought under this chapter without the injured party being required to post bond if, in the opinion of the court, there exists a likelihood that the injured party will prevail on the merits.