The West Virginia Supreme Court of Appeals' decision in North Central Distributors, Inc., v. Moats serves as a reminder that in most states, a distributor's failure to timely pay a brewer's invoices will be just cause for the brewer to terminate the distributor's right to distribute the brewer's brands.
In April 2002, North Central Distributors, Inc. (NCDI) entered a distribution agreement with Labatt USA Operating Co., LLC (Labatt) that gave NCDI the exclusive right to distribute Labatt's brands in certain counties in West Virginia. Between August 2010 and January 2011, Labatt delivered beer to NCDI, provided NCDI with online invoices and attempted to draw payment of its invoices via electronic transfers from NCDI's bank account after each delivery, but each draw failed because of insufficient funds. Labatt sent "breach of distribution agreement" letters to NCDI on February 21, 2011 and March 4, 2011 demanding payment by March 18, 2011. When NCDI failed to pay, Labatt notified NCDI and the West Virginia Commissioner of Alcoholic Beverage Control of its intent to terminate the distribution agreement in 90 days. NCDI protested the termination and then paid the outstanding invoices on August 2, 2011.
West Virginia's Intoxicating Beer Act forbids either party to a beer distribution agreement from terminating the agreement "without due regard for the equities of [the terminated party] and without just cause." After a hearing, the Commissioner concluded that the distributor's failure to timely pay the invoices was a material breach of the distribution agreement and that the brewer had properly terminated the Franchise Agreement. NCDI appealed the Commission's decision, first to the Circuit Court, which affirmed the Commissioner's order, and then to the Court of Appeals, and argued that Labatt's termination of the Franchise Agreement was without due regard for the equities of NCDI and without just cause. The Court of Appeals disagreed and ruled that NCDI failed to act reasonably or justifiably by failing, for six months, to pay for the product it had received, that Labatt had just cause to terminate the Franchise Agreement, and that Labatt's termination notice complied with the West Virginia statute by identifying NCDI's breaching conduct, citing the contractual remedy, and providing NCDI with an opportunity to cure. To read the full case, click here.