Franchise 101: Don’t Interfere With Beer; and Over Supply of Gasoline Burns Potential Sale

Franchisor 101: Don’t Interfere With Beer

The Mississippi Supreme Court ruled that a beer manufacturer’s “match and redirect” provision in an agreement with a wholesaler violated the state’s Beer Industry Fair Dealing Act (BIFDA). Anheuser-Busch’s contract said if the wholesaler tried to sell its business, Anheuser-Busch had a “match and redirect” right. This meant Anheuser Busch could assign the sale to a third party if it matched the price and terms of the sale agreement.

Anheuser-Busch asked its Mississippi distributors not to do business with a competitor, Yuengling and Son. The wholesaler did not comply and only one distributor complied, Mitchell Distributing Company (Mitchell). Later, the wholesaler tried to sell its company to a distributor that did business with Yuengling. Anheuser-Busch exercised its right and directed the wholesaler to sell to Mitchell.

The wholesaler claimed Anheuser-Busch interfered with its sale as punishment for refusing to stop dealing with Yuengling. The wholesaler claimed the match and redirect provision violated BIFDA, was a conspiracy by Anheuser-Busch and Mitchell and that Mitchell interfered with the sale to the wholesaler’s proposed buyer.  

BIFDA says a supplier must not “interfere with, prevent or unreasonably delay the transfer of the wholesaler’s business” if the transferee meets “nondiscriminatory, material and reasonable qualifications and standards.” The supplier can veto a transfer “in good faith and for good cause related to the reasonable qualifications” of the transferee. Anheuser-Busch claimed that interference could not exist because a party cannot be found to have interfered with its own contract. The court rejected this argument as it would defeat the purpose of BIFDA. BIFDA’s purpose is to create separation between manufacturers and distributors. Anheuser-Bush’s view would take away protection for distributors against manufacturers choosing the distributor’s new owner. Thus, the agreement’s “match and redirect” provision was void and the court allowed the wholesaler’s conspiracy and interference claims to proceed.

Franchisors and suppliers should be aware of state franchise and distribution laws that govern their business and industries and consult counsel when exercising rights that affect relationship rights of franchisees and distributors. This is especially true when exercising such rights can be perceived as having ulterior motives that benefit the franchisor, a supplier or a third party, to the detriment of the existing franchisee or distributor.

See: Rex Distrib. Co., Inc. v. Anheuser-busch, LLC, 271 So. 3d 445 (Miss. 2019)

Franchisee 101: Over Supply of Gasoline Burns Potential Sale

A gasoline franchisee defeated a motion to dismiss brought by its franchisor, seeking to avoid a claim under the federal Petroleum Marketing Practices Act (PMPA). In 2018, Global Companies (Global) sent the franchisee a Notice of Non-Renewal. Global entered into a purchase and sale agreement (PSA) with a buyer for the underlying property of the franchisee. The notice informed the franchisee of its right of first refusal under PMPA to buy the property on the same terms as the proposed buyer.

At issue was a PSA clause that said if the buyer stored petroleum products on its property in the next fifty years, then Global had to supply such petroleum products. Global knew the third-party buyer was not in the petroleum industry and did not intend to use the property to store gasoline. So this provision applied only to the franchisee. Though the franchisee timely exercised its first refusal right, the franchisee sued Global for violating PMPA. In the franchisee’s view, its actual purchase price was much higher than the third-party’s due to the gasoline supplier requirement that applied only to the franchisee.

Global argued that it complied with PMPA because the franchisee was given a right of first refusal on the exact terms as the third-party buyer. The court sided with the franchisee. Under PMPA, a franchisor cannot force a substantial change in the franchise relationship, in this case conversion to a franchisee-owned property, using the threat of non-renewal. The court held that “making a supply agreement a term of the offer to sell the premises” did what was not allowed, by potentially requiring the franchisee to be tied to a fifty-year gasoline supply term. 

Gasoline franchisees with a right of first refusal on the purchase of property should look for any terms in the purchase agreement that may require the franchisee to become a supplier to the franchisor, or terms that affect their purchase price and/or obligations and not those of a third-party buyer. Franchisees have relationship protections under PMPA and should consult a franchise and distribution attorney before moving forward on exercising or declining a right of first refusal.

See: Abe & Nahed, Inc. v. Glob. Companies LLC, No. 18-12425-FDS (D. Mass. May 28, 2019)