It’s another Illinois Beer Industry Fair Dealing Act Thursday here at Libation.  A day when we pause to give thanks for beer and reflect on a statute that is expressly involved in how that beer gets from a brewer to the public.

As a newly established brewer entering into distribution agreements or as an established brewer with a continuing distributor relationship it may be tempting to just come to an oral arrangement to modify terms.  In a longstanding relationship it may just seem easier to agree to changes over the phone.  In a new relationship there may be activities or methods that were in the signed contract that are tested and found inadequate or new activities that, as the brewer grows, become necessary but weren’t in the original agreement.  Think twice about what these arrangements are because it could be that the failure to update the distribution agreement is a violation of BIFDA.  Specifically, Section 5 of the BIFDA. 

Section 5 is a prohibitive section containing a whole host of actions that a brewer is barred from taking.  Section 5(4) and 5(9) are two of the sub-sections that make up the list of prohibitions.  The sections read that “No Brewer shall”:

Section 5(4)

Fail to provide to each wholesaler of its brands a written contract which embodies the brewer’s agreement with its wholesalers and conforms to the provisions of this Act.

Section 5(9)

Present an agreement to a wholesaler that attempts to waive compliance with any provision of this Act or that requires the wholesaler to waive compliance with any provision of this Act. A wholesaler entering into an agreement containing provisions in conflict with this Act shall not be deemed to waive compliance with any provision of this Act. No brewer shall induce or coerce, or attempt to induce or coerce, any wholesaler to assent to any agreement, amendment, renewal, or replacement agreement that does not comply with this Act and the laws of this State.

When read together, these two provisions create an interesting situation.  Suppose you have signed a written agreement as a brewer and you alter its terms or the arrangement orally with the distributor.  BIFDA requires that you provide an agreement to your distributor that conforms to the provisions of BIFDA and BIFDA also requires that the brewer not present an agreement that attempts to waive compliance with BIFDA.  So, by definition, wouldn’t an oral agreement violate BIFDA since it isn’t a written contract that embodies the entire agreement?

This was an issue alleged in E&J Gallo Winery v. Morand Bros. Bev. Co.  (N.D. IL – Case No. 02 C 4599) 

In this dispute, one of the counterclaims that the distributor brought against the brewer was that by having other side-agreements and oral agreements that weren’t in the parties distribution agreement – Section 5(9) had been violated by the Section 5(4) failure.

The issue was put before the Court in the context of a motion to dismiss and the Court found that the cause of action for violating Section 5(9) based on Section 5(4) inadequacies could stand:

In count two of [Distributor’s] counterclaims, it also alleges that E&J violated Sections 5(4) and 5(9) of the Beer Act.  Section 5(4) requires that a brewer to provide a wholesaler with a written contract embodying the agreement and that the written contract conform to the Beer Act. Section 5(9) prohibits a brewer from presenting a wholesaler with an agreement “that attempts to waive compliance with any provision of this Act or that requires the wholesaler to waive compliance with any provision of this Act.”

E&J contends that the Malt Agreements do not violate Sections 5(4) or 5(9) because they expressly incorporate the Beer Act and provide that to the extent the agreements do not conform to the Act, the agreements “are deemed modified to conform to those provisions.” [Distributor] alleges, however, that the Malt Agreements did not embody the full scope of the parties agreements. This sufficiently states a claim under Section 5(4) that the brewer failed to provide “a written contract which embodies the brewer’s agreement.”

Furthermore, [Distributor] alleges that E&J submitted a “Transition Agreement” in June 2002 which “contained a broad general release clause which sought to have [Distributor] waive its right to seek redress for the numerous Beer Act and other violations” described in the counterclaims. Viewing the allegations in the light most favorable to [Distributor], these allegations are sufficient to state a claim under Section 5(9).

The lesson here is that with all relationships it just gets easy to fall into a pattern and practice that doesn’t include all the formalities that the parties undertook when the relationship started.  When you know the people you’re dealing with, it’s just simpler sometimes to pick up the phone and come to an arrangement that better suits both your needs – and trust created over time usually means that the best practices that were followed in the beginning get overlooked.  This is a mistake when there’s a statute that may require written documentation of any change in the relationship.