DIVORCING YOUR DISTRIBUTOR WRITTEN BY BRIAN B. DEFOE
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the law of the “territory” covered by the agreement) will provide n these United States, it is now generally possible to end your the distributor with some rights that are to its benefit — and to marriage without having to prove that your soon-to-be ex did the detriment of the brand. The primary benefit? The lack of something horrible. And so while you may want to show a divorce an easy no-fault divorce approach for the brand to escape the court proof of your spouse’s bad acts — it isn’t actually required. You relationship. Rather, if the brand wants to leave the distributor can get what is commonly referred to as a “no-fault divorce” and go behind, it generally has a choice to make. It will either need on your merry, unmarried way. to demonstrate “cause” (or in some cases “good cause” or “just But this ability to escape what we occasionally refer to as cause” or some similar standard) under state law, or write a big the marriage contract without too much legal difficulty is check. the exception, rather than the rule, when it comes to actual The states that follow this model all approach the issue slightly contracts. In most cases, if you’re a party to a contract that differently, but there are certainly some thematic similarities. We you want to leave behind, your ability to escape will depend will consider several in turn. on the language of the contract itself and (potentially) your legal pain tolerance. For one type of contract near and dear to spirits brands — the distribution agreement — it may be even worse. Finding a distributor is often viewed by young brands as a rite of (BUT DON’T DEFINE IT) passage — something to aspire to, and potential indicia of success. Some might argue that a draconian standard for demonstrating This can be accurate. But just as marriage at a tender age (or at cause is the most challenging approach for a brand. Although any age for that matter) doesn’t always succeed, the same is a cogent argument can be made that the most challenging state true with respect to the relationship between a brand and a of affairs for a burgeoning brand is the situation where the law is distributor. The affianced, therefore, is well advised to move unclear. A few states’ laws create exactly that conundrum. In those cautiously into this relationship and, if appropriate, to enter states, the relevant legal regime requires that a brand demonstrate into a prenuptial agreement. [Note: For purposes of this article, some variant of cause in order to escape a distribution agreement we will assume the existence of an actual written agreement without penalty, but fail to provide a definition for cause. My between the brand and the distributor. However, readers should be home state of Washington is among these. Specifically, RCW advised that a distribution agreement may exist under state laws even 19.126.040 provides that a brand may exit without penalty in in the absence of such a document — often to the delight of the one of a few specific scenarios: distributor and the dismay of the brand.] There are many excellent resources for brands to consult when >> If the distributor has failed to live up to the terms and considering entry into a distribution agreement, so we will conditions of the distribution agreement; not repeat those items here. Instead, we will focus on one >>If the distributor’s conduct has run afoul of any of the provisions of particular concept, that of “cause” for termination of the a corollary statute (RCW 19.126.030 – fraudulent dealing with agreement and how it is implemented in several states. the brand or its products, bankruptcy and similar financial As a component of the three-tier system, the vast majority of problems, or certain problems relating to the distributor’s states regulate the relationship between an alcohol distributor and license to operate in the state); or the brands carried by that distributor. In nearly all of those states, >> For cause. the law of the state in which the distributor is selling the brand (i.e.,
SOME STATES ALLOW TERMINATION FOR CAUSE
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