1998 Regular Session
To: Ways and Means
By: Representative Williams
House Bill 1100
ACT TO CREATE THE WINE AND SPIRITS INDUSTRY FAIR DEALING ACT; TO REGULATE THE RELATIONSHIP BETWEEN SUPPLIERS AND BROKERS OF WINE AND SPIRITS; TO REQUIRE WRITTEN AGREEMENTS SETTING FORTH IN FULL THE SUPPLIER'S AGREEMENT WITH THE BROKER AND DESIGNATING A SPECIFIC SALES TERRITORY; TO PROVIDE FOR PROHIBITED ACTS BY THE SUPPLIER AND BY THE BROKER; TO PROVIDE FOR CONDITIONS OF AMENDMENT, MODIFICATION, RESIGNATION, CANCELLATION, TERMINATION, FAILURE TO RENEW OR REFUSAL TO CONTINUE SUCH AGREEMENT; TO PROVIDE FOR THE TRANSFER OF A BROKER'S BUSINESS, FOR THE ESTABLISHMENT OF NONDISCRIMINATORY, MATERIAL AND REASONABLE QUALIFICATIONS AND STANDARDS BY A SUPPLIER, AND PROHIBIT INTERFERENCE WITH THE TRANSFER OF A BROKER'S BUSINESS UPON THE COMPLIANCE WITH THOSE STANDARDS; TO PROVIDE FOR REASONABLE COMPENSATION UPON A SUPPLIER'S VIOLATION OF THIS ACT, INCLUDING THE METHOD OF VOLUNTARY ARBITRATION; TO PROVIDE FOR CIVIL ACTIONS FOR VIOLATIONS, AND DAMAGES AND VENUE FOR SUCH CIVIL ACTIONS; TO PROVIDE THAT A BROKER MAY NOT WAIVE RIGHTS SET FORTH IN THIS ACT; TO PROVIDE THAT THE ACT RELATES TO FUTURE AGREEMENTS, TRANSFEREES OF A BROKER CONTINUING UNDER WRITTEN AGREEMENT, AND A SUPPLIER'S SUCCESSOR; TO CREATE SALES TERRITORIES WITHIN WHICH A WINE OR SPIRITS MANUFACTURER DESIGNATES ONE LICENSED WINE OR SPIRITS BROKER AS THE BROKER FOR THE MANUFACTURER'S BRAND OR BRANDS; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. This act shall be known and may be cited as the "Wine and Spirits Industry Fair Dealing Act."
SECTION 2. The legislative purpose of this act is to provide a structure for the business relations between a brokerage and a supplier of wine or spirits. Regulation in this area is considered necessary for the following reasons:
(a) To maintain stability and healthy competition in the wine and spirits industry in this state.
(b) To promote and maintain a sound, stable and viable system of sales and marketing of wine and spirits to the public.
(c) To provide for the private settlement of disputes between brokers and suppliers of wine and spirits as an alternative to civil litigation which consumes the time and resources of the parties and the judicial system.
(d) To promote the public health, safety and welfare.
SECTION 3. As used in this act, the following words and phrases shall have the meanings ascribed in this section unless the context clearly indicates otherwise:
(a) "Agreement" means any agreement between a broker and a supplier, whether oral or written, whereby a broker is granted the right to sell and market a brand or brands of wine or spirits sold by a supplier.
(b) "Ancillary business" means a business owned by the broker, by a substantial stockholder of a brokerage, or by a substantial partner of a broker, the primary business of which is directly related to the transporting, storing or marketing of the brand or brands of wine or spirits of a supplier with whom the broker has an agreement; or a business owned by a broker, a substantial stockholder of a broker.
(c) "Broker" or "brokerage" means an appointed sales and marketing representative of a supplier.
(d) "Commission" means the State Tax Commission of the State of Mississippi.
(e) "Commissioner" means the Chairman of the State Tax Commission.
(f) "Designated member" means the spouse, child, grandchild, parent, brother or sister of a deceased individual who owned an interest, including a controlling interest, in a brokerage, or any person who inherits under the deceased individual's will, or under the laws of intestate succession of this state; or any person who or entity which has otherwise, through a valid testamentary device by the deceased individual, succeeded the deceased individual in the broker's business, or has succeeded to the deceased individual's ownership interest in the brokerage pursuant to a written contract or instrument which has been previously approved by supplier; "designated member" includes the appointed and qualified personal representative and the testamentary trustee of a deceased individual owning an ownership interest in a brokerage, and it includes the person appointed by a court as the guardian or conservator of the property of an incapacitated individual owning an ownership interest in a brokerage.
(g) "Establish" means to adjust or regulate, to provide for and uphold.
(h) "Good faith" means honesty in fact and observance of reasonable commercial standards of fair dealing in the trade, as defined in and interpreted under the Uniform Commercial Code.
(i) "Reasonable qualifications" means the standard of the reasonable criteria established and consistently used by the respective supplier for similarly situated brokers that entered into, continued or renewed an agreement with the supplier during a period of twenty-four (24) months before the proposed transfer of the broker's business, or for similarly situated brokers who have changed managers or designated managers, under the agreement, during a period of twenty-four (24) months before the proposed change in the manager or successor manager of the broker's business.
(j) "Retaliatory action" means the refusal to continue an agreement, or a material reduction in the quality of service or quantity of products available to a broker under an agreement, or a reduction of commissions to a broker under an agreement, which refusal or reduction is not made in good faith.
(k) "Sales territory" means a primary area of sales responsibility for the brand or brands of wine or spirits sold by a supplier as designated by an agreement.
(l) "Substantial stockholder or substantial partner" means a stockholder of or partner in the brokerage who owns an interest of ten percent (10%) or more of the partnership or of the capital stock of a corporate brokerage.
(m) "Supplier" means a manufacturer or importer of wine or spirits as regulated by the State Tax Commission under Sections 67-1-1 through 67-1-99.
(n) "Transfer of broker's business" means the voluntary sale, assignment or other transfer of ten percent (10%) or more of control of the business or all or substantially all of the assets of the brokerage, or ten percent (10%) or more of control of the capital stocks of the brokerage, including without limitation the sale or other transfer of capital stock or assets by merger, consolidation or dissolution, or of the capital stock of the parent corporation, or of the capital stock or beneficial ownership of any other entity owning or controlling the brokerage.
(o) "Similarly situated brokers" means brokers of a supplier that are of a generally comparable size and operate in other states with similar demographic characteristics, including population size, density, distribution and vital statistics, as well as reasonably similar economic and geographic conditions.
(p) "Spirits" has the meaning ascribed to such term in Section 67-1-5.
(q) "Wine" has the meaning ascribed to such term in Section 67-1-5.
SECTION 4. (1) A supplier shall not do the following:
(a) Fail to provide each broker of the supplier's brand or brands with a written agreement which contains in total the supplier's agreement with each broker, and designates a specific sales territory. Any agreement which is in existence on the effective date of this act shall be renewed consistent with this act, provided that this act may be incorporated by reference in the agreement. Nothing contained herein shall prevent a supplier from appointing, one (1) time for a period not to exceed ninety (90) days, a broker to service temporarily a sales territory not designated to another broker, until such time as a broker is appointed by the supplier; and such broker who is designated to service the sales territory during this period of temporary service shall not be in violation of the act, and, with respect to the temporary service territory, shall not have any of the rights provided under Sections 6 and 8 of this act.
(b) Enter into an additional agreement with any other broker for, or to assign to any other broker, the same brand or brands of wine or spirits in the same territory or any portion thereof.
(c) Require any broker to do any illegal act or to violate any law or regulation by threatening to amend, modify, cancel, terminate or refuse to renew any agreement existing between the supplier and broker.
(d) Require a broker to assent to any condition, stipulation or provision limiting the broker's right to sell or market the brand or brands of wine or spirits of any other supplier unless the selling or marketing of the brand or brands of another supplier would materially impair or adversely affect the broker's quality of service, sales or ability to compete effectively in representing the brand or brands of the supplier presently being sold by the broker, except that in any action challenging a supplier's position, the supplier shall have the burden of providing that such selling or marketing of such other brand or brands would have such effect.
(e) Require a broker to sell or market one or more brands of wine or spirits products in order for the broker to sell or market another brand or brands of wine or spirits for any reason, except that a broker that has agreed to sell a brand or brands before the effective date of this act shall continue to market the brand or brands in conformance with this act.
(g) Require a broker to submit audited profit and loss statements, balance sheets or financial records as a condition of renewal or continuation of an agreement, except that a supplier may require reasonable proof of a broker's financial condition prior to extending credit terms to a broker.
(h) Withhold delivery of wine or spirits marketed by broker, or change a broker's quota of a brand or brands if the withholding or change is not made in good faith.
(i) Require a broker by any means directly to participate in or contribute to any local or national advertising fund controlled directly or indirectly by a supplier.
(j) Take any retaliatory action against a broker that files a complaint in good faith regarding an alleged violation by the supplier of federal, state or local law or an administrative rule as a result of that complaint.
(k) Require or prohibit any change in the manager or successor manager of any broker who has been approved by the supplier as of or after the effective date of this act unless the supplier acts in good faith. Should a broker change an approved manager or successor manager, a supplier shall not require or prohibit the change unless the person selected by the broker fails to meet the nondiscriminatory, material and reasonable standards and qualifications for managers consistently applied to similarly situated brokers by the supplier, except that, in any action challenging a supplier's decision, the supplier shall have the burden of proving that such person fails to meet such standards and qualifications.
(l) Upon written notice of intent to transfer the broker's business, interfere with, prevent or unreasonably delay (not to exceed thirty (30) days) the transfer of the broker's business if the proposed transferee is a designated member.
(m) Upon written notice of intent to transfer the broker's business other than to a designated member, withhold consent to or approval of, or unreasonably delay (not to exceed thirty (30) days after receipt of all material information reasonably requested) a response to a request by the broker for any transfer of a broker's business if the proposed transferee meets the nondiscriminatory, material and reasonable qualifications and standards required by the supplier for similarly situated brokers.
(n) Restrict or inhibit the right of free association among brokers for any lawful purpose.
SECTION 5. A broker shall not do any of the following:
(a) Fail to devote such efforts and resources to the sale and marketing of all the supplier's brands of wine or spirits the broker has been granted the right to market as are required in the broker's agreement with the supplier.
(b) Sell or market wine or spirits to a retail licensee located outside the sales territory designated to the broker by the supplier of a particular brand or brands of wine or spirits, except that during periods of temporary service interruptions impacting a particular sales territory, a supplier may appoint another broker to service the sales territory during the period of temporary service interruption. A broker who is designated to service the impacted sales territory during the period of temporary service interruption shall not be in violation of this act and shall not have any of the rights provided under Sections 6 and 8 of this act with respect to the temporary service territory.
(c) Transfer the broker's business without giving the supplier written notice of intent to transfer the broker's business and, where required by this act, receiving the supplier's written approval for the proposed transfer, except that the consent or approval of the supplier shall not be required of any transfer of the broker's business to a designated member, or of any transfer of less than ten percent (10%) of the broker's business unless such transfer results in a change in control. The broker shall give the supplier written notice of any change in ownership of the broker.
SECTION 6. (1) Except as otherwise provided for in this act, a supplier shall not amend or modify an agreement; cause a broker to resign from an agreement; or cancel, terminate, fail to renew or refuse to continue under an agreement, unless the supplier has complied with all of the following:
(a) Has satisfied the applicable notice requirements of this section.
(b) Has acted in good faith.
(c) Has good cause for the amendment, modification, cancellation, termination, nonrenewal, discontinuance or forced resignation.
(2) In any action challenging such amendment, modification, termination, cancellation, nonrenewal or discontinuance, the supplier shall have the burden of proving that it has acted in good faith, that the notice requirements under this section have been complied with, and that there was good cause for the amendment, modification, termination, cancellation, nonrenewal or discontinuance.
(3) Except as otherwise provided in this section, and in addition to the time limits set forth in subsection (4)(d) of this section, the supplier shall furnish written notice of the amendment, modification, termination, cancellation, nonrenewal or discontinuance of an agreement to the broker not less than thirty (30) days before the effective date of the amendment, modification, termination, cancellation, nonrenewal or discontinuance. The notice shall be by certified mail and shall contain all of the following:
(a) A statement of intention to amend, modify, terminate, cancel, nonrenew or discontinue the agreement.
(b) A statement of the reason for the amendment, modification, termination, cancellation, nonrenewal or discontinuance.
(c) The date on which the amendment, modification, termination, cancellation, nonrenewal or discontinuance takes effect.
(4) Good cause shall exist for the purposes of a termination, cancellation, nonrenewal or discontinuance under subsection (1)(c) of this section when all of the following occur:
(a) There is a failure by the broker to comply with a provision of the agreement which is both reasonable and of material significance to the business relationship between the broker and the supplier.
(b) The supplier first acquired knowledge of the failure described in paragraph (a) of this subsection (4) not more than twenty-four (24) months before the date notification was given pursuant to subsection (3) of this section.
(c) The broker was given notice by the supplier of failure to comply with this agreement.
(d) The broker has been afforded thirty (30) days in which to submit a plan of corrective action to comply with the agreement and an additional ninety (90) days to cure such noncompliance in accordance with the plan.
(5) Notwithstanding subsections (1) and (3) of this section, a supplier may terminate, cancel, fail to renew or discontinue an agreement immediately upon written notice given in the manner and containing the information required by subsection (3)of this section if any of the following occur:
(a) Insolvency of the broker, the filing of any petition by or against the broker under any bankruptcy or receivership law or the assignment for the benefit of creditors or dissolution or liquidation of the broker which materially affects the broker's ability to remain in business.
(b) Revocation or suspension of the broker's state or federal license by the appropriate regulatory agency whereby the broker cannot service the broker's sales territory for more than thirty-one (31) days.
(c) The broker, or a partner or an individual who owns ten percent (10%) or more of the partnership or stock of a corporate broker, has been convicted of a felony under the United States Code or the laws of any state which reasonably may adversely affect the good will or interest of the broker or supplier. However, an existing stockholder or stockholders, or partner or partners, or a designated member or members, shall have, subject to the provisions of this act, the right to purchase the partnership interest or the stock of the offending partner or stockholder prior to the conviction of the offending partner or stockholder, and if the sale is completed prior to conviction the provisions of this paragraph (c) shall not apply.
(d) There was fraudulent conduct relating to a material matter on the part of the broker in dealings with the supplier or its product, except that the supplier shall have the burden of proving fraudulent conduct relating to a material matter on the part of the broker in any legal action challenging such termination.
(e) The broker failed to confine to the designated sales territory its sales of a brand or brands to retailers except that this subsection does not apply if there is a dispute between two (2) or more brokers as to the boundaries of the assigned territory, and the boundaries cannot be determined by a reading of the description contained in the agreements between the supplier and the brokers.
(f) A broker intentionally has made a transfer of the broker's business, other than a transfer to a designated member without prior written notice to the supplier.
(g) A broker intentionally has made a transfer of the broker's business, other than a transfer to a designated member, although the broker has prior to the transfer received from the supplier a timely notice of disapproval of such transfer in accordance with this act.
(h) The broker intentionally ceases to carry on business with respect to any of the supplier's brand or brands previously serviced by the broker in its territory designated by the supplier, unless such cessation is due to force majeure or to labor dispute and the broker has made good faith efforts to overcome such events. However, this shall affect only that brand or brands with respect to which the broker ceased to carry on business.
(6) Notwithstanding subsections (1), (3) and (5) of this section, a supplier may terminate, cancel, not renew or discontinue an agreement upon not less than thirty (30) days prior written notice if the supplier discontinues production or discontinues distribution in this state of all the brands sold by the supplier through the broker, except that nothing in this section shall prohibit a supplier from: (a) upon not less than thirty (30) days notice, discontinuing the distribution of any particular brand or package of wine or spirits; or (b) conducting test marketing of a new brand of wine or spirits which is not currently being sold in this state, except that the supplier has notified the State Tax Commission in writing of its plans to test market, which notice shall describe the market area in which the test shall be conducted; the name or names of the broker or brokers who will be marketing the wine or spirits; the name or names of the brand of wine or spirits being tested; and the period of time, not to exceed eighteen (18) months, during which the testing will take place.
SECTION 7. (1) Upon written notice of intent to transfer the broker's business, any individual owning or deceased individual who owned an interest in a broker may transfer the broker's business to a designated member, or to any other person who meets the nondiscriminatory, material and reasonable qualifications and standards required by the supplier for similarly situated brokers. The consent or approval of the supplier shall not be required of any transfer of the broker's business, including the assignment of the broker's rights under the agreement, to a designated member or shall not be withheld or unreasonably delayed to a proposed transferee who meets such nondiscriminatory, material and reasonable qualifications and standards. Such designated member or transferee shall in no event be qualified as a transferee, without the written approval or consent of the supplier, where such proposed transferee has been involved in the following:
(a) Insolvency, filing of any voluntary or involuntary petition under any bankruptcy or receivership law, or execution of any assignment for the benefit of creditors;
(b) Revocation or suspension of a special occupational tax license by the regulatory agency of the United States Government or any state, whereby service was interrupted for more than thirty-one (31) days;
(c) Conviction of the proposed transferee or any owner thereof of a felony under the United States Code or the laws of any state which reasonably may adversely affect the good will or interest of the broker or supplier; or
(d) Had an agreement involuntarily terminated, cancelled, not renewed or discontinued by a supplier for good cause.
(2) The supplier shall not interfere with, prevent or unreasonably delay the transfer of the broker's business, including an assignment of broker's rights under the agreement, if the proposed transferee is a designated member, or if the transferee other than a designated member meets such nondiscriminatory, material and reasonable qualifications and standards required by the supplier for similarly situated brokers. Where the transferee is other than a designated member, the supplier may in good faith and for good cause related to the reasonable qualifications refuse to accept the transfer of the broker's business or the assignment of the broker's rights under the agreement.
SECTION 8. (1) Except as provided for in this act, a supplier that has amended, modified, cancelled, terminated or refused to renew any agreement; or caused a broker to resign from an agreement; or has interfered with, prevented or unreasonably delayed, or where required by this act, has withheld or unreasonably delayed consent to or approval of, any assignment or transfer of a broker's business, shall pay the broker reasonable compensation for the diminished value of the broker's business, including any ancillary business which has been negatively affected by the act of the supplier. The value of the broker's business or ancillary business shall include, but not be limited to, its good will, except that nothing contained in this act shall give rise to a claim against the supplier or broker by any proposed purchaser of broker's business.
(2) Should either party, at any time, determine that mutual agreement on the amount of reasonable compensation cannot be reached, the supplier or the broker may send by certified mail, return receipt requested, written notice to the other party declaring its intention to proceed with arbitration. Arbitration shall proceed only by mutual agreement of both parties.
(3) Not more than ten (10) business days after the notice to enter into arbitration has been delivered, the other party shall send written notice to the requesting party declaring its intention either to proceed or not to proceed with arbitration. Should the other party fail to respond within ten (10) business days, it shall be conclusively presumed that such party has agreed to arbitration.
(4) The matter of determining the amount of compensation may, by agreement of the parties, be submitted to a three (3) member arbitration panel consisting of one (1) representative selected by the supplier but unassociated with the affected supplier; one (1) broker representative selected by the broker but unassociated with the broker; and an impartial arbitrator.
(5) Not more than ten (10) business days after mutual agreement of both parties has been reached to arbitrate, each party shall designate, in writing, its one (1) arbitrator representative and the party initiating arbitration shall request, in writing, a list of five (5) arbitrators from the American Arbitration Association or its successor and request that the list be mailed to each party by certified mail, return receipt requested. Not more than ten (10) business days after the receipt of the list of five (5) choices, the broker arbitrator and the supplier arbitrator shall strike and disqualify up to two (2) names each from the list. Should either party fail to respond within the ten (10) business days or should more than one (1) name remain after the strikes, the American Arbitration Association shall make the selection of the impartial arbitrator from the names not stricken from such list.
(6) Not more than thirty (30) days after the final selection of the arbitration panel is made, the arbitration panel shall convene to decide the dispute. The panel shall conclude the arbitration within twenty (20) days after the arbitration panel convenes and shall render a decision by majority vote of the arbitrators within twenty (20) days from the conclusion of the arbitration. The award of the arbitration panel shall be final and binding on the parties as to the amount of compensation for diminished value.
(7) The cost of the impartial arbitrator, the stenographer and the meeting site shall be equally divided between the broker and the supplier. All other costs shall be paid by the party incurring them.
(8) After both parties have agreed to arbitrate, should either party, except by mutual agreement, fail to abide by the time limitations as prescribed in subsections (3), (5) and (6) of this section, or fail or refuse to make the selection of any arbitrators, or fail to participate in the arbitration hearings, the other party shall make the selection of its arbitrators and proceed to arbitration. The party who has failed or refused to comply as prescribed in this section shall be considered to be in default. Any party considered to be in default pursuant to this subsection shall have waived any and all rights the party would have had in the arbitration and shall be considered to have consented to the determination of the arbitration panel.
SECTION 9. A broker may not waive any of the rights granted in any provision of this act and the provisions of any agreement which would have such an effect shall be null and void. Nothing in this act shall be construed to limit or prohibit good faith dispute settlements voluntarily entered into by the parties.
SECTION 10. (1) This act shall apply to agreements entered into or renewed after the effective date of this act.
(2) A transferee of a broker that continues in business as a broker shall have the benefit of and be bound by all terms and conditions of the agreement with the supplier in effect on the date of the transfer, except that a transfer of a broker's business which requires supplier's consent or approval but is disapproved by the supplier shall be null and void.
SECTION 11. (1) If a supplier or broker engages in conduct prohibited under this act, either party may maintain a civil action against the other to recover actual damages reasonably incurred as the result of the prohibited conduct.
(2) A supplier or broker that violates any provision of this act shall be liable for all actual damages and all court costs and, in the court's discretion, reasonable attorney fees incurred by the other party as a result of that violation.
(3) A supplier or broker may bring an action for declaratory judgment for determination of any controversy arising pursuant to this act.
(4) Upon proper application to the court, a supplier or broker may obtain injunctive relief against any violation of this act.
(5) Any legal action taken under this act, or in a dispute over the provisions of an agreement shall be filed in a court, state or federal, located in Mississippi, which state court is located in, or which federal court has jurisdiction and venue of, the county in which the broker maintains its principal place of business in this state.
SECTION 12. No right or cause of action authorized by Mississippi law shall be waived by the supplier or broker unless specifically waived in the agreement.
SECTION 13. (1) Every manufacturer or importer of wine or spirits shall designate sales territories for each of its brands sold in Mississippi and shall name one (1) licensed wine or spirits broker in each territory who, within such territory, shall be the licensed broker for the brand or brands assigned by the manufacturer or importer. If the manufacturer or importer supplies more than one (1) brand, sales territories may be granted to a different broker for the sale of each brand.
(2) A licensed broker designated as the licensed broker for wine or spirits within a designated sales territory shall present that wine or spirits to all licensed retailers within the designated sales territory without discrimination in service. A licensed broker shall not sell or market, either directly or indirectly through a third party, any wine or spirits to a licensed retailer outside of the designated sales territory of the designated broker, nor to any person the licensed broker has reason to believe will sell or supply any quantity of the wine or spirits to any retail location outside of the designated sales territory of the licensed broker.
(3) With the approval of the designated manufacturer, a licensed broker may sell or market the designated brands to a licensed retailer located in a designated sales territory of another licensed broker if the former licensed broker is unable temporarily for any reason to provide the designated brands of the designated manufacturer within its designated sales territory.
SECTION 14. Sections 1 through 12 of this act shall be codified in Chapter 8, Title 67, Mississippi Code of 1972. Section 13 of this act shall be codified in Chapter 71, Title 27, Mississippi Code of 1972.
SECTION 15. This act shall take effect and be in force from and after its passage.