On August 1, 2008, Alabama Act Nos. 2008-461 and -462 will become effective. These acts are applicable only in Mobile and Baldwin counties, respectively, and adopt strong protections for dealers in liquid goods — “any good sold or distributed in liquid form.”1 While the specific provisions of the acts themselves are not likely to have widespread effect given their limited geographic reach, the fact that grantors and manufacturers must now take into account the possibility of yet another layer of applicable, and potentially conflicting, laws regulating their distribution and franchise relationships further highlights the need for careful planning before changes to or terminations of those relationships.
The acts, which expressly are not applicable to beer wholesalers (which are subject to other statutory provisions),2 impose strict limitations on the reasons and procedures for changes in or terminations of liquid goods dealership agreements, prohibit contractual provisions attempting to limit dealers’ ability to carry competitive products, and provide that the sale of the dealer or the grantor has no limiting effect on the coverage of the act. While many of these provisions will be familiar to practitioners who deal with statutes like the Wisconsin Fair Dealership Law,3 some of the sections of the Alabama acts go well beyond that famous (or infamous, depending on your point of view) enactment.
The bulk of the Alabama acts is devoted to the issue of changes in or termination of dealership agreements. Specifically, the acts prohibit termination, cancellation, failure to renew, or amendment or modification to a dealership agreement for the sale of liquid goods without good cause. Good cause is defined as the dealer’s failure to comply with reasonable and material obligations under the dealer agreement, provided that those provisions are not discriminatorily imposed and enforced against other similarly situated dealers. It is the grantor’s burden to prove good cause.
Where good cause exists, a grantor is required to give the dealer 90 days’ written notice of the adverse action, state the reason(s) for the proposed action and provide the dealer with 90 days in which to rectify the alleged deficiency(ies). If the deficiency is rectified, the notice is void. Grantors who violate the requirements of this statute may be sued by the alleged dealer for damages, actual costs of the action, including reasonable actual attorneys’ fees, and injunctive relief.4 If the dealership is terminated, inventory repurchase requirements apply.5 These provisions closely track the Wisconsin Fair Dealership Law and similar relationship laws in other states.
Two additional provisions go even further, however, in altering the freedom of grantors and dealers to structure their relationships in a way that best addresses their individual and collective interests. First, the acts prohibit contractual provisions that “prevent a dealer from having an investment in, or holding a dealership agreement for, the sale of competing product lines or brands of liquid goods.”6 In other words, the acts make in-term non-compete provisions void and unenforceable. Second, contrary to the common law in most states, including Alabama, the acts provide that the transferee of a dealership (an undefined term) that continues in business has all of the benefits of the predecessor dealership regardless of the form of transaction and, conversely, the successor to a grantor continuing in the business as a grantor is bound by all of the terms and conditions in effect on the date of the transaction.7
Finally, the acts expressly provide that they apply to liquid goods dealerships in existence on January 1, 2008 as well as those created or amended after that date.
A number of interesting questions are created by the passage of these statutes. For example, an act similarly applicable only to Mobile County contains similar, but not identical provisions applicable to wine dealerships in that county.8 Wine is indisputably a “liquid good” within the meaning of the new acts, but they do not exempt wine dealerships from “liquid goods” as they do beer distributorships. Will the rule that specific legislation trumps general legislation apply in those instances? Or will the new statute, afforded the presumption that the legislature knows what the law is and takes it into account in adopting new legislation, trump the earlier act?
A perhaps more interesting question is whether the statute’s express applicability to existing agreements, in addition to new and/or amended agreements following the effective date,9 will be determined an unconstitutional impairment of contracts. In most cases where the issue has been raised elsewhere, courts have found that retroactive application of such statutes is unconstitutional.10
At minimum, the acts further raise the stakes for manufacturers and franchisors of all goods and/or services sold through dealers, distributors, or franchisees, particularly if other states, where their constitutions allow statutes applicable to individual political subdivisions, follow suit. While it has always been prudent for manufacturers and franchisors who propose to take action that may be adverse to their dealers or franchisees to first consult with counsel to determine whether and how applicable state or federal laws may impact that decision, the need for knowledgeable distribution and franchise counsel has become even greater as the sources of potentially applicable (and potentially conflicting) laws continue to grow.
10See, e.g., Wipperfurth v. U-Haul Co. of W. Wis., Inc., 101 Wis. 2d 586, 304 N.W.2d 767 (1981) (retroactive application of Wisconsin Fair Dealership law would be unconstitutional); Equip. Mfrs. Inst. v. Janklow, 300 F.3d 842 (8th Cir. 2002) (retroactive application of South Dakota Heavy Equipment Act unconstitutional). See generally Ronald T. Coleman, Jr. and David B. Darden, The Constitutionality of Retroactive Franchise Laws, 21 Franchise L.J. 13 (2001).
Legal News Alert is part of our ongoing commitment to providing up-to-the minute information about pressing concerns or industry issues affecting our distribution and franchise clients and our colleagues.
Please contact the following attorneys for additional information on this or other distribution and franchise-related matters:
Roberta (Bobbi) F. Howell