A Cold Draught . . .
John Margulies, photographer. 1984. Library of Congress.
Did you know that in 2007 California enacted special legislation requiring that when a beer brewer replaces a distributor, the successor brewer's designated replacement distributor must negotiate in good faith, and failing that, arbitrate, "to determine the fair market value of the affected distribution rights." Bus. & Prof. Code, section 25000.2. I did not know. As a result of my newfound knowledge, I have added another sidebar category to this blawg: "Arbitration: Statutorily Mandated." Our next case involves a famous brewing company, and its ousted distributor. Mission Beverage Company. Mission Beverage Company v. Pabst Brewing Company, LLC, B271781 (2/2 9.25/17) (Hoffstadt, Ashmann-Gerst, Goodman).
The ousted distributor, Mission, sued Pabst after the brewer decided to replace it with another distributor. Pabst's designated distributors, adhering to the statutory procedure, tried to negotiate with Mission, and when that failed, sent a letter initiating arbitration to Mission. Mission tried unsuccessfully to halt the arbitration. The arbitrator issued an award fixing the fair market value, and the new distributor paid Mission the amount fixed by the arbitrator.
Pabst then filed a motion to strike Mission's lawsuit under the anti-SLAPP statute, arguing that invoking the statutorily-mandated arbitration process under section 25000.2 amounted to "protected activity." While acknowledging that "protected activity" under the anti-SLAPP statute included official proceedings, such as statutorily mandated arbitration, the trial court concluded that the lawsuit against Pabst for breach of contract was separate and distinct from the arbitration. Mission had alleged that Pabst terminated without proper cause -- a breach of contract -- and that the claim was separate from determining the fair market value under the statutory proceeding. The Court of Appeal agreed and affirmed.
The Court of Appeal reasoned that the conduct by Pabst that Mission was challenging was the wrongful termination of the contract with the distributor, and that conduct was not protected. Pabst argued that it could not breach before it sent a letter communicating its decision to terminate, and that sending the letter was protected. The Court, however, explained that the decision to terminate, which occurred earlier, was not protected activity.
Pabst also argued that its actions were all part of a statutorily mandate arbitration proceeding, and that Kibler v. Northern Inyo County Local Hospital Dist., 39 Cal.4th 192 (2006) supported its position that every aspect of a statutorily mandated proceeding, including the decision itself, is protected activity. However, the Court read Kibler more narrowly, so that even if the communication of the decision was protected, the decision to terminate was not protected.
Perhaps the most interesting ADR issue addressed is this: while "private contractual arbitration" is not generally viewed as an "official proceeding authorized by law", statutorily mandated arbitration is an official proceeding within the meaning of the anti-SLAPP statute. Here, however, the wrongful conduct occurred before the statutorily mandated arbitration proceeding was invoked. Furthermore, it was not inevitable that the parties would proceed to arbitration, because the statutory scheme requires that the parties negotiate in good faith first.
QUERY: Why isn't a statutorily mandated requirement that, "[t]he successor beer manufacturer's designee and the existing beer wholesaler shall negotiate in good faith" an official proceeding within the meaning of the anti-SLAPP statute? (italics added). Could that pre-arbitration step be enforced by a court at the request of a party?
COMMENT: One issue that the opinion considers is whether the breach of contract lawsuit is duplicative of the remedies provided by the statutory proceeding that fixes fair market value. The Court of Appeal points out that the contract between Pabst and Mission contains an attorney's fees clause. The distributor may also be entitled to consequential damages arising from a wrongful breach as well as attorney’s fees if it sues Pabst and prevails. The payment of fair market value would provide an offset. If the contract action goes to trial, perhaps my colleague Mike Hensley and I will have another opportunity to post in our California Attorney's Fees blog, because an attorney's fees issue appears to be lurking in the background.
The Pabst Mansion. Milwaukee, Wisconsin. Carol M. Highsmith, photographer. Library of Congress.
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