BILL NUMBER: SB 574 ENROLLED
BILL TEXT
PASSED THE SENATE SEPTEMBER 5, 2007
PASSED THE ASSEMBLY AUGUST 30, 2007
AMENDED IN ASSEMBLY AUGUST 27, 2007
AMENDED IN ASSEMBLY JULY 5, 2007
AMENDED IN ASSEMBLY JUNE 20, 2007
AMENDED IN SENATE APRIL 9, 2007
INTRODUCED BY Senator Negrete McLeod
(Coauthor: Senator Yee)
FEBRUARY 22, 2007
An act to add Section 25000.2 to the Business and Professions
Code, relating to alcoholic beverages.
LEGISLATIVE COUNSEL'S DIGEST
SB 574, Negrete McLeod. Alcoholic beverages.
The Alcoholic Beverage Control Act licenses and regulates beer
manufacturers and wholesalers.
This bill would provide that if a successor beer manufacturer, as
defined, acquires the rights to manufacture, import, or distribute a
brand or brands of beer, and then cancels the distribution rights of
an existing beer wholesaler, as defined, the successor beer
manufacturer shall notify the existing beer wholesaler of his or her
intent to cancel those rights. This bill would provide that the
successor beer manufacturer's designee, as defined, and the existing
beer wholesaler shall negotiate in good faith to determine the fair
market value, as defined, of the distribution rights and require the
designee to compensate the existing beer wholesaler in the agreed
amount of the fair market value, or if they are unable to agree on
the fair market value, shall engage in arbitration subject to
specified conditions, as provided.
The Alcoholic Beverage Control Act provides that a violation of
specified provisions of the act is a misdemeanor.
This bill, by including provisions that would be subject to those
existing criminal sanctions, would impose a state-mandated local
program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 25000.2 is added to the Business and
Professions Code, to read:
25000.2. (a) For purposes of this section:
(1) "Acquire" means to purchase, receive, assume, obtain, or
otherwise come into possession or control of.
(2) "Affected distribution rights" means the distribution rights
to the product held by the existing beer wholesaler prior to the
acquisition of the right to manufacture, import, or distribute the
product by the successor beer manufacturer.
(3) "Beer manufacturer" includes any holder of a beer manufacturer'
s license, any holder of an out-of-state beer manufacturer's
certificate, or any holder of a beer and wine importer's general
license.
(4) "Cancel" means to terminate, reduce, not renew, not appoint or
reappoint, or cause any of the same.
(5) "Existing beer wholesaler" means a beer wholesaler that
distributes a product at the time a successor beer manufacturer
acquires the rights to manufacture, import, or distribute that
product.
(6) "Fair market value" includes all elements of value, including,
but not limited to, goodwill.
(7) "Product" means a brand or brands of beer, as defined by
Section 23006.
(8) "Successor beer manufacturer" means a beer manufacturer that
acquires the rights to manufacture, import, or distribute a product.
(9) "Successor beer manufacturer's designee" means one or more
distributors designated by the successor beer manufacturer to replace
the existing beer wholesaler, for all or part of the existing beer
wholesaler's territory, in the distribution of the product.
(b) (1) Any successor beer manufacturer that acquires the rights
to manufacture, import, or distribute a product, and who cancels any
of the existing beer wholesaler's rights to distribute the product,
shall comply with this section.
(2) A successor beer manufacturer's designee shall comply with
this section.
(c) (1) The successor beer manufacturer shall notify the existing
beer wholesaler of the successor beer manufacturer's intent to cancel
any of the existing beer wholesaler's rights to distribute the
product.
(2) The successor beer manufacturer shall mail the notice by
certified mail, return receipt requested, to the existing beer
wholesaler. The successor beer manufacturer shall include in the
notice the name, address, and telephone number of the successor beer
manufacturer's designee or designees.
(d) The successor beer manufacturer's designee shall negotiate
with the existing beer wholesaler to determine the fair market value
of the affected distribution rights and, if the existing beer
wholesaler and the successor beer manufacturer's designee agree to
the fair market value of the affected distribution rights, shall
compensate the existing beer wholesaler in the agreed amount. The
successor beer manufacturer's designee and the existing beer
wholesaler shall negotiate in good faith.
(e) The existing beer wholesaler shall continue to distribute the
product to at least the same extent that it distributed the product
immediately before the successor beer manufacturer acquired rights to
the product until receipt of the payment of the compensation agreed
to under subdivision (d) is made or is awarded under subdivision (f).
The successor beer manufacturer and the existing beer wholesaler
shall act in good faith regarding the ongoing supply and distribution
of the product.
(f) If the successor beer manufacturer's designee and the existing
beer wholesaler are unable to mutually agree on the fair market
value of the affected distribution rights within 30 days of the
existing beer wholesaler's receipt of the successor beer manufacturer'
s notice pursuant to subdivision (c), the successor beer manufacturer'
s designee or the existing beer wholesaler shall initiate arbitration
against each other to determine the issue of compensation for the
fair market value of the affected distribution rights no later than
40 days after the existing beer wholesaler's receipt of the successor
beer manufacturer's notice pursuant to subdivision (c). Upon
submission to arbitration, the arbitration shall be the means of
determining compensation to the existing beer wholesaler for the fair
market value of the affected distribution rights, and the fair
market value of the affected distribution rights shall be the purpose
of the arbitration unless the parties agree otherwise.
(1) An arbitration held under this subdivision shall be held in
California through a private arbitration services provider with at
least three offices in California and a statewide roster of at least
70 neutral arbitrators, of which at least 30 have prior experience as
a sole arbitrator in franchise, distribution, or related business
litigation.
(2) The direct costs of the arbitration, including any fees
charged by the arbitrator, shall be borne equally by the parties
engaged in the arbitration. All other costs shall be paid by the
party incurring them.
(3) The parties shall mutually agree on an arbitrator. If the
parties cannot agree on the arbitrator, the arbitration provider
shall select an impartial arbitrator.
(4) (A) No later than 20 days after receipt of a notification to
arbitrate, the parties shall complete an initial exchange of all
nonprivileged documents and other information relevant to the fair
market value of the affected distribution rights in their possession
and control, including, without limitation, copies of all documents
and the names of individuals who may be called to testify at the
arbitration hearing. No later than 45 days after receipt of
notification to arbitrate, the parties shall complete an exchange of
the names of any experts who may be called to testify at the
arbitration hearing, together with each expert's report that may be
introduced at the arbitration hearing.
(B) The arbitrator may modify the requirements of subparagraph (A)
on a showing of good cause. The arbitrator shall permit third-party
discovery and additional discovery between beer wholesalers,
including depositions, which the arbitrator finds appropriate for a
period of time not to exceed 90 days after receipt of a notification
to arbitrate. No discovery shall be permitted against a beer
manufacturer.
(5) The decision of the arbitrator shall be final and binding on
the parties unless notice of appeal is filed, within 10 business days
after service of the arbitration award, with the superior court of
the county in which the hearing was held. Upon filing of the appeal,
the court shall review the arbitration award for errors of fact or
law by determining whether the award is supported by the sufficiency
of the evidence presented at the arbitration. This subdivision shall
further permit any other appeal or review that is authorized by the
California Arbitration Act (Title 9 (commencing with Section 1280) of
Part 3 of the Code of Civil Procedure).
(6) The arbitrator's award shall be monetary only and shall not
enjoin or compel conduct.
(7) The arbitration hearing shall conclude not more than 180 days
after receipt of a notification to arbitrate, unless the time period
is extended by mutual agreement of the parties or by the arbitrator.
(8) The arbitrator shall render a decision not later than 15 days
after the conclusion of the arbitration unless this time period is
extended by mutual agreement of the parties or by the arbitrator.
(9) A party who fails to participate in the arbitration hearings
waives all rights the party would have had in the arbitration and is
considered to have consented to the determination of the arbitrator.
(10) The Legislature finds and declares that several unique
factors in combination warrant the Legislature authorizing limited
mandatory arbitration between an existing beer wholesaler and a
successor beer manufacturer's designee solely to determine the issue
of compensation for the fair market value of the affected
distribution rights:
(A) On the issue of the fair market value of the affected
distribution rights, the parties are sophisticated and in an equal
position in their knowledge of this legal issue and understand the
law and their legal rights, including their jury trial rights.
(B) The parties desire a mandatory arbitration provision to
resolve the question of compensation for the fair market value of the
affected distribution rights if the parties are not able to reach a
mutual settlement so that product distribution can be continued in an
orderly manner and the determination of compensation can be made in
a timely manner.
(C) The state's regulatory interest in maintaining orderly markets
for the safe and efficient transportation, distribution, and sale of
beer within the state warrants the statutory authorization for
mandatory arbitration as provided in this section.
(g) If the existing beer wholesaler does not receive payment of
the compensation under subdivision (d) or (f) not later than 10
business days after the date of the settlement or service of the
arbitration award, and if there is no appeal or review filed under
paragraph (5) of subdivision (f), the existing beer wholesaler shall
remain the distributor of the product in the existing beer wholesaler'
s territory to at least the same extent that the existing beer
wholesaler distributed the product immediately before the successor
beer manufacturer acquired rights to the product, and the existing
beer wholesaler is not entitled to the settlement or arbitration
award.
(h) Nothing in this section shall be construed to limit or
prohibit good faith settlements voluntarily entered into by the
parties subsequent to the successor beer manufacturer's notice
pursuant to subdivision (c).
SEC. 2. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.