Oregon Malt Beverage (Beer!) Distribution Statute
Oregon has one of the most favorable malt beverage distribution statutes in the country. It is important to be familiar with it, regardless of whether you are a brewer or a distributor. Having just successfully litigated a case on behalf of one of our clients, we wanted to write about the important statute. What is a malt beverage? Well, if you were going to order one at a bar, you would simply ask for a beer, and as ORS 471.001(6)(b) defines it–malt beverage is beer, ale, porter, stout and similar alcoholic beverages containing not more than 14 percent alcohol. Oregon’s beer distribution statute comes from a complex history of alcohol regulation in the US. These laws are often referred to as the Three-Tier System.
Background:
The 21st Amendment to the United States Constitution reserves to the states the power to regulate the distribution, sale, and consumption of alcohol. The importation and distribution of beer in Oregon is governed by Oregon’s version of what is known as the “three-tier system.” ORS 474.005 et. seq. Forty-eight states have adopted some version of the system, which prohibits single ownership of alcohol production, distribution, and retail sales. Most states further regulate the terms of contractual relationships between alcohol producers or suppliers and distributors within their state’s lines.
The United States Supreme Court has routinely upheld the three-tier system against constitutional commerce clause challenges. In Granholm v. Heald, 544 U.S. 460, 487–89, 125 S. Ct. 1885, 161 L. Ed. 2d 796 (2005) the U.S. Supreme Court held that “the three-tier system itself is ‘unquestionably legitimate.’”The federal courts have explicitly acknowledged that state alcohol regulation, by virtue of the 21st Amendment, occupies a unique place in federal jurisprudence.
Oregon’s Malt Beverage Distribution Statute
Probably the most important aspect of the malt beverage distribution statute is that it limits when, and on what basis, the Brewery can terminate the agreement. It is safe to say that the distribution statute strongly favors distributors. In general, ORS 474.011 requires that the brewery provide 90 days notice and must show that the distributor violated a term of the agreement that was a material term of the agreement. Even still, the brewery must act in good faith and allow the distributor a 60 day window in which to remedy the conduct or omission that the brewery argues constitutes breach.
Even more significant is the breadth of damages that are available to a distributor upon the wrongful termination or cancellation of the agreement by a brewery. Unlike ordinary contract law theory which simply aims to put the harmed party in the position they would have been but for the breach, the Oregon malt beverage distribution statute awards the distributor the value of the business, plus good will, and the distributor may collect attorney fees in the event it wins.
Both breweries and distributors should carefully review the terms of the statute prior to entering into a distribution agreement. Even if there is an oral distribution agreement, the terms of the statute may apply, and it is advisable to seek legal counsel prior to entering into any potential relationship between a brewery and distributor. Grant Engrav has assisted numerous clients in drafting distribution agreements, litigating disputes between breweries and distributors, and would be happy to provide a consultation on any matter relating to distributor of malt beverages.
