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Maryland Court Holds Sale of Beer Distributor’s Parent Company Not Enough to Trigger Distributor’s Right to Terminate Distributorship Agreement Without Good Cause Under State Law
Posted in Terminations

A state court of appeals in Maryland recently held that the sale of Pabst Brewing’s parent company and a change in Pabst’s corporate structure made neither the new parent nor Pabst a “successor beer manufacturer” such that Pabst could terminate a distributorship agreement without cause under the Maryland Beer Franchise Fair Dealing Act (BFFDA). Frederick P. Winner, Ltd v. Pabst Brewing Co., 245 A.3d 242 (Md. Ct. Spec. App. 2021). In November 2014, Blue Ribbon, LLC purchased Pabst Brewing’s parent company, and Pabst restructured from a Delaware corporation to a Delaware LLC. In March 2015, based on the sale and restructuring, Pabst notified Winner of its intent to terminate the parties’ distributorship agreement, citing the exception to the BFFDA’s good cause for termination requirement for a successor beer manufacturer. Winner filed a lawsuit challenging the termination. The circuit court granted summary judgment for Pabst, holding the termination was allowed because Blue Ribbon’s ownership and control over Pabst after the sale made it a successor beer manufacturer. Winner appealed and the special court of appeals reversed.

The BFFDA defines a “successor beer manufacturer” to include “a person or license holder who replaces a beer manufacturer with the right to sell, distribute, or import a brand of beer.” The special court of appeals rejected Pabst’s and the circuit court’s control-based test for interpreting the definition — there was no dispute that Blue Ribbon now “controlled” Pabst through its stock ownership. Instead, the court focused on  whether Blue Ribbon, or the new Pabst LLC, had actually “replaced” Pabst. The court found that Pabst had not been replaced because the sale was strictly a stock sale, not an asset sale, and Pabst retained its brands, trademarks, and contracts. Moreover, though Pabst converted to an LLC, it informed the state of Maryland that it would continue operating under the same Employer Identification Number, that no new entity had been formed, and that “all basic business functions [would] continue uninterrupted.” The court of appeals concluded that though a change in ownership and control had occurred, “the entity with the right to sell, distribute, or import the brands of beer remained the same, and, therefore, was not replaced.”

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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