COURT OF APPEALS OF VIRGINIA
Present: Judges Frank, Clements and Senior Judge Coleman
Argued at Richmond, Virginia
SPECIALTY BEVERAGE COMPANY, INC.
OPINION BY
v. Record No. 0026-07-2 JUDGE JEAN HARRISON CLEMENTS
JANUARY 22, 2008
VIRGINIA ALCOHOLIC BEVERAGE
CONTROL BOARD AND BRECKENRIDGE
BREWERY OF COLORADO, LLC
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Theodore J. Markow, Judge
Mark C. Shuford (Megan B. Larkin; Kaufman & Canoles, P.C., on
briefs), for appellant.
K. Michelle Welch, Assistant Attorney General (Robert F.
McDonnell, Attorney General; Frank S. Ferguson, Deputy Attorney
General, on brief), for appellee Virginia Alcoholic Beverage
Control Board.
(Kimberley Ann Murphy; Hale Carlson Penn, PLC, on brief), for
appellee Breckenridge Brewery of Colorado, LLC. Appellee
Breckenridge Brewery of Colorado, LLC submitting on brief.
This appeal arises from an order of the Circuit Court of the City of Richmond (circuit
court) affirming the decision of the Alcoholic Beverage Control Board (ABC Board) that the
distributor agreement between Specialty Beverage Company, Inc. (Specialty Beverage) and
Breckenridge Brewery of Colorado, LLC (Breckenridge) was terminated under the Beer
Franchise Act, Code §§ 4.1-500 to 4.1-517, upon Specialty Beverage’s failure to timely file a
cure letter or request a hearing on the issue of good cause in response to Breckenridge’s notice of
its intent to terminate the distributor agreement. On appeal, Specialty Beverage contends the
circuit court erred in affirming the ABC Board’s rulings that (1) Breckenridge’s notice of intent
to terminate was sufficient to trigger a termination under the Beer Franchise Act and
(2) Specialty Beverage’s timely written response to that notice of intent to terminate did not
constitute a valid notice of cure under the Beer Franchise Act. Holding that Breckenridge’s
notice of intent to terminate was insufficient, as a matter of law, to trigger the termination of the
distributor agreement, we reverse the circuit court’s judgment and remand the case for further
proceedings.
I. BACKGROUND
The facts relevant to this appeal are not in dispute. Specialty Beverage, a “distributor”
and “wholesaler” as those terms are defined in Code § 4.1-500, and Breckenridge, a “brewery,”
as that term is defined in Code § 4.1-500, entered into a distributor agreement on November 26,
1996, giving Specialty Beverage the exclusive right to distribute Breckenridge beer in certain
designated sales territories in Virginia. However, by letter dated February 13, 2006,
Breckenridge notified Specialty Beverage and the ABC Board of its intent to terminate the
November 26, 1996 distributor agreement in accordance with Code § 4.1-506. The letter
identified the following reasons for the termination:
Specialty Beverage has consistently failed to meet the performance
standards under Section 11 of the Distributor Agreement, 1 and
repeatedly failed to timely pay monies due Breckenridge. In
addition, Specialty Beverage has failed to operate its business in
accordance with the operating standards set forth in Section 6 of
the Distributor Agreement, 2 even after market visits by our staff
and receiving notice of such deficiencies from Breckenridge.
1
Entitled “Performance Standards,” section 11 of the distributor agreement sets forth
various requirements concerning the quantity of Breckenridge beer that must be sold by
Specialty Beverage. Pursuant to the section, the different minimum amounts that must be sold
depend on how the beer is packaged and change from year to year by virtue of the terms of the
original agreement, absent subsequent agreements to the contrary.
2
Entitled “Operation of Distributor,” section 6 of the distributor agreement sets forth
numerous requirements concerning Specialty Beverage’s storage, delivery, stocking, selling, and
marketing of Breckenridge beer. The listed requirements run the gamut from having Specialty
Beverage maintain “clean, refrigerated and operational warehouse(s)” and ensure “proper stock
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(Footnotes added.) No other reasons for the termination were given, and no further details of the
referenced deficiencies were provided. Moreover, nothing in or with the letter showed what
specific deficiencies, if any, Specialty Beverage had previously received notice of from
Breckenridge.
In a letter dated February 21, 2006, Specialty Beverage notified Breckenridge that,
because Breckenridge’s February 13, 2006 letter did not “identif[y] any specific condition or
conditions for [Specialty Beverage] to rectify,” Specialty Beverage did not accept the letter as a
valid notice of termination under Code § 4.1-506. Specialty Beverage also denied
Breckenridge’s assertions that Specialty Beverage had failed to comply with the distributor
agreement and that Specialty Beverage had received previous notice from Breckenridge of any
such failings:
At all times, Specialty Beverage has conformed with all of the
performance standards set forth in the Distributor Agreement and it
has otherwise fully complied with the terms of that agreement,
including, but not limited to, the timely payment of all funds due
Breckenridge. Contrary to the last sentence of the second
paragraph of your letter, we have not received any formal or
information notices of deficiencies from Breckenridge.
Neither Specialty Beverage nor Breckenridge requested a hearing before the ABC Board
at that time. By letter dated May 17, 2006, the ABC Board notified Breckenridge and Specialty
Beverage that, because Specialty Beverage “failed to request a hearing to determine whether
good cause exist[ed] for the termination within the requisite 90 days,” the distributor agreement
between Breckenridge and Specialty Beverage was terminated and Breckenridge could appoint
another Virginia distributor for its beer.
rotation in the warehouse, vehicles and retail locations” to making Specialty Beverage
responsible for “monitor[ing] the marketing activities of competing products” and “notify[ing]
Breckenridge of any consumer or retailer complaints in regard to [its p]roducts.”
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On May 31, 2006, Specialty Beverage wrote to the ABC Board asking it to retract its
decision that the distributor agreement was terminated. By letter dated June 14, 2006, the ABC
Board denied Specialty Beverage’s request, reasoning that its decision was correct because
Specialty Beverage neither timely requested “a hearing on the issue of good cause for the
termination” nor timely provided “notice to Breckenridge that [the] conditions providing cause
for the termination [were] rectified” by Specialty Beverage. Referring to Specialty Beverage’s
February 21, 2006 letter, the ABC Board further explained:
Your letter to Breckenridge put them on notice that you felt
their notice was insufficient and you did not believe that Specialty
[Beverage] was responsible for any material deficiency in its
performance under the distribution agreement. Under these
circumstances, a request for a hearing on the issue of good cause
within the 90-day notice period would have been appropriate, and
if one had been received, the matter would have been referred for
hearing. However, your letter did not request such a hearing, nor
did it indicate any corrective action which would have shifted the
burden to request a hearing to Breckenridge.
Therefore, we are not retracting our May 17, 2006 letter on
this matter.
Specialty Beverage appealed the ABC Board’s decision to the circuit court, arguing
(1) that Breckenridge’s February 13, 2006 letter was not sufficient to trigger the termination of
the distributor agreement because it failed to identify any specific performance or operating
standards that Specialty Beverage had allegedly violated and (2) that, even if the February 13,
2006 letter was a valid notice of intent to terminate, Specialty Beverage’s February 21, 2006
letter constituted a valid notice of cure under Code § 4.1-506. After hearing argument on the
matter, the circuit court rejected Specialty Beverage’s arguments and affirmed the ABC Board’s
decision. The court held that the distributor agreement between Specialty Beverage and
Breckenridge was terminated under the Beer Franchise Act because Specialty Beverage neither
timely filed a cure letter nor timely requested a hearing before the ABC Board to determine
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whether there was good cause to terminate the distributor agreement. In reaching that
conclusion, the court initially stated that it agreed with Specialty Beverage that Breckenridge’s
February 13, 2006 notice of intent to terminate “contained merely conclusions to which
[Specialty Beverage] could not intelligently respond for corrective action.” Nevertheless, the
court went on to state that Specialty Beverage’s February 21, 2006 letter “was not a cure letter”
under Code § 4.1-506(B) and that Specialty Beverage should have “demand[ed] a hearing before
the [ABC] Board under . . . Code § 4.1-506(C) on the basis that Breckenridge was attempting to
terminate without good cause.” The court concluded that, because Specialty Beverage failed to
request such a hearing, the distributor agreement terminated ninety days after Breckenridge
notified Specialty Beverage and the ABC Board of its intent to terminate the agreement.
This appeal by Specialty Beverage followed.
II. ANALYSIS
On appeal, Specialty Beverage first contends Breckenridge’s February 13, 2006 letter
notifying Specialty Beverage of its intent to terminate the distributor agreement was insufficient,
as a matter of law, to constitute a valid notice of intent to terminate under the Beer Franchise Act
because it failed to identify any specific deficiencies that Specialty Beverage needed to rectify to
reestablish its compliance with the agreement. The letter’s general, conclusory accusations were
insufficient, Specialty Beverage argues, to render the letter a proper notice under Code
§ 4.1-506(A). Thus, Specialty Beverage concludes, the circuit court erred in upholding the ABC
Board’s decision that Breckenridge’s February 13, 2006 letter was sufficient to trigger the
termination of the distributor agreement.
In response, Breckenridge and the ABC Board contend the circuit court and the ABC
Board correctly concluded that Breckenridge’s February 13, 2006 letter constituted a valid notice
of intent to terminate under the Beer Franchise Act and was thus sufficient to trigger the
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termination of the distributor agreement. Breckenridge and the ABC Board argue that, if
Specialty Beverage believed Breckenridge’s February 13, 2006 letter was legally flawed, it
should have requested a hearing under Code § 4.1-506(C) to compel Breckenridge to show good
cause for the termination. Because Specialty Beverage failed to request such a hearing, the
termination was valid, Breckenridge and the ABC Board conclude. We disagree with
Breckenridge and the ABC Board.
The question before us—whether Breckenridge’s February 13, 2006 notice of intent to
terminate the distributor agreement with Specialty Beverage was legally sufficient to trigger the
termination of the distributor agreement—involves an issue of statutory interpretation requiring
us to examine the relevant provisions of the Beer Franchise Act.
Although decisions by administrative agencies regarding
matters within their specialized competence are “entitled to special
weight in the courts,” Johnston-Willis, Ltd. [v. Kenley], 6
Va. App. [231,] 244, 369 S.E.2d [1,] 8 [(1998)], “when, as here,
the question involves an issue of statutory interpretation, ‘little
deference is required to be accorded the agency decision’ because
the issue falls outside the agency’s specialized competence,” Sims
Wholesale Co. v. Brown-Forman Corp., 251 Va. 398, 404, 468
S.E.2d 905, 908 (1996) (quoting Johnston-Willis, Ltd., 6 Va. App.
at 246, 369 S.E.2d at 9). “In sum, pure statutory interpretation is
the prerogative of the judiciary.” Id.
Va. Imps., Ltd. v. Kirin Brewery of Am., LLC, 41 Va. App. 806, 821, 589 S.E.2d 470, 477
(2003). Thus, we review the instant issue de novo. See Mattaponi Indian Tribe v. Dep’t of
Envtl. Quality ex rel. State Water Control Bd., 43 Va. App. 690, 707, 601 S.E.2d 667, 676
(2004) (recognizing that an issue of statutory interpretation is to be reviewed de novo), aff’d sub
nom. Alliance to Save the Mattaponi v. Commonwealth Dep’t of Envtl. Quality ex rel. State
Water Control Bd., 270 Va. 423, 621 S.E.2d 78 (2005).
We are further mindful that, in reviewing issues of statutory interpretation,
“courts have but one object, . . . and that is to ascertain the will of
the legislature, the true intent and meaning of the statute, which are
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to be gathered by giving to all the words used their plain meaning,
and construing all statutes in pari materia in such manner as to . . .
make the body of the laws harmonious and just in their operation.”
Va. Imps., Ltd., 41 Va. App. at 822-23, 589 S.E.2d at 478 (quoting Tyson v. Scott, 116 Va. 243,
253, 81 S.E. 57, 61 (1914)). In addition, “we consider all relevant provisions of a statute and do
not isolate particular words or phrases.” Lee County v. Town of St. Charles, 264 Va. 344, 348,
568 S.E.2d 680, 682 (2002); see also Prillaman v. Commonwealth, 199 Va. 401, 405, 100 S.E.2d
4, 7 (1957) (recognizing that statutes in pari materia “‘are not to be considered as isolated
fragments of law, but as a whole, or as parts of . . . a single and complete statutory arrangement’”
(quoting 50 Am. Jur., Statutes, § 349)). Moreover, in reviewing a decision of an agency, we
must consider “‘the purposes of the basic law under which the agency acted.’” Va. Imps., Ltd.,
41 Va. App. at 821, 589 S.E.2d at 477 (quoting Johnston-Willis, Ltd., 6 Va. App. at 246, 369
S.E.2d at 9).
As we noted in Virginia Imports, the “Beer Franchise Act sets forth the requirements and
processes for the termination of a distributor[] agreement between a brewery and a distributor.”
Id. at 820, 589 S.E.2d at 477.
[L]ike the Wine Franchise Act, the Beer Franchise Act is to be
“liberally construed and applied to promote its underlying purposes
and policies.” Code § 4.1-400. Two such purposes and policies
are “[t]o promote the interest of the parties and the public in fair
business relations between [beer] wholesalers and [breweries], and
in the continuation of [beer] wholesalerships on a fair basis,” and
“[t]o prohibit unfair treatment of [beer] wholesalers by [breweries],
promote compliance with valid franchise agreements, and define
certain rights and remedies of [breweries] in regard to cancellation
of franchise agreements with wholesalers.” Code §§ 4.1-400(1)
and 4.1-400(3).
Id. at 822, 589 S.E.2d at 478 (second and subsequent alterations in original).
Guided by the aforementioned principles, we turn to the statutes of the Beer Franchise
Act that set forth the requirements for terminating a distributor agreement, Code §§ 4.1-505 and
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4.1-506. Code § 4.1-505 provides, in pertinent part, that “no brewery shall unilaterally . . .
terminate . . . an agreement, unless the brewery has first complied with § 4.1-506 and good cause
exists for . . . termination.” Good cause includes, inter alia, “[f]ailure by the wholesaler to
substantially comply, without reasonable excuse or justification, with any reasonable and
material requirement imposed upon him in writing by the brewery.” Code § 4.1-505(4). In
relevant part, Code § 4.1-506 provides as follows:
A. . . . [A] brewery shall provide a wholesaler at least
ninety days’ prior written notice of any intent to . . . terminate . . .
any agreement. The notice . . . shall state all the reasons for the
intended . . . termination . . . .
B. Where the reason relates to a condition or conditions
which may be rectified by action of the wholesaler, he shall have
sixty days in which to take such action and shall, within the
sixty-day period, give written notice to the brewery if and when
such action is taken. . . . If such condition has been rectified by
action of the wholesaler, then the proposed . . . termination . . .
shall be void and without legal effect. However, where the
brewery contends that action on the part of the wholesaler has not
rectified one or more of such conditions the brewery shall within
fifteen days after the expiration of such sixty-day period request a
hearing before the Board to determine if the condition has been
rectified by action of the wholesaler.
C. Where the reason relates to a condition which may not
be rectified by the wholesaler within the sixty-day period, the
wholesaler may request a hearing before the Board to determine if
there is good cause for the . . . termination . . . of the agreement.
(Emphases added.)
Breckenridge and the ABC Board argue that, because Code § 4.1-506(A) merely requires
the brewery’s notice to state “all the reasons” for the intended termination and sets forth no
requirement regarding the specificity of those reasons, the inclusion in Breckenridge’s February
13, 2006 letter of the three general reasons for the termination—Specialty Beverage’s failure to
(1) “meet the performance standards under Section 11 of the Distributor Agreement,” (2) “timely
pay monies due Breckenridge,” and (3) “operate its business in accordance with the operating
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standards set forth in Section 6 of the Distributor Agreement”—satisfies the statute’s mandate.
That argument, while seemingly sound at first blush, ultimately fails because it focuses on the
statute’s requirement that the “notice . . . shall state all the reasons for the intended . . .
termination” in isolation, without regard for the related portions of the statute and the manifest
intention of the legislature expressed therein.
Code § 4.1-506(B) and 4.1-506(C) also address the reasons for the intended termination
that are to be stated in a brewery’s notice. The two subsections procedurally distinguish between
those reasons for termination that involve conditions the wholesaler can cure within sixty days
and those that do not involve conditions the wholesaler can cure within sixty days. If the reasons
identified by the brewery relate to conditions that can be “rectified by action of the wholesaler,
[the wholesaler] shall have sixty days in which to take such action.” Code § 4.1-506(B). Indeed,
if the wholesaler rectifies the deficient conditions within the sixty-day period, “the proposed . . .
termination . . . [is] void and without legal effect.” Id. Conversely, if the reasons identified by
the brewery relate to conditions that cannot be “rectified by the wholesaler within the sixty-day
period, the wholesaler may request a hearing before the [ABC] Board to determine if there is
good cause for the . . . termination . . . of the agreement.” Code § 4.1-506(C).
It is undeniable that, in order to determine whether the reasons identified by a brewery in
its notice relate to conditions that can be rectified within sixty days and, indeed, in order to
rectify those conditions pursuant to Code § 4.1-506(B), the wholesaler must know the specific
conditions to which the reasons relate. Clearly, a wholesaler cannot know what needs to be done
to rectify a condition if it is unaware of or unable to identify the condition that needs rectifying.
It stands to reason, therefore, that, in requiring in Code § 4.1-506(A) that the brewery state in the
notice “all the reasons” for the intended termination, the legislature intended that the brewery
identify the wholesaler’s deficiencies with sufficient specificity to allow the wholesaler to make
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the requisite determinations under Code § 4.1-506(B) and 4.1-506(C) and to afford the
wholesaler the opportunity to timely cure the asserted deficiencies under Code § 4.1-506(B), if
possible. To permit a brewery to state in its notice only general, conclusory reasons for the
intended termination, as Breckenridge urges us to do, would plainly contradict the manifest
intention of the legislature expressed in Code § 4.1-506 and undermine the underlying purposes
and policies of the Beer Franchise Act.
Here, the reasons given by Breckenridge for terminating the distributor agreement failed
to identify the specific conditions to which the reasons related. Indeed, Breckenridge’s notice of
intent to terminate failed to specifically identify any distinct deficiencies and, as the circuit court
noted, “contained merely conclusions to which [Specialty Beverage] could not intelligently
respond for corrective action.” Although some of the reasons given in the notice referred
generally to sections of the distributor agreement that Specialty Beverage had allegedly violated,
none of the stated reasons identified any specific requirements in the distributor agreement with
which Specialty Beverage had allegedly failed to comply or any specific acts or omissions by
Specialty Beverage that constituted a violation of the distributor agreement or other requirement
imposed upon Specialty Beverage by Breckenridge. In other words, the reasons given by
Breckenridge for terminating the distributor agreement were not specific enough to allow
Specialty Beverage to determine whether the stated reasons related to conditions that could be
cured within sixty days, much less allow the wholesaler to actually take steps to cure any such
conditions.
Thus, “liberally construing Code § 4.1-506[(A)] in such manner as to make the
provisions of Code § 4.1-506 harmonious and just in their operation, and applying [that statute]
in [a manner consistent with] the purposes and policies of the Beer Franchise Act to the
particular facts and circumstances of this case,” Va. Imps., Ltd., 41 Va. App. at 825, 589 S.E.2d
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at 479, we conclude that Breckenridge’s February 13, 2006 letter did not constitute a valid notice
of intent to terminate under Code § 4.1-506(A). Accordingly, it was insufficient, as a matter of
law, to trigger the termination of the distributor agreement. See Code § 4.1-505 (“[N]o brewery
shall unilaterally . . . terminate . . . an agreement, unless the brewery has first complied with
§ 4.1-506 . . . .”). Hence, the distributor agreement was not terminated. 3
III. CONCLUSION
For these reasons, we reverse the circuit court’s affirmance of the ABC Board’s decision
that the distributor agreement was terminated, and we remand the case to the circuit court for
remand to the ABC Board for further proceedings consistent with this opinion.
Reversed and remanded.
3
In reaching this conclusion, we reject Breckenridge’s argument and the circuit court’s
and ABC Board’s rulings that the distributor agreement was terminated because Specialty
Beverage failed to timely request a hearing to determine whether good cause existed for
termination. Because Breckenridge’s February 13, 2006 letter was not a valid notice under Code
§ 4.1-506(A) and thus legally insufficient to trigger the termination of the distributor agreement,
the issue of good cause is immaterial and Specialty Beverage’s failure to timely request a hearing
on that issue is of no consequence.
Moreover, in light of our disposition of this case, we need not consider Specialty
Beverage’s remaining claim that its February 21, 2006 letter constituted a valid notice of cure
under Code § 4.1-506(B).
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