Present: Carrico, C.J., Compton, Stephenson, and Keenan, JJ.,
and Poff, Senior Justice, Whiting, Senior Justice, and Cochran,
Retired Justice
SIMS WHOLESALE COMPANY,
INC., ET AL.
OPINION BY JUSTICE A. CHRISTIAN COMPTON
v. Record No. 951144 April 19, 1996
BROWN-FORMAN CORPORATION
VIRGINIA ALCOHOLIC BEVERAGE
CONTROL BOARD
v. Record No. 951142
BROWN-FORMAN CORPORATION
FROM THE COURT OF APPEALS OF VIRGINIA
In these appeals in a case originating before an
administrative agency, we are confronted with a question of
statutory interpretation.
We are dealing with Virginia's Wine Franchise Act (the Act),
Code §§ 4.1-400 through -418 (Repl. Vol. 1993), a part of the
Alcoholic Beverage Control Act. This controversy arose in
September 1989. At that time, the Act was codified in §§ 4-
118.42 through -118.61 (Supp. 1989). The Act's provisions
pertinent to this appeal are the same in both versions. Thus,
for clarity we shall refer to the statutes in effect at the time
of the May 1995 decision from which this appeal was taken, that
is, the version found in the 1993 Replacement Volume of the Code.
The Act is to be "liberally construed and applied to promote
its underlying purposes and policies." Code § 4.1-400. One such
purpose and policy is to "promote the interests of the parties
and the public in fair business relations between wine
wholesalers and wineries, and in the continuation of wine
wholesalerships on a fair basis." Id. The Act defines "winery"
to include any corporation which enters into an agreement with
any Virginia wholesale wine licensee and which "manufactures or
sells any wine products, whether licensed in the Commonwealth or
not." Code § 4.1-401.
Other stated purposes and policies included in the Act are
to "preserve and protect the existing three-tier system for the
distribution of wine," Code § 4.1-400(2); to "prohibit unfair
treatment of wine wholesalers by wineries" and to "define certain
rights and remedies of wineries in regard to cancellation of
franchise agreements with wholesalers," id. at (3); and, to
"establish conditions for creation and continuation of all
wholesale wine distributorships" consistent with all applicable
laws, id. at (4).
The focus of this appeal is upon a winery's attempted
cancellations unilaterally of agreements with certain Virginia
wine wholesalers. As pertinent, the Act provides that "no winery
shall unilaterally amend, cancel, terminate or refuse to continue
to renew any agreement" unless the winery has given the required
statutory notice and unless "good cause" exists for such
cancellation or termination. Code § 4.1-406.
The Act further provides, "Good cause shall include, but is
not limited to" certain enumerated circumstances. Id. Among the
circumstances is revocation of the wholesaler's license to do
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business in the Commonwealth; bankruptcy or receivership of the
wholesaler; assignment for the benefit of creditors or similar
disposition of the wholesaler's assets; and a wholesaler's
failure to comply, without reasonable justification, with any
written, material requirement imposed by the winery. Id.
The Act also provides, "Good cause shall not include the
sale or purchase of a winery." Id. In addition, the Act
provides that, except for "discontinuance of a brand or for good
cause as provided in § 4.1-406, the purchaser of a winery shall
become obligated to all of the terms and conditions of the
selling winery's agreements with wholesalers in effect on the
date of purchase." Code § 4.1-405(A).
And, if a winery accomplishes termination or cancellation of
an agreement without good cause, the Act provides a procedure for
the wholesaler to receive from the winery reasonable compensation
for the value of the agreement. Code § 4.1-409(A).
This case has been litigated upon a stipulation of facts.
Appellee Brown-Forman Corporation (the winery), with principal
offices in Louisville, Kentucky, manufactures and sells wine
products. Prior to September 27, 1989, the winery supplied its
brands of wines to certain Virginia wholesalers for distribution
in designated territories pursuant to written agreements. In the
agreements, the parties expressly acknowledged the contracts were
subject to the Act.
The winery, exercising its business judgment, determined
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that its brands could be more effectively marketed by fewer
wholesalers over broader geographic areas. The winery's
experience had been that consolidation of its brands into fewer
wholesalers increases "market penetration," sales of its
products, and profits for both the winery and its wholesalers.
Thus, by letters dated September 27, 1989, the winery notified
Virginia wholesalers of its "major reorganization of its sales
organization" and that it would terminate existing agreements.
The winery planned to consolidate from 18 wholesalers in Virginia
to four.
Eleven of the wholesalers are parties appellant. They are:
Sims Wholesale Company, Inc.; House of Beverages, Inc.; James
River Beverage Company; Holston Valley Distributing Co., Inc.;
Circle Sales, Inc.; Roanoke Distributing Co., Inc., trading as
J.P. Distributing; Shenandoah Valley Distributing Co., Inc.,
trading as Dixie Beverage Company; Service Distributing, Inc.;
Lawrence and Nester Distributing Company; Eastern Shore Beverage
Distributing, Inc.; and Virginia Imports, Ltd.
Shortly after receiving the termination notices, the
wholesalers filed petitions with the Virginia Alcoholic Beverage
Control Board (the Board) seeking a determination that the winery
had violated the Act, and asking that the notices of intent to
terminate the agreements be declared null and void.
Subsequently, the parties presented the cases to the Board on the
stipulation with a single issue for consideration.
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The following additional facts are included in the
stipulation. The winery's termination notices did not allege any
deficiencies on the part of the wholesalers. The winery's
decision to market its brands through fewer wholesalers over
broader geographic areas, when viewed from the winery's
perspective, was in its economic self interest. The winery's
decision that its own economic self interest is served by the
consolidation, while erroneous from the wholesalers' perspective,
is not clearly arbitrary, capricious, or irrational from the
winery's perspective. The winery's decision was made in good
faith and constitutes a good faith exercise of business judgment.
The parties stipulated that the sole issue presented is
whether the good faith exercise of business judgment by the
winery, absent any evidence of deficiencies in the wholesalers'
performances, is "good cause" pursuant to the Act for the winery
to terminate unilaterally its agreements with the wholesalers
without reasonable compensation.
Following a hearing, a panel of the Board's hearing officers
concluded in July 1991 that the Act "contains no language that
permits a winery's unilateral cancellation of agreements with
wholesalers in order to consolidate its distributors and to
enhance its economic interests in the absence of wholesaler
deficiency." On appeal, the Board adopted the panel's decision,
ruling that the winery's reasons for terminating its agreements
with the wholesalers do not constitute good cause within the
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meaning of the Act.
The winery appealed the Board's decision to the Circuit
Court of Fairfax County. Although not agreeing with all the
Board's reasoning, the court (Judge Jane Marum Roush), in a
January 1994 letter opinion, affirmed the Board's decision. The
court determined "that the specific business judgment exercised
by Brown-Forman in this case to streamline its operations,
without more (and particularly without allegations of any
deficiencies on the part of the wholesalers), is not sufficient
`good cause' under the statute." The court noted that, contrary
to the winery's argument, the winery "is not shackled to the
wholesalers until it is forced by the economic inefficiencies of
the agreements to go out of business . . . . Instead, it must
continue its agreements with the wholesalers or pay them
reasonable compensation for the value of the agreements."
The winery appealed the circuit court's decision.
Subsequently, a panel of the Court of Appeals ruled unanimously
in favor of the winery. Brown-Forman Corp. v. Sims Wholesale
Co., 20 Va. App. 423, 457 S.E.2d 426 (1995). The court
determined that the term "good cause," as it relates to
termination of a distribution agreement under the Act, is
unambiguous. "Considered together and in proper context, the
words simply mean a `well-founded' `reason.'" 20 Va. App. at
431, 457 S.E.2d at 430. Accordingly, the appellate court agreed
with the trial court that the Board erroneously restricted
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statutory "good cause" to instances of wholesaler deficiency, and
remanded the proceeding to the Board for reconsideration of the
issue. Id.
Determining that the decision of the Court of Appeals
involves a matter of significant precedential value, Code § 17-
116.07(B), we awarded the wholesalers and the Board separate
appeals.
Initially, we shall dispose of an argument advanced by the
Board, but not the wholesalers, that the Court of Appeals failed
to give proper deference to the Board's decision. Pointing out
that courts play a limited role in reviewing agency decisions
under the pertinent provisions of the Administrative Process Act,
Code § 9-6.14:17, the Attorney General argues "the judiciary
should not substitute its judgment for that of the Board
concerning how the Act should be implemented" when, as here, the
Board interprets the Act consistent with legislative guidelines.
The Attorney General contends the Court of Appeals' decision
violates that principle. We do not agree the Board's decision in
this case should be accorded the great deference urged by the
Attorney General.
The sole issue involves a question of statutory
interpretation. The issue does not involve "the substantiality
of the evidential support for findings of fact," id. at (iv),
which requires great deference because of the specialized
competence of the agency. Instead, when, as here, the question
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involves a statutory interpretation issue, "little deference is
required to be accorded the agency decision" because the issue
falls outside the agency's specialized competence. Johnston-
Willis, Ltd. v. Kenley, 6 Va. App. 231, 246, 369 S.E.2d 1, 9
(1988). In sum, pure statutory interpretation is the prerogative
of the judiciary. See Hampton Roads Sanitation Dist. Comm'n v.
City of Chesapeake, 218 Va. 696, 702, 240 S.E.2d 819, 823 (1978).
Thus, we turn to the question of law presented, the crux of
the issue being to determine the meaning of "good cause" as used
in the Act. The wholesalers and the Board, contending the term
as employed in Code § 4.1-406 is ambiguous, argue "good cause"
does not exist unless there are wholesaler deficiencies. The
winery, contending the Court of Appeals correctly ruled the term
to be unambiguous, argues that "good cause" under § 4.1-406 is
always satisfied when a winery terminates a wholesale agreement
unilaterally in the good faith exercise of its business judgment.
In order to decide the precise issue presented by these
stipulated facts, there is no necessity for us to rule on the
question whether the term "good cause" is clear or vague. We
will agree with the Court of Appeals and assume without deciding
that the term as used in § 4.1-406 is unambiguous. Nonetheless,
we disagree with the Court of Appeals that § 4.1-406 "good cause"
merely means "a `well-founded' `reason.'" Brown-Forman Corp., 20
Va. App. at 431, 457 S.E.2d at 430.
Like the circuit court, we decline to adopt either argument
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made by the opposing parties. We reject the position of the
wholesalers and the Board that "good cause" under the statute as
it existed in September 1989 requires in every instance
establishment of wholesaler deficiency. Were that the case, the
legislature performed a meaningless act by including in the
statute an example of what is not "good cause," that is, the term
"shall not include the sale or purchase of a winery." Every part
of a statute is presumed to have some effect and no part will be
treated as meaningless unless absolutely necessary. Raven Red
Ash Coal. Corp. v. Absher, 153 Va. 332, 335, 149 S.E. 541, 542
(1929).
We also reject the position of the winery, implicitly
endorsed by the Court of Appeals, that "good cause" always exists
when a winery unilaterally cancels a wholesaler agreement in the
good faith exercise of its business judgment. Under such an
approach, potentially any decision of a winery, not made in bad
faith or arbitrarily, to so terminate existing agreements could
be viewed as a good faith exercise of business judgment. If such
a decision were sufficient to establish "good cause," the Act's
statutory protections also would be meaningless. See Wright-
Moore Corp. v. Ricoh Corp., 908 F.2d 128, 137 (7th Cir. 1990)
(franchisor's nonrenewal of distributorship agreement for
internal economic reasons, though not shown to be in bad faith,
was not for good cause).
An examination of the winery's specific business decision
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made in this case requires the unavoidable conclusion that the
winery has not established sufficient "good cause" under the
statute. According to the stipulation, the winery's "basis for
the terminations was its desire to consolidate its brands into
fewer wholesalers over broader geographic areas."
To determine whether "consolidation" or so-called "down-
sizing" amounts to statutory "good cause," we examine other
portions of the Act, specifically portions dealing with the sale
of a winery. Code § 4.1-406, as we have noted, provides that
"good cause" shall not include the sale or purchase of a winery.
Code § 4.1-405(A) provides that, except for discontinuance of a
brand or for § 4.1-406 "good cause," the purchaser of a winery is
obligated to all the terms and conditions of the seller's
agreements with wholesalers in effect on the purchase date. Code
§ 4.1-405(B)(1) provides that if the surviving winery distributes
in Virginia brands of the nonsurviving winery, which that winery
marketed prior to the purchase, those brands shall be distributed
through any wholesalers who were distributors in Virginia for the
nonsurviving winery.
As the circuit court observed, the purchase and sale of a
winery likely may lead to some duplication in the pre-sale
distribution network of the two wineries thus requiring "some
streamlining or other internal reorganization" by the surviving
winery. In other words, when one winery purchases another, thus
inheriting a duplicative network of Virginia distributors,
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efforts to consolidate become probable. Yet the statute
specifically provides that the sale or purchase of a winery is
not "good cause" for termination of wholesaler agreements. If
the General Assembly had meant that a winery's consolidation of
its distributorships to streamline operations would amount to
"good cause," it would have so provided in the situation of a
sale or purchase of a winery.
Thus, we hold, under the stipulated facts, that the winery's
good faith exercise of business judgment, there being no evidence
of deficiencies in the wholesalers' performances, is not "good
cause" under the Act for the winery to terminate unilaterally its
agreements with the wholesalers without reasonable compensation.
Before concluding, we shall mention a contention made by the
wholesalers, but not the Attorney General, during oral argument
at the bar of this Court on February 29, 1996. Two days prior to
the argument, counsel for the wholesalers notified the Court of
an enactment passed by the General Assembly and signed into law
by the Governor as emergency legislation effective February 26,
1996. This enactment amended § 4.1-406 of the Act.
In essence, the amendment provides that "good cause" shall
not be construed to exist without a finding of a material
deficiency for which the wholesaler is responsible. According to
its provisions, the amendment applies in any case in which "good
cause" is alleged to exist based on circumstances not
specifically set forth in the subdivisions of the statute that
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enumerate certain examples of wholesaler deficiencies. The
enactment also provides: "That the provisions of this act are
declaratory of existing law." Acts 1996, ch. 3.
At the bar, counsel for the wholesalers contended that, in
the amendment, the General Assembly made "a legislative
interpretation of the original Act." Counsel said, however, that
the amendment is "not binding on this Court," that it is
"persuasive" only, and that the Court can "weigh" the amendment
"however you see fit." Counsel for the winery contended inter
alia that the amendment, enacted while the very issue it
addresses was being considered by the Court, is unconstitutional
because it violates the separation of powers doctrine set forth
in Article I, Section 5 of the Constitution of Virginia ("the
legislative, executive, and judicial departments of the
Commonwealth should be separate and distinct"). Counsel for the
winery also argued that the amendment is retroactive legislation
impairing the obligation of its contracts in violation of Article
I, Section 11 of the Constitution of Virginia, citing Heublein,
Inc. v. Department of Alcoholic Beverage Control, 237 Va. 192,
196-97, 376 S.E.2d 77, 78-79 (1989) (pre-1989 version of the Act
declared unconstitutional in its entirety).
We shall not rule on the effect, if any, of the enactment on
the issue presented in this case because we have confined our
analysis of the Act to the provisions that were in place in
September 1989 when this controversy arose.
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Accordingly, the judgment of the Court of Appeals will be
reversed and final judgment will be entered here reinstating that
portion of the Board's "Final Decision and Order" dated
November 22, 1991, as follows:
"It is ordered that the notices of intent dated
September 27, 1989 to terminate the agreements between
the respondent[] and the petitioners be, and hereby are
declared null and void.
"It is further ordered that respondent Brown-Forman be,
and hereby, is, ordered to (i) continue its agreements
with the petitioners for the distribution of its wines
within the petitioners' primary areas of responsibility
or (ii) in the alternative, pay the petitioners
reasonable compensation for the value of the agreements
pursuant to Section 4-118.50 [now § 4.1-409] of the
Act."
Reversed and final judgment.
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