Beer and wine distributorships are protected under Idaho franchise laws, like the majority of other states, from having their distribution rights terminated unless the reason falls within one of those enumerated under Idaho franchise laws. Without one of the listed reasons, a distributor cannot involuntarily lose its distribution rights. This franchise protection has increased the marketable value of the distribution rights, so that the distributor’s investment in creating the brand and outlet for that particular product is protected as a transferrable right (one that is bought and sold for up to four times the annual gross revenues). Once a beer or wine distributor is granted distribution rights, the supplier has little opportunity to unilaterally decide to terminate the distribution rights, short of purchasing those distribution rights for an amount agreed upon by the distributor.
Recently, the Idaho District Court found that the same protections are afforded to “sub-distributors” of beer and wine products, limiting the first distributor’s ability to terminate any sub-distribution. With Idaho’s three-tier system, each tier’s role is broken down as: (1) a supplier, (2) a distributor, and (3) the retail outlet. In Idaho, there can be more than one supplier for the exact same product, and an entity can be considered both a supplier and a distributor, depending on its actions and how it handles the product. An entity’s statutory role determines that entity’s obligations in how it engages in its business activities and how its relationships with its buyers must be handled.
Here is how it works. A producer, supplier, manufacturer, or importer is the original “supplier” of the beer or wine. The person or entity who receives the product, with the intention to resell to retail outlets, is usually the “distributor.” In some instances, however, a distributor will buy large volumes of product from a supplier, distribute some of that product, and then enter into an agreement (verbally or in writing) with another distributor to “sub-distribute” the product. In this situation, the original “distributor” also becomes a “supplier” to the “sub-distributor.” And the original distributor (now also a supplier) becomes subject to the prohibitions and obligations of a supplier when interacting with its “sub-distributor.”
In the case of Bill Jones Distributors, Inc. v. Boise Sales Co., d/b/a Hayden Beverage Co. and Young’s Market Company of Idaho, LLC d/b/a Hayden Beverage Co., the First Judicial District Court for the State of Idaho held that a sub-distributor’s rights to distribute the product could not be terminated by the original distributor when the original distributor wanted to take back its product. The court found that the original distributor was considered the “supplier” or “dealer” under the respective beer and wine acts, and as the supplier and dealer, it could not terminate the distribution rights without complying with the enumerated statutory grounds for termination. While Idaho had not previously addressed the “sub-distributor’s” rights under the franchise laws, it was a logical conclusion based on the clear and unambiguous language of the franchise laws.
For more background, please read the court’s decision here (PDF).