Amended in Senate June 12, 2014

Amended in Senate March 6, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 816

Introduced by Assembly Member Hall

February 21, 2013

An act to amend Sections 25000.2 and 25500.1 of, and to repeal Section 25502.1 of, the Business and Professions Code, relating to alcoholic beverages.

LEGISLATIVE COUNSEL’S DIGEST

AB 816, as amended, Hall. Alcoholic beverages.

(1) The Alcoholic Beverage Control Act authorizes a licensed beer manufacturer that produces more than 60,000 barrels of beer a year to manufacture cider or perry, as defined, at the licensed premises of production and to sell cider or perry to any licensee authorized to sell wine. Further, under existing law, if a successor beer manufacturer, as defined, acquires the rights to manufacture, import, or distribute a product, defined as a brand or brands of beer, and then cancels the distribution rights of an existing beer wholesaler, as defined, the successor beer manufacturer is required to notify the existing beer wholesaler of his or her intent to cancel those rights. Existing law also requires the existing beer wholesaler to continue to distribute the product to at least the same extent that it distributed the product immediately before the successor beer manufacturer acquired rights to the product until receipt of the payment of the specified compensation is made or awarded. The act provides that a violation of its provisions is a misdemeanor, unless otherwise specified.

This bill would redefine “product” to also include cider or begin delete perry, as defined end delete begin insert perry that a beer manufacturer has designated a beer wholesaler to distribute in a specific territory end insert . By changing the definition of a crime, the bill would impose a state-mandated local program.

(2) The Alcoholic Beverage Control Act contains limitations on sales commonly known as “tied-house” restrictions, which generally prohibit a manufacturer, winegrower, manufacturer’s agent, California winegrower’s agent, rectifier, distiller, bottler, importer, or wholesaler from furnishing, giving, or lending any money or other thing of value to any person engaged in operating, owning, or maintaining any off-sale licensed premises. For purposes of these provisions, the listing of the names, addresses, telephone numbers, or e-mail addresses, or Internet Web site addresses, of 2 or more unaffiliated off-sale retailers selling beer, wine, or distilled spirits and operating and licensed as bona fide public eating places selling the beer, wine, or distilled spirits produced, distributed, or imported by a nonretail industry member in response to a direct inquiry from a consumer, as specified, does not constitute a thing of value or prohibited inducement to the listed off-sale retailer, if specified conditions are met.

Existing law includes similar provisions applicable to on-sale licensed premises, except that those provisions also extend the above-described exception to other forms of electronic media.

This bill would delete the above exceptions that apply specifically to off-sale licensed premises and instead would include off-sale licensed premises within the exceptions previously applicable only to on-sale licensed premises.

(3)The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 25000.2 of the Business and Professions
Code is amended to read:

25000.2.  

(a) For purposes of this section:

(1) “Acquire” means to purchase, receive, assume, obtain, or
otherwise come into possession or control of.

(2) “Affected distribution rights” means the distribution rights
to the product held by the existing beer wholesaler before the
acquisition of the right to manufacture, import, or distribute the
product by the successor beer manufacturer.

(3) “Beer manufacturer” includes any holder of a beer
manufacturer’s license, any holder of an out-of-state beer
manufacturer’s certificate, or any holder of a beer and wine
importer’s general license.

(4) “Cancel” means to terminate, reduce, not renew, not appoint
or reappoint, or cause any of the same.

(5) “Existing beer wholesaler” means a beer wholesaler that
distributes a product at the time a successor beer manufacturer
acquires the rights to manufacture, import, or distribute that
product.

(6) “Fair market value” includes all elements of value, including,
but not limited to, goodwill.

(7) “Product” means a brand or brands of beer, as defined by
Section begin delete 23006 and cider and perry as defined in Section 4.21(e)(5)
of Title 27 of the Code of Federal Regulations. This paragraph
does not alter or amend the classification of cider or perry as wine
for any purpose other than that provided by this section end delete begin insert 23006,
and any brand or brands of cider or perry that a beer manufacturer
has designated a beer wholesaler to distribute in a specific
territory end insert .

(8) “Successor beer manufacturer” means a beer manufacturer
that acquires the rights to manufacture, import, or distribute a
product.

(9) “Successor beer manufacturer’s designee” means one or
more distributors designated by the successor beer manufacturer
to replace the existing beer wholesaler, for all or part of the existing
beer wholesaler’s territory, in the distribution of the product.

(b) (1) Any successor beer manufacturer that acquires the rights
to manufacture, import, or distribute a product, and who cancels
any of the existing beer wholesaler’s rights to distribute the
product, shall comply with this section.

(2) A successor beer manufacturer’s designee shall comply with
this section.

(c) (1) The successor beer manufacturer shall notify the existing
beer wholesaler of the successor beer manufacturer’s intent to
cancel any of the existing beer wholesaler’s rights to distribute the
product.

(2) The successor beer manufacturer shall mail the notice by
certified mail, return receipt requested, to the existing beer
wholesaler. The successor beer manufacturer shall include in the
notice the name, address, and telephone number of the successor
beer manufacturer’s designee or designees.

(d) The successor beer manufacturer’s designee shall negotiate
with the existing beer wholesaler to determine the fair market value
of the affected distribution rights and, if the existing beer
wholesaler and the successor beer manufacturer’s designee agree
to the fair market value of the affected distribution rights, shall
compensate the existing beer wholesaler in the agreed amount.
The successor beer manufacturer’s designee and the existing beer
wholesaler shall negotiate in good faith.

(e) The existing beer wholesaler shall continue to distribute the
product to at least the same extent that it distributed the product
immediately before the successor beer manufacturer acquired rights
to the product until receipt of the payment of the compensation
agreed to under subdivision (d) is made or is awarded under
subdivision (f). The successor beer manufacturer and the existing
beer wholesaler shall act in good faith regarding the ongoing supply
and distribution of the product.

(f) If the successor beer manufacturer’s designee and the existing
beer wholesaler are unable to mutually agree on the fair market
value of the affected distribution rights within 30 days of the
existing beer wholesaler’s receipt of the successor beer
manufacturer’s notice pursuant to subdivision (c), the successor
beer manufacturer’s designee or the existing beer wholesaler shall
initiate arbitration against each other to determine the issue of
compensation for the fair market value of the affected distribution
rights no later than 40 days after the existing beer wholesaler’s
receipt of the successor beer manufacturer’s notice pursuant to
subdivision (c). Upon submission to arbitration, the arbitration
shall be the means of determining compensation to the existing
beer wholesaler for the fair market value of the affected distribution
rights, and the fair market value of the affected distribution rights
shall be the purpose of the arbitration unless the parties agree
otherwise.

(1) An arbitration held under this subdivision shall be held in
California through a private arbitration services provider with at
least three offices in California and a statewide roster of at least
70 neutral arbitrators, of which at least 30 have prior experience
as a sole arbitrator in franchise, distribution, or related business
litigation.

(2) The direct costs of the arbitration, including any fees charged
by the arbitrator, shall be borne equally by the parties engaged in
the arbitration. All other costs shall be paid by the party incurring
them.

(3) The parties shall mutually agree on an arbitrator. If the
parties cannot agree on the arbitrator, the arbitration provider shall
select an impartial arbitrator.

(4) (A) No later than 20 days after receipt of a notification to
arbitrate, the parties shall complete an initial exchange of all
nonprivileged documents and other information relevant to the
fair market value of the affected distribution rights in their
possession and control, including, without limitation, copies of all
documents and the names of individuals who may be called to
testify at the arbitration hearing. No later than 45 days after receipt
of notification to arbitrate, the parties shall complete an exchange
of the names of any experts who may be called to testify at the
arbitration hearing, together with each expert’s report that may be
introduced at the arbitration hearing.

(B) The arbitrator may modify the requirements of subparagraph
(A) on a showing of good cause. The arbitrator shall permit
third-party discovery and additional discovery between beer
wholesalers, including depositions, which the arbitrator finds
appropriate for a period of time not to exceed 90 days after receipt
of a notification to arbitrate. No discovery shall be permitted
against a beer manufacturer.

(5) The decision of the arbitrator shall be final and binding on
the parties unless notice of appeal is filed, within 10 business days
after service of the arbitration award, with the superior court of
the county in which the hearing was held. Upon filing of the appeal,
the court shall review the arbitration award for errors of fact or
law by determining whether the award is supported by the
sufficiency of the evidence presented at the arbitration. This
subdivision shall further permit any other appeal or review that is
authorized by Title 9 (commencing with Section 1280) of Part 3
of the Code of Civil Procedure, which governs arbitration.

(6) The arbitrator’s award shall be monetary only and shall not
enjoin or compel conduct.

(7) The arbitration hearing shall conclude not more than 180
days after receipt of a notification to arbitrate, unless the time
period is extended by mutual agreement of the parties or by the
arbitrator.

(8) The arbitrator shall render a decision not later than 15 days
after the conclusion of the arbitration unless this time period is
extended by mutual agreement of the parties or by the arbitrator.

(9) A party who fails to participate in the arbitration hearings
waives all rights the party would have had in the arbitration and
is considered to have consented to the determination of the
arbitrator.

(10) The Legislature finds and declares that several unique
factors in combination warrant the Legislature authorizing limited
mandatory arbitration between an existing beer wholesaler and a
successor beer manufacturer’s designee solely to determine the
issue of compensation for the fair market value of the affected
distribution rights:

(A) On the issue of the fair market value of the affected
distribution rights, the parties are sophisticated and in an equal
position in their knowledge of this legal issue and understand the
law and their legal rights, including their jury trial rights.

(B) The parties desire a mandatory arbitration provision to
resolve the question of compensation for the fair market value of
the affected distribution rights if the parties are not able to reach
a mutual settlement so that product distribution can be continued
in an orderly manner and the determination of compensation can
be made in a timely manner.

(C) The state’s regulatory interest in maintaining orderly markets
for the safe and efficient transportation, distribution, and sale of
beer within the state warrants the statutory authorization for
mandatory arbitration as provided in this section.

(g) If the existing beer wholesaler does not receive payment of
the compensation under subdivision (d) or (f) not later than 10
business days after the date of the settlement or service of the
arbitration award, and if there is no appeal or review filed under
paragraph (5) of subdivision (f), the existing beer wholesaler shall
remain the distributor of the product in the existing beer
wholesaler’s territory to at least the same extent that the existing
beer wholesaler distributed the product immediately before the
successor beer manufacturer acquired rights to the product, and
the existing beer wholesaler is not entitled to the settlement or
arbitration award.

(h) Nothing in this section shall be construed to limit or prohibit
good faith settlements voluntarily entered into by the parties
subsequent to the successor beer manufacturer’s notice pursuant
to subdivision (c).

SEC. 2.  

Section 25500.1 of the Business and Professions Code
is amended to read:

25500.1.  

(a) The listing of the names, addresses, telephone
numbers, e-mail addresses, or Internet Web site addresses, or other
electronic media, of two or more unaffiliated on-sale or off-sale
retailers selling beer, wine, or distilled spirits produced, distributed,
or imported by a nonretail industry member in response to a direct
inquiry from a consumer received by telephone, by mail, by
electronic inquiry, or in person does not constitute a thing of value
or prohibited inducement to the listed on-sale or off-sale retailer,
provided all of the following conditions are met:

(1) The listing does not also contain the retail price of the
product.

(2) The listing is the only reference to the on-sale or off-sale
retailers in the direct communication.

(3) The listing does not refer only to one on-sale retailer or only
to on-sale or off-sale retail establishments controlled directly or
indirectly by the same retailer.

(4) The listing is made by, or produced by, or paid for,
exclusively by the nonretail industry member making the response.

(b) For the purposes of this section, “nonretail industry member”
is defined as a manufacturer, including, but not limited to, a beer
manufacturer, winegrower, or distiller of alcoholic beverages or
an agent of that entity, or a wholesaler, regardless of any other
licenses held directly or indirectly by that person.

SEC. 3.  

Section 25502.1 of the Business and Professions Code
is repealed.

SEC. 4.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.