In November the U.S. Court of Appeals for the Eight Circuit issued an opinion that restores balance to the interpretation of Missouri’s alcohol beverage “franchise” law. In reversing the decision below, the Eighth Circuit agreed with the position of the Brewers Association and other amicus and will reduce the likelihood that the franchise law is applied to small suppliers.

Major Brands v. Mast-Jägermeister US involved Jägermeister’s termination of the brand’s longtime Missouri distributor, Major Brands, as part of a national alignment with Southern Glazers Wine and Spirits. Major Brands sued Jägermeister over the termination and the foundation of its claims were the allegation that Jägermeister violated the Missouri franchise law, the Missouri Merchandise Practices Act. Unlike many beer franchise laws, the Missouri franchise law does not automatically apply to relations between an alcohol beverage supplier and its Missouri wholesalers. Instead, for the law to apply a wholesaler must show that: (1) the parties had a written or oral agreement; (2) the “franchisor” (supplier) granted to the wholesaler a license to use its intellectual property (e.g., trademark); and (3) a “community of interest” exists in marketing the supplier’s products. In a 2012 opinion related to the same law, the Eight Circuit interpreted the community of interest test in a way that would often exclude small suppliers from the reach of the law.

In the Major Brands case against Jägermeister, the district court allowed the case to go before a jury, which found that the franchise law applied and awarded Major Brands $11.75 million in damages. On appeal, Jägermeister argued that the instructions to the jury explaining the franchise law and its community of interest requirement were incorrect. The Brewers Association filed a brief in support of Jägermeister’s position, joining with the American Craft Spirits Association, with Wine Institute, the Distilled Spirits Council of the United States, and the Missouri Craft Brewers Guild.

The Eight Circuit’s recent opinion agrees with the position of Jägermeister, the Brewers Association, and other supplier groups that the jury received improper instructions. In particular, the opinion reasons that a community of interest requires a finding that the wholesaler make investments “substantially specific to the [supplier’s] brand” that are “not recoverable upon termination” – the only investments that might indicate a community of interest. While acknowledging that finding a community of interest requires a flexible approach by courts, its purpose is to ensure that the franchise law applies “only to those business relationships that involve a higher level of financial interdependence than the typical vendor-vendee relationship.” This interdependence requires a court of jury to consider “the distributor’s degree of economic dependence on this particular supplier relationship and whether, if the supplier ended the relationship, the distributor would suffer severe economic consequences.” As a result of the district court’s errors in instructing the jury, the Eight Circuit vacated the jury verdict and sent the case back to the district court for a new trial.

In practical terms, the Eight Circuit’s recent Major Brands v. Mast-Jägermeister US opinion restores the community of interest test as a significant showing that a wholesaler must make in order to impose the franchise law on one of its suppliers. It is impossible to predict the outcome of any particular case. Nevertheless, the opinion will likely mean that a supplier of brands representing a small part of a wholesaler’s total business, which rarely can dictate wholesaler investments and business practices, often will be found not to have a community of interest with its wholesaler. This position will provide more leverage to small suppliers and reinforces the favorable interpretation of the law by the Eight Circuit in a 2012 case involving a small beer importer.

Major Brands has asked for the full Eight Circuit to review the decision (so-called “en blanc” review). The petition argues that the recent Major Brands decision and the 2012 case it cited were both wrongly decided, and that the franchise law should automatically apply to any relationship between an alcohol beverage supplier and its Missouri wholesaler. A decision on the request for full-court review is expected before the end of the year.