Missouri Gov. Jay Nixon on Thursday vetoed a liquor bill that had drawn fierce opposition from wine and liquor producers throughout the state.
Despite the setback, its backers say efforts to change state law governing the relationship between alcohol producers and distributors will continue in the next legislative session.
Distributors, including St. Louis-based Major Brands, had pushed for the change in Missouri law that would once again make their relationships fall under franchise protections – limiting producers from dumping distributors for competitors.
The bill would have tied distributors to alcohol producers in much the same way that national conglomerates such as McDonald’s are tied to their local franchise restaurant owners under Missouri law.
But the bill drew opposition from Missouri winery owners and alcohol suppliers, who said it would have locked them into a relationship with wholesalers indefinitely. “We're the ones who have invested millions of dollars in Missouri, nationally and internationally to develop and cultivate our brands, and we don't think it's fair for the distributors to effectively own the rights to our brands,” said Donn Lux, chairman and CEO of St. Louis-based Luxco Inc., an alcohol supplier whose brands include Pearl Vodka.
The Missouri Vintners Association, which represents winery owners, also opposed the bill.
Senate Bill 837, introduced by Mo. State Sen. Tom Dempsey (R-St. Peters), sought to change the definition of franchise under Missouri law for agreements between alcohol wholesalers and suppliers. The bill's introduction followed a federal court ruling last year that found that a supplier's relationship with a liquor distributor did not meet the state's definition of a franchise agreement. Missouri law offers protection to franchisees, such as limiting the early termination of a contract by a franchisor.
Distributors opposed the ruling and now seek to change the law the ruling addressed.
“It was a very effective model” before the court ruling, said Susan McCollum, CEO of Major Brands, the state's largest wholesale distributor of spirits, wines and beers. “Senate Bill 837 was an attempt to restore state law as it was originally intended … We've been assured by the governor and legislative leaders that it will be addressed in the next session.”
The three-tier distribution system put in place following the repeal of Prohibition generally requires alcohol producers to contract with distributors, who then sell to retailers.
Had the bill been signed into law, it would have changed the definition to state that a franchise relationship exists between wholesalers and suppliers, regardless of whether the parties have agreements on a license, trade name, trademark, or service mark, and regardless of whether there is a “community of interest” in product marketing.
In a 2011 federal court ruling, Missouri Beverage Co. vs. Shelton Brothers Inc., the court ruled a business relationship between a distributor, Missouri Beverage, and Shelton, a Massachusetts-based supplier, was not that of a franchisor-franchisee under Missouri law. The U.S. District Court for the Western District of Missouri found that Shelton did not grant Missouri Beverage a license to use its trade name or trademarks. The court further found that no “community of interest” existed between the two parties, in part, because Missouri Beverage was not economically dependent on Shelton. A federal appeals court affirmed the lower court's ruling in February.
In vetoing the bill Thursday, Gov. Nixon said that the change in law could jeopardize Missouri wine growers and make it more difficult for soybean growers to develop a market for soy-based beer.
"The bill changes the substantive definition of a franchise -- a change that appears inconsistent with the legislative intent of the existing law as indicated by the clear meaning of its text," Gov. Nixon wrote in a letter to the Secretary of State outlining his reasons for the veto.
Sarah Longwell, managing director of the Washington-based American Beverage Institute, a trade organization that represents more than 200 restaurants in Missouri, called the bill a power grab by distributors. "The governor made the right decision for the hospitality industry in Missouri, which is only going to thrive when there is competition for consumers," Longwell said.
Dan Kopman, CEO of the St. Louis Brewery, brewer of Schlafly Beer, and a board member of the recently formed Missouri Small Brewers Guild, said the nonprofit group of brewery owners and operators from throughout the state will seek to work with vintners and distributors on a better piece of legislation that “reflects the current and future structure of the industry,” he said. His group did not take a position on the bill that was vetoed Thursday. “Down the road, we have the opportunity to enact legislation that will provide protection for wholesalers and opportunities for growth for small brewers and vintners,” Kopman said.