Mississippi Court Dismisses Multiple Claims in Distributor Termination Case

By on December 28, 2017

On December 15, 2017, a Mississippi trial court issued a series of orders dismissing a substantial number of the claims brought in Rex Distributing Company v. Anheuser-Busch et al., 2nd Cir. Court No. 24C11:17-cv-00033 (Harrison Circuit Court – Gulfport).

In 2016, Mississippi beer distributor Rex Distributing (Rex) agreed to sell its business to Adams Beverage (Adams) for $50.5 million. Anheuser-Busch (A-B)—by far Rex’s largest supplier—then exercised the “match and redirect” right contained in the distribution agreement between A-B and Rex, directing Rex to sell its business to Mitchell Distributing (Mitchell) on the same terms and conditions as the proposed Rex-Adams transaction. D.G. Yuengling and Son (Yuengling) refused to allow the sale of its brand distribution rights in Rex’s territory to Mitchell, citing Mitchell’s previous refusal to carry Yuengling beer when Yuengling first entered the state. Rex consummated the sale to Mitchell for $3.1 million less than the original sale price due to Yuengling’s refusal to go along. Rex then brought suit against A-B, Yuengling, and several Mitchell entities, and Yuengling filed cross-claims against A-B and Mitchell.

The orders are brief and succinct and clearly explain each decision. To briefly summarize the court’s reasoning under the applicable Mississippi law:

  1. In dismissing Rex’s claims against A-B, the court reasoned:
    1. A-B did not breach its agreement with Rex by exercising the match and redirect right the parties clearly bargained for.
    2. Without a breach of contract, Rex also has no separate cause of action for “bad faith breach.”
    3. As A-B validly asserted its contractual rights, it did not tortiously interfere with the Rex-Adams purchase agreement. Because the Rex-Adams agreement was expressly conditioned on A-B’s approval, A-B cannot be liable for tortious interference with that agreement.
    4. Since A-B lawfully exercised its contractual rights, it cannot be held liable for civil conspiracy.
    5. A-B did not violate Mississippi’s Beer Industry Fair Dealing Act (the applicable state beer franchise law), as Rex transferred its brands to Mitchell and Yuengling was the party that refused to consent to that transfer.
    6. A claim for punitive damages cannot exist in the absence of another valid cause of action.
  2. In dismissing Rex’s claims against Mitchell, the court reasoned:
    1. Rex could not show that any enforceable obligation was thwarted by Mitchell’s actions. Instead, Yuengling withheld its consent and, without that consent, Mitchell did not interfere with any obligation Rex thought it had to receive $3.1 million for its sale of the Yuengling distribution rights.
    2. Mitchell’s’ actions in stepping into Adam’s position after A-B exercised its valid and enforceable match and redirect rights cannot be the basis for a civil conspiracy claim.
    3. A claim for punitive damages cannot exist in the absence of another valid cause of action.
  3. The court also denied Rex’s attempts to “pierce the corporate veil” of the various Mitchell entities named in the complaint.
  4. The court did deny the motions of A-B and Mitchell to dismiss Yuengling’s cross-claims for conspiracy to impede its ability to compete in the Mississippi market and for tortious interference with existing and prospective customers.

As a trial court decision under Mississippi law, the result of these orders should not be overstated, as they have no binding authority outside of Mississippi and limited authority within it. Nevertheless, we think the following aspects of the orders require some attention:

A. Contrary to the position taken by some distributors with respect to such provisions, the Mississippi Circuit Court had no trouble concluding that the match and redirect rights contained in A-B’s distribution agreement—a standard provision—was both valid and enforceable.

B. Should Rex eventually recover, Yuengling will likely bear the cost. As noted by the court: “Whether Yuengling’s refusal to transfer it[s] distribution rights to Mitchell was without ‘good cause’ is a fight for another day.”

C. Like many prior distributor termination cases, the dismissal of Rex’s tortious interference and civil conspiracy claims illustrate that although aggrieved distributors often plead such claims, they rarely succeed.

As the December 15 orders did not dispose of the entire Rex litigation, the book is not yet closed on this proceeding. And, of course, there is the possibility of an eventual appeal. In the meantime, the Rex litigation is certainly creating an educational showcase on distributor litigation.