When a supplier pulls the plug on a distribution relationship, it doesn’t just hit the bottom line for the supplier’s products. Often, there’s a ripple effect—other brands in the distributor’s portfolio may take a hit, too. That’s where the concept of convoyed damages comes into play. But as the court’s recent ruling in American Northwest Distributors Inc. v. Four Roses Distillery LLC reminds us, proving those damages is no small feat.
What Are Convoyed Damages?
In the Four Roses case, the distributor, American Northwest Distributors (ANW), argued that losing Four Roses bourbon caused its customers to buy fewer of ANW’s other products. In legal terms, this is known as convoyed sales damages—losses tied to the overall decline in sales for products unrelated to the terminated brand. The concept of convoyed damages comes from patent infringement cases, but in this distributor case, they used it as a term for a particular type of consequential damages – the sales lost for other brands not related to the terminated brands. For example, if a particular market niche brand like a Thai beer got your other brands into Thai restaurants that you sold that Thai beer to, then losing the brand cost you the Thai restaurant accounts because they were no longer interested in purchasing any beer when you could not supply the Thai beer.
ANW tried to bolster its case with expert testimony claiming that Four Roses’ termination had broader business impacts. But the court wasn’t buying it. Here’s why.
The Court’s Take on Convoyed Damages
The judge tossed ANW’s convoyed damages claim and excluded its expert testimony on the topic, citing two main reasons:
- No Tortious Interference, No Convoyed Damages:
ANW’s argument relied heavily on its claim that Four Roses had interfered with ANW’s relationships with other suppliers and customers. But the court rejected the tortious interference claim, ruling that there was no evidence Four Roses intentionally disrupted ANW’s business with other brands. Without a valid interference claim, the convoyed damages theory had no legs to stand on. - Causation Problems:
Even if the tortious interference claim had survived, ANW failed to show a direct link between Four Roses’ termination and the alleged broader sales decline. The expert’s analysis was based on assumptions that customers stopped buying other products simply because Four Roses left the portfolio—but correlation doesn’t equal causation. The court wanted harder evidence, like customer surveys or historical data, to back up the claim that Four Roses’ termination caused the drop in other sales.
What This Means for Distributors
This case is a cautionary tale for distributors looking to recover damages beyond the obvious lost profits from a terminated supplier relationship. Courts demand a high standard of proof when it comes to convoyed damages:
- Tie It Back to the Breach: You need solid evidence showing that the supplier’s actions directly caused the decline in other sales. Simply showing a drop in overall revenue isn’t enough.
- Build a Strong Tortious Interference Claim (If Applicable): Without evidence of intentional disruption by the supplier, convoyed damages tied to other brands are unlikely to fly.
- Quantify with Care: Expert testimony can help, but it must be grounded in clear, reliable data—not speculative assumptions about customer behavior.
The Bottom Line
Convoyed damages sound appealing, but proving them is a steep climb. For distributors, the key is to document everything—customer habits, sales trends, and any communications that might show how losing a supplier brand impacted your broader portfolio. For suppliers, this case is a reminder of the importance of clear communication and documentation during terminations to avoid claims of broader harm.
So, when the next dispute arises, ask yourself: Can you prove causation? Can you show intent? And do you have the data to back it all up? In Four Roses, the distributor couldn’t, and the court shut down its convoyed damages claim as a result.
But What About Arguing These Are Consequential Damages?
When a beer distributor goes after a supplier brewery for breach of contract and not in a tort for something like the tortious interference claim referenced above, damages are a central focus—and not just the obvious ones like lost sales on the supplier’s own brands. What about the ripple effect? Can a distributor claim losses for sales on other brands that took a hit because of the supplier’s breach? The answer, as usual, is: it depends. But let’s unpack why.
Direct vs. Consequential Damages: The Basics
In breach of contract cases, damages fall into two big buckets: direct and consequential. Direct damages are the low-hanging fruit—the obvious losses tied directly to the breach, like lost profits from beer you couldn’t sell because the supplier didn’t deliver or terminated your agreement prematurely.
Consequential damages, though, are where things get interesting. These are the additional, ripple-effect losses that arise from the breach but aren’t directly tied to the supplier’s beer. Think of things like lost customers, harm to your reputation, or disruptions to your business operations.
But here’s the catch: consequential damages aren’t guaranteed. To recover them, you’ve got to meet some strict criteria.
What You Need to Prove for Consequential Damages
Courts generally look at three key factors when deciding if you’re entitled to consequential damages:
- Foreseeability:
You need to show that the supplier could reasonably foresee this type of damage at the time the contract was signed. Did the supplier know—or should they have known—that their brand was a cornerstone of your portfolio and that losing it would hurt sales across the board? If the supplier knew their product was an “anchor” brand that drove traffic to your other products, you’ve got a better shot here. - Causation:
It’s not enough to say, “Sales went down after the breach.” You’ve got to prove that the supplier’s failure directly caused those losses. If other market forces (like a competitor’s new product launch or seasonal dips) were in play, the court’s less likely to side with you. Solid sales data can help connect the dots here. - Reasonable Certainty in Damages:
The law doesn’t like guesswork. You need hard numbers to back up your claim. If you’re alleging lost sales on unrelated brands, you’d better have historical data showing a clear pattern—that losing the supplier’s brand triggered a drop in other sales. Without that, your claim starts to look speculative, and courts don’t award damages based on speculation.
So, Can You Recover for Lost Sales on Other Brands?
The short answer is: maybe, but it’s an uphill battle. Courts are cautious when it comes to awarding damages for sales unrelated to the specific breach. If you want to argue that losing a supplier’s beer caused a domino effect on your portfolio, you need to make a strong case that:
- The supplier knew their brand was critical to your broader sales strategy, and
- Their breach was the direct reason your customers stopped buying other products.
For example, if the supplier’s beer was a marquee brand that drew customers in, and its absence meant fewer overall sales, that might pass the foreseeability and causation tests—especially if the supplier knew the role their brand played in your business.
The Practical Takeaway
Before you head to court with a claim for lost sales on unrelated brands, take a hard look at your evidence. Can you tie the drop in sales directly to the supplier’s breach? Was it foreseeable to the supplier when you signed the deal? And do you have solid data to back it all up?
Claims like this aren’t impossible, but they’re a higher bar than just going after lost profits from the supplier’s products. If you’re in a situation like this, it’s a good idea to consult with counsel early to weigh the strength of your case—and ensure your damages are as airtight as possible.
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