Throwback Friday: Thirty-Three Years of Distribution. Fifty-One Cases of Bad Judgment.

Thirty-three years selling a brewery’s beer. Fifty-one cases repackaged to conceal their age. One terminated distributorship. That’s the setup for this week’s Throwback Friday: BeerMart, Inc. v. Stroh Brewery Co., 804 F.2d 409 (7th Cir. 1986).

For brewers and wholesalers, the useful question goes beyond whether selling old (expired? past the sell by date? not fresh?) beer can support termination. Who set the freshness rules? What actually happened? Who supplied the beer? And did the contract give anyone a workable way to pay for pulling it?

Read the Seventh Circuit opinion PDF (published reporter copy, pages 409–413). The district court decision supplies the earlier injunction ruling that the 7th Circuit reversed in explaining how the franchise law works with regard to contract interpretation and fraud.

The beer, the cartons, and the first decision

BeerMart’s warehouse manager repacked outdated Schlitz twelve-packs into fifty-one cases of loose cans. The district court found that most cans had reached 152 days old; 47 days beyond Stroh’s last permissible sale date. The replacement cartons omitted the original code markings (so, at least someone thought of that, right?); the shipping record identified fresher beer. Employees tried to conceal the transaction. Here, as in most malt beverage distribution agreements past-code means outside the brewer’s freshness standard.

Stroh sent an immediate termination notice. BeerMart nevertheless won a preliminary injunction from Chief Judge Allen Sharp. Its long record, the president’s absence during the misconduct, and Stroh’s hurried decision mattered to the court’s assessment of statutory fairness. The judge found a likelihood that termination was “not fair nor made with due regard for the equities of BeerMart” and required a $50,000 bond. 633 F. Supp. at 1107. That ruling protected the relationship pending litigation; it did not finally resolve the damages claims.

The Seventh Circuit put the misconduct first

The appellate opinion described false freshness coding and a false affidavit. The contract expressly allowed immediate termination for knowingly selling ineligible product and for fraud. The Seventh Circuit reversed, stating: “By committing fraud BeerMart deserved termination.” 804 F.2d at 412.

The president’s lack of personal knowledge did not save the company from its employees’ conduct. Neither did the request for a second chance: “We will not imply a right to cure into Ind.Code 7.1-5-5-9.” Id. The agreement provided none. My drafting takeaway: negotiate a correction process before trouble starts, and train the people who actually handle the inventory. Here, the fraud was intentional and clear, but what about cases where it is an oversight or just negligence in failing to look at the code dates?

Other beer cases show why the facts matter

The similar result: Lafayette Beverage Distributors v. Anheuser-Busch, 545 F. Supp. 1137 (N.D. Ind. 1982). After instructions to destroy 82 half-barrels of overage Busch draft, the distributor sold the beer instead. The court denied preliminary relief: “Anheuser-Busch was justified in terminating Lafayette Beverage under the Equity Agreement.” Id. at 1149. The documented investigation and opportunity to wind down also supported the fairness analysis. BeerMart expressly relied on this decision.

The important limit: Miller Brewing Co. v. Best Beers of Bloomington, Inc., 608 N.E.2d 975 (Ind. 1993). Miller alleged code-date and rotation failures, among other deficiencies. The record favorable to the verdict also described corrective efforts and beer supplied by competing transshippers. The Indiana Supreme Court chose to “affirm the award of compensatory damages” and “vacate the award of punitive damages.” Its warning against overreading BeerMart deserves emphasis: “A brewer may not circumvent the Termination Statute by contract.” Id. at 979.

The contrasting freshness dispute: Virginia Imports, Ltd. v. Kirin Brewery of America, LLC, 41 Va. App. 806, 589 S.E.2d 470 (2003). Virginia’s ABC Board found the distributor “had substantially complied with Kirin’s freshness policy.” The appellate court required consideration of Kirin’s other stated termination grounds rather than letting the stale-beer issue dispose of everything. On remand, the Board rejected those grounds too. The later appeal, 50 Va. App. 395, 650 S.E.2d 554 (2007), reports that the Board found “none of it convincing” and concludes “Affirmed.” This history underscores the value of proving compliance or substantial compliance (depending on which side you are on) and preserving a cure record.

The supplier-quality angle: Stroh Container Co. v. Delphi Industries, Inc., 783 F.2d 743 (8th Cir. 1986). This arbitration case involved poor-quality, unmarketable beer supplied by the brewer. The agreement allowed the wholesaler to be “reimbursed for its net costs” when product became unsaleable through Schlitz’s fault. The award addressed the brewer’s failure to respond to product problems; the court concluded, “The amended judgment of the district court is affirmed.” That contractual allocation offers a useful starting point for negotiations; the opinion does not establish a universal reimbursement rule.

Write a freshness program that people can follow—and fund

For suppliers, deliberate concealment and knowing sales of prohibited stock create a much stronger termination record than a photograph of an old can. For distributors, document whose product reached the account, when it arrived, the remaining shelf life, every inspection, and every corrective step. Mandatory state standards and notice or cure requirements still control the termination analysis.

The agreement should make prevention and payment concrete:

• Define the dates. Attach the code key, SKU shelf lives, warehouse shipping cutoffs, retail pull dates, storage requirements, and a minimum remaining shelf life on delivery. Use stock that expires first before later-expiring stock.
• Make withdrawal routine. Require lot-level inventory alerts, retail checks, immediate segregation of ineligible product, prompt supplier notice, and documented destruction or another lawful disposition. Give employees authority to stop a shipment.
• Allocate responsibility. Address short-dated deliveries, manufacturing defects, agreed promotions, forecasting errors, overordering, poor rotation, and beer delivered by other distributors. A default 50/50 split need not cover a loss caused entirely by one party.
• Define the 50/50 credit. For eligible ordinary freshness losses, negotiate supplier reimbursement of 50% of the distributor’s documented net landed acquisition cost, after rebates and recoveries. Identify whether freight, taxes, and disposal costs count; set claim deadlines, supporting records, and a payment deadline. Any retail credit requires its own lawful basis.
• Separate correction from dishonesty. Provide a defined correction process for ordinary compliance failures, subject to applicable law. Address knowing resale, falsified dates, concealed stock, and false records expressly. Set a reasonable process for changing freshness policies.

That 50/50 arrangement represents a negotiated business choice. In fact, the Lafayette Beverage contract allocated destruction and replacement costs according to “which party was responsible for the over-age condition.” 545 F. Supp. at 1142.

30. Paragraph 8 of the Equity Agreement specifically deals with overage product and provides that in no event

“shall over-age Product (according to age standards published from time to time by Anheuser-Busch) reach the consuming public. If any over-age Product is found in the possession of wholesaler or in the possession of a retailer to whom wholesaler sold such Product, wholesaler agrees, *1142 unless prohibited by law, to destroy such over-age Product in accordance with all applicable laws and regulations, and to replace any such Product which had been in the possession of a retailer with fresh Product at no cost to the retailer. Wholesaler’s cost of destroying and replacing over-age Product shall be borne by wholesaler or by Anheuser-Busch, depending upon which party was responsible for the over-age condition.”

The goal: make pulling unsaleable beer financially workable while preserving accountability.

Don’t Forget: Keep the reimbursement program compliant

We’ve previously covered drafting a compliant freshness return program. Under TTB Ruling 2017-2, qualifying freshness returns depend on a brewer’s established pull-date policies, verifiable and consistent application, corresponding container markings, and keeping pulled beer out of the retail market. The ruling addresses wholesaler-to-brewer as well as retailer-to-wholesaler returns. It permits qualifying returns; it does not require a supplier to pay a particular percentage. Mere slow movement or overstocking does not qualify by itself, and a freshness program cannot serve as a device to induce excessive purchases. State rules also require attention.

A written credit program gives both sides a practical reason to report and remove old beer promptly. Fifty-one cases should trigger a withdrawal and an honest conversation before they trigger a fight over the entire distributorship.

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