IN ORDER TO TERMINATE A CONTRACT WITH A DISTRIBUTER WITHOUT CAUSE, A “SUCCESSOR BEER MANUFACTURER” MUST REPLACE THE PREVIOUS BEER MANUFACTURER AS THE HOLDER OF THE STATE-ISSUED LICENSE TO SELL, DISTRIBUTE, OR IMPORT A BRAND OF BEER WITHIN MARYLAND.

The Court of Appeals of Maryland held that successor beer manufacturers could not terminate distribution contracts without cause unless the successor holds its own distinct state-issued license to sell beer that replaces the original manufacturer’s license.  Pabst Brewing Co. v. Frederick P. Winner, Ltd., 478 Md. 61, 66-67, 272 A.3d 324, 327 (2022).  The court emphasized that simply obtaining ownership over a subsidiary company that holds a license will not trigger the Successor Manufacturers Law (“SML”).  Id. at 96, 272 A.3d at 345.

In 1994, Petitioner Pabst Brewing Company (“Pabst”) entered into a contract with Respondent, Frederick P. Winner, Ltd. (“Winner”).  In 2014, Pabst and Winner began a new distribution contract that reaffirmed Winner’s right to sell Pabst brands within Maryland.  At the formation of the 2014 agreement, Pabst was a wholly owned subsidiary of Pabst Holdings Inc. (“Pabst Holdings”), which was a wholly owned subsidiary of Pabst Corporate Holdings Inc. (“PCH”).  Additionally, at this time, Pabst held a Maryland Nonresident Dealer Permit, which authorized Pabst to distribute the beverages throughout the state.

On November 13, 2014, PCH sold 100 percent of its ownership interest in Pabst Holdings to Blue Ribbon, LLC (“Blue Ribbon”).   On March 9, 2015, Pabst terminated the 2014 Agreement with Winner.  Winner argued that Pabst had no valid reason to terminate the contract.  After Pabst refused to rescind the notice of termination, Winner filed a complaint in the Circuit Court for Baltimore County. 

The Circuit Court for Baltimore County granted Pabst’s motion for summary judgment, concluding Blue Ribbon was a successor beer manufacturer under the Successor Manufacturers Law.  Winner appealed, and the Court of Special Appeals of Maryland vacated and remanded the circuit court’s ruling, finding the circuit court abused its discretion in granting a motion to strike.  Following remand, the Circuit Court for Baltimore County found that Blue Ribbon qualified as a successor beer manufacturer under the SML.  The circuit court entered summary judgment in favor of Pabst and denied Winner’s motion for partial summary judgment. 

Following Winner’s second appeal, the Court of Special Appeals of Maryland reversed the circuit court’s grant of summary judgment for Pabst, holding Pabst was not a successor beer manufacturer under the SML.  The Court of Appeals of Maryland then granted Pabst’s petition for writ of certiorari and affirmed the Court of Special Appeals’ holding.  

The court began its analysis by examining the plain language of the SML, codified in Md. Code Ann., Alco. Bev. § 5-201(a).  Pabst, 478 Md. at 76, 272 A.3d at 333.  Through a plain language reading of the SML, the Court of Appeals of Maryland explained how, generally, a successor beer manufacturer is not allowed to terminate or replace an agreement with a distributor without cause unless the successor beer manufacturer inherits a contract between a brand’s previous manufacturer and distributor.  Id. at 66, 272 A.3d at 327.  The Court of Appeals of Maryland reasoned that the key phrases within § 5-201(a) were “replaces a beer manufacturer” and “with the right to sell, distribute, or impart a brand of beer.”  Id. at 76, 272 A.3d at 333. 

The court determined that the statute’s plain language requires a successor beer manufacturer to take the place of an existing beer manufacturer.  Pabst, 478 Md. at 76, 272 A.3d at 333.  The court reasoned that this requirement refers to the right given by a state-issued license to sell beer.  Id. at 77, 272 A.3d at 334.  Therefore, for a successor beer manufacturer to satisfy the exception, it must replace the existing beer manufacturer that has the right to sell, distribute, or import the beer brand.  Id. at 77, 272 A.3d at 333.  The court reasoned that it is not enough for a successor beer manufacturer to control the entity that holds the state-issued license; rather, the successor beer manufacturer must replace the previous manufacturer as the license holder.  Id. at 82, 272 A.3d at 336.

The Court of Appeals of Maryland next reviewed the legislative history of the SML.  Pabst, 478 Md. at 82, 272 A.3d at 337.  Pabst contended the legislative history of the SML supported a control-based interpretation.  Id. at 88, 272 A.3d at 340.  Pabst argued that to constitute a successor beer manufacturer, the SML does not require the successor manufacturer to replace the entity which holds the license, rather, the manufacturer may just have control over the subsidiary’s operation.  Id. at 80, 272 A.3d at 335.  Winner contended that the General Assembly enacted the SML to provide greater protections to distributors.  Id. at 88, 272 A.3d at 340.  Winner interpreted the SML to focus on the replacement of one beer manufacturer by another.  Id. 

While reviewing the legislative history, the Court of Appeals of Maryland explicated that in 1998 the General Assembly added the definition of “successor beer manufacturer” to the SML, clarifying the SML applies when a licensed beer manufacturer is replaced by another entity as the holder of the state issued license.  Pabst, 478 Md. at 89, 272 A.3d at 341.  Additionally, the Court of Appeals of Maryland observed that the General Assembly significantly amended the SML in 2008.  Id. at 87, 272 A.3d at 339.  One of the main amendments was the addition of a remuneration to beer distributors for the fair market value of agreements terminated by a successor beer manufacturer.  Id.

The Court of Appeals of Maryland determined that the General Assembly enacted these changes to create a balance between acquiring beer manufacturers and existing beer manufacturers, and to preserve and reinforce Maryland’s multi-tier system for the sale of beer.  Pabst, 478 Md. at 88, 272 A.3d at 340. 

Before applying its interpretation to the case at hand, the Court of Appeals of Maryland analyzed the consequences of alternative readings of the SML.  Pabst, 478 Md. at 90, 272 A.3d at 341.  The court reasoned that if a change in license holders is not required by the SML, then there is no way to know what change in beer manufacturers’ corporate structures would trigger the SML.  Id.  Following this reasoning, Pabst’s interpretation, which focused on a change in control, would result in increased litigation.  Id.  Additionally, the court reasoned that a corporate control-based trigger would go against established principles of corporate law, which state a parent company does not own or “have legal title to the assets of a subsidiary” or “subsidiaries of the subsidiary” company.  Id. at 92, 272 A.3d at 342.

When applying its interpretation to the case at hand, as majority owner, Blue Ribbon had no legal title over the subsidiary Pabst.  Pabst, 478 Md. at 97, 272 A.3d at 345.  Because Blue Ribbon had no title over Pabst, Blue Ribbon did not hold any right to sell or distribute Pabst beer.  Id.  The court held that Blue Ribbon cannot be a successor beer manufacturer because it never replaced Pabst as the state-issued license holder.  Id. at 98, 272 A.3d at 346.  Because Blue Ribbon did not constitute a successor beer manufacturer, the court held that Blue Ribbon lacked the right to terminate the agreement between Pabst and Winner under the SML.  Id.

Through its ruling in Pabst, the Court of Appeals of Maryland reinforced the safeguards enacted by the General Assembly within the SML to protect beer distributors from monetary loss due to corporate acquisitions and mergers.  The decision of Pabst continues to uphold the multi-tier system created by the General Assembly to regulate the sale of beer and alcoholic beverages within Maryland.  Through the court’s application and interpretation of the SML, Maryland’s beer manufacturing and distribution system can continue to thrive without putting distributors at risk of unfair business dealings and coercion.

Shiloh Shassian is a second-year J.D. candidate at the University of Baltimore School of law and a Staff Editor for Law Forum. Prior to attending UB Shiloh attended Stevenson University where he received his bachelor’s degree in interdisciplinary studies and played lacrosse. In the summer of 2022, Shiloh interned for the Hon. Chief Justice Fader of the Supreme Court of Maryland. Shiloh is set to graduate in 2024 and plans to pursue a career in litigation.