Ettelman & Hochheiser, P.C.

100 Quentin Roosevelt Blvd • Garden City, NY 11530 • Tel (516) 227-6300 • Fax (516) 227-6307,,,

ARTICLES AND NEWSLETTERS

Clare Rose, NY A-B house, files suit against InBev and Manhattan Beer

"Modern Brewery Age Weekly" January 10, 2005

Clare Rose, an Anheuser-Busch distributor based in Patchogue, NY, has filed suit against InBev U.S.A. and Manhattan Beer Distributors, Inc., accusing InBev of violating New York Alcoholic Beverage Law §55-c and accusing Manhattan Beer of tortious interference.

The root of the suit lies in InBev's refusal to offer its new Beck's Premier Light line extension to Clare Rose, a long-time Beck's distributor.

Clare Rose's attorneys in the case are Ettelman & Hochheiser, who are also rep resenting Boening Bros. in their suit against Manhattan Beer.

In the new complaint, it is stated that the Clare Rose action is related to the action filed by Boening against Manhattan Beer and other unnamed co-conspirators.

The Boening complaint also alleges economic cooercion by Manhattan Beer on suppliers, and concerted activities between Manhattan Beer and suppliers, resulting in the supplier's refusal to offer extensions to their exclusive wholesalers, and instead offering them to Manhattan Beer.

Clare Rose, based in Suffolk County, NY, is an Anheuser-Busch house, but also distributes Heineken and Beck's.

The complaint cites New York State Beverage Control Law §55-c, which requires that brewers enter into written agreements with all their wholesalers, and not "terminate, amend or modify that agreement without good cause."

During its relationship with Beck's North America, Clare Rose reports that it was offered all Beck's brand extensions, including the original Beck's Light. Attorneys Ettelman and Hochheiser call this a "custom and practice" of the beer industry.

However, InBev has recently informed Clare Rose that it intends to grant the Beck's Premier Light distribution rights in Clare Rose's territory to Manhattan Beer. At the same time, InBev has requested that Clare Rose sell its distribution rights to all Beck's products to Manhattan Beer.

The First Cause of Action in the com plaint is a breach of contract against InBev. This would seem to be a tricky cause of action, since no written contract exists between InBev and Clare Rose.

However, the complaint notes that this lack of a contract is, in and of itself, a violation of ABC §55-c, and the complaint goes on to describe the agreement under which Clare Rose has served as a Beck's distributor. "InBev sells Beck's beer to Clare Rose, and Clare Rose buys, resells, promotes, markets, distributes and advertises Beck's products in its territory," the complaint notes.

This aspect of the complaint aims to delineate a well-established relationship between Beck's and Clare Rose, written contract or no.

Ettelman and Hochheiser (E&H) say that an implied term of the "agreement" is that when InBev introduces a new brand extension, it will grant the distribution rights in Clare Rose's Beck's territory to Clare Rose. The attorneys say that "such a term is implied by reason of "(i) the parties course of performance (ii) industry custom and practice and (iii) promissory estoppel."

E&H says that Clare Rose has performed its obligations, but by refusing the grant Beck's Premier Light, InBev has breached side of the "agreement." They say Clare Rose will be harmed by this breach, not only because they will lose profits from Premier Light, but through harm to reputa tion and loss of scale. Thus, they say Clare Rose is entitled to an award of damages.

A Second Cause of Action in the com plaint accuses "breach of implied covenant of good faith and fair dealing against InBev." The complaint posits that "there exists an implied covenant of good faith in every agreement In New York, by which neither party to the agreement will interfere with the ability of the other party to reap the benefits of the agreement. By refusing to grant the line extension to Clare Rose," the complaint argues that InBev "has breached the implied covenant of good faith and fair dealing."

A third Cause of Action deals with a alleged violation of ABC §55-c by InBev. Since InBev has failed to provide Clare Rose with a written agreement, the com plaint says, it is in violation of ABC §55-c. A fourth Cause of Action seeks Declaratory relief against InBev, seeking a judgement that Clare Rose has the right to distribute Beck's Premier Light.

The Fifth Cause of Action cites "intentional interference with contract against Manhattan Beer" and the sixth alleges "Tortious Interference with prospective eco nomic advantage against Manhattan Beer." This aspect of the complaint alleges that "Manhattan Beer has intentionally, maliciously, willfully and without justification interfered with Clare Rose's relationship with InBev and Clare Rose's customers."

The seventh Cause of Action Is a prima Facie Tort against both defendants, seeking damages for Clare Rose.

The Eighth Cause of Action is a charge of unfair competition against Manhattan Beer. In part, this section of the complaint reads, "Manhattan Beer's actions against Oak and Boening are at odds with industry custom and practice...Manhattan Beer's actions have violated the morality of the marketplace and have been undertaken with malicious motive...Manhattan Beer's actions have been undertaken in whole or in part using their significant economic power and control over suppliers such as InBev with the specific intent of causing such suppliers to boycott Clare Rose and other distributors."

The last, Ninth Cause of Action is for "unjust enrichment, and misappropriation of good will against both defendants."

This cause of action argues that Clare Rose has built up good will among customers and has enhanced the standing of the Beck's brand in the relevant market. This good will is referred to as "an intangible asset" and Clare Rose complains that Manhattan Beer and InBev have misappropriated the property rights and good will developed by Clare Rose, which they should not be allowed to retain without compensation. The defendants are asked to "disgorge" to Clare Rose the value of this "unjust enrichment."

This will be a fascinating suit to watch, together with the Boening/Manhattan Beer suit. Messrs Ettelman and Hochheiser have developed an expertise in beverage law in recent years. Their practice in this area has been marked by the ability to take a fresh look at long-established practices within the three-tier system, and uncovering the flaws within. These suits will expose some of these long-established practices to the harsh light of a courtroom, and may well transform brewer/wholesaler relations.

InBev to increase control of Sun Interbrew

AP-InBev SA, the world's biggest beer producer, has announced an agreement to buy the nearly one-third stake that Russian financial-industrial group Alfa-Eco owns in Russia's second biggest brewer, Sun Interbrew Ltd., for about 259.7 million euros ($353.7 million).

The deal announced Monday is expected to go through in early 2005, Belgian-based InBev said.

InBev, which currently owns a 34.25 per-cent stake in Sun Interbrew, agreed in August to purchase the 34.25 percent of Sun Interbrew owned by Sun Group, an Indian financial company.

The two deals would give InBev 98.5 percent of the Russian brewer, InBev said.

InBev spokeswoman Marianne Amssons said the company was confident it would win an appeal against a November decision by a court in the Russian town of Safonovo to annul the Federal Anti-Monopoly Service's approval of the deal with Sun Group. She said a higher court last month had asked the Safonovo court to re-examine its decision.