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Mussetter Distributing, Inc. v. DBI Beverage Inc.

July 7, 2009



Plaintiff Mussetter Distributing Inc. ("Mussetter") brought this action in state court against defendant DBI Beverage Inc. ("DBI") to obtain declaratory relief regarding the validity and application of California Business and Professions Code section 25000.2. Having removed the case to federal court, defendant now moves to transfer venue to the Northern District of California (San Jose Division), while plaintiff moves for a stay of arbitration or a preliminary injunction to prevent the application of section 25000.2 before plaintiff's Complaint for declaratory relief can be adjudicated.

I. Factual and Procedural Background

Plaintiff was founded in 1976 to market and distribute beverages in Placer, Nevada, Yuba, and Sierra Counties in northern California. (Mussetter Decl. ¶ 2.) The business has subsequently grown from sales of approximately 20,000 cases per year to over 600,000 cases per year, and plaintiff currently has 530 retail accounts, 30 employees, and a 38,000 square-foot facility located in Auburn, California. (Id.) Since its founding, plaintiff has distributed beverages sold by Miller Brewing Company ("Miller"), and plaintiff's current distribution agreement with Miller is effective as of January 1, 1999. (Id. Ex. A. ("Agreement").)

On July 1, 2008, Miller and Coors Brewing Company ("Coors") formed a joint venture called MillerCoors L.L.C. ("MillerCoors"), a Delaware limited liability company. (See Slater Decl. Ex. A at 1, ¶¶ 4-6.) Thereafter, in a letter dated September 2, 2008, plaintiff was informed that MillerCoors had been assigned Miller's rights under the distribution agreement. (Mussetter Decl. Ex. B at 1.) That letter continued, "[P]ursuant to Section 25000.2 of the California Business and Professions Code, MillerCoors intends to terminate your Miller Brewing Company Distributor Agreement. As representatives from MillerCoors recently explained to you, we have designated DBI Beverage as the distributor for the Brands in your existing territory." (Id.)

Section 25000.2 codifies California Senate Bill 574, which was signed into law on October 8, 2007. As summarized in the bill's legislative counsel's digest, the new law provides:

[I]f a successor beer manufacturer . . . acquires the rights to manufacture, import, or distribute a brand or brands of beer, and then cancels the distribution rights of an existing wholesaler . . . the successor beer manufacturer shall notify the existing beer wholesaler of his or her intent to cancel those rights. . . . [T]he successor beer manufacturer's designee . . . and the existing beer wholesaler shall negotiate in good faith to determine the fair market value . . . of the distribution rights and require the designee to compensate the existing beer wholesaler in the agreed amount . . . , or if they are unable to agree . . . , shall engage in arbitration subject to specified conditions . . . .

Defendant DBI apparently had difficulties negotiating the transfer of plaintiff's distribution rights and, on October 17, 2008, filed a demand for arbitration with Judicial Arbitration and Mediation Services Inc. ("JAMS"). (Opp'n Stay & Prelim. Injunct. 4:8-9; Mussetter Decl. Ex. D.) JAMS responded to the demand for arbitration on November 10, 2008, and requested "[e]vidence of JAMS'[s] jurisdiction to hear the matter, e.g., either a contract clause naming JAMS, a stipulation signed by all parties, or an Order compelling the parties to arbitrate or mediate at JAMS." (Mussetter Decl. Ex. E at 1.)

On February 6, 2009, defendant and MillerCoors brought a petition to compel arbitration in San Mateo Superior Court against plaintiff and two other existing Miller and Coors distributors, Maita Distributors Inc. ("Maita") and Elyxir Distributing L.L.C. ("Elyxir"). (Slater Decl. ¶ 10.) Defendant's counsel submits that "DBI was forced to bring the Petition because each Distributor refused to arbitrate and JAMS declined to continue with arbitration without a court order or Distributors' consent." (Id. ¶ 4.) Plaintiff filed an opposition to the petition on April 20, 2009, asserting that (1) the court should not compel arbitration because section 25000.2 sets out an arbitration scheme separate from the California Arbitration Act ("CAA"), (2) arbitration was precluded because defendant's demand for arbitration was untimely, (3) arbitration was precluded because MillerCoors was not a "successor beer manufacturer" under section 25000.2, and (4) retroactive application of section 25000.2 was unconstitutional under both the California and United States Constitutions. (See id. Ex. B.) Plaintiff, Maita, and Elyxir also jointly filed a cross-complaint for declaratory relief regarding the aforementioned arguments. (See id. Ex. C.)

On April 30, 2009, the San Mateo Superior Court issued a tentative order denying the petition to compel arbitration. (See Mussetter Decl. Exs. F ("San Mateo Order"), G ("San Mateo Trans."); Opp'n Stay & Prelim. Injunct. 5:17-22.) The tentative order explained that the court could not compel arbitration because the CAA "applies only to contractual arbitration" and "there is no contract between the successor distributors and the existing distributors." (San Mateo Order 2:5-10.) The tentative order further provided, [DBI and MillerCoor's] proper course of action is to proceed to arbitration with or without [the existing distributors]. Pursuant to [section 25000.2(f)(9)], if the [existing distributors] fail to participate in arbitration, the arbitrator may proceed in their absence. Section 25000.2 contains no requirement of a Court order before arbitration may proceed with one party absent. (Id. at 2:11-14.)

At the request of the existing distributors, the San Mateo Superior Court held a hearing on May 1, 2009, before its tentative order became final. (See San Mateo Trans. 3:23-26.)

At the hearing, counsel for the existing distributors argued that, although the court properly denied the petition to compel arbitration, its order should not refer to MillerCoors and DBI's "proper course of action," as this would be "an interpretation of the statute" or an "advisory opinion." (Id. at 4:17-22.) In response, the San Mateo Superior Court clarified,

I'm not making any specific finding . . . other than the procedure of 25000.2 is the vehicle that should be used. . . . I'm not making any finding with regard to the 40 days or any of the rest of the requirements of 25000.2 for the arbitration provisions or any other provisions of that statute.

(Id. at 5:14-24.) Nonetheless, the court ultimately declined to modify its tentative order, which became final on May 5, 2009. (See id. at 13:24-25; San Mateo Order 2:15.)

After the hearing, plaintiff and the other existing distributors in the San Mateo litigation voluntarily dismissed their cross-complaint without prejudice and then filed separate complaints in the superior courts of their respective counties on May 6, 2009. Specifically, Maita filed a complaint in Santa Clara County Superior Court, Elyxir filed a complaint in Santa Cruz County Superior Court, and plaintiff filed a complaint in Placer County Superior Court. (See Slater Decl. Exs. E, F, G.) The complaints, while not identical, are substantially similar with respect to their factual bases, legal theories, and relief sought. DBI subsequently removed the actions pending in Santa Clara and Santa ...

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