Virginia Imports Ltd. v. Kirin Brewery of America, LLC , 41 Va. App. 806 ( 2003 )

COURT OF APPEALS OF VIRGINIA
Present: Chief Judge Fitzpatrick, Judges Annunziata and Clements
Argued at Alexandria, Virginia
VIRGINIA IMPORTS LIMITED
OPINION BY
v. Record No. 2751-02-4 JUDGE JEAN HARRISON CLEMENTS
DECEMBER 16, 2003
KIRIN BREWERY OF AMERICA, LLC
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Jane Marum Roush, Judge
Walter A. Marston, Jr. (George E. Kostel; Megan Barry; Reed Smith
LLP, on briefs), for appellant.
Warwick R. Furr, II (David S. Black; Richard M. Blau; Elizabeth A.
DeConti; Holland & Knight LLP, on brief), for appellee.
This appeal arises from an order of the Circuit Court of Fairfax County (circuit court)
reversing the ruling by the Alcoholic Beverage Control Board (ABC Board) that Kirin Brewery
of America, LLC (Kirin) violated the Beer Franchise Act, Code §§ 4.1-500 to 4.1-517, a part of
the Alcoholic Beverage Control Act, in terminating its distributorship agreement with Virginia
Imports Limited (Virginia Imports). Virginia Imports challenges the circuit court’s reversal of
the ABC Board’s decision, contending the circuit court erred in determining (1) that, because
Virginia Imports did not timely notify the ABC Board under Code § 4.1-506(B) that it was
attempting to cure the deficiencies identified by Kirin as grounds for terminating the
distributorship agreement and did not timely request a hearing under Code § 4.1-506(D), the
ABC Board did not have authority to hold hearings and render a decision in this case and
(2) that, even if the ABC Board were authorized to adjudicate the dispute between Kirin and
Virginia Imports, the evidence in the record was insufficient to support the ABC Board’s
findings that Kirin lacked good cause to terminate the agreement and acted in bad faith in doing
so. For the reasons that follow, we affirm the circuit court’s judgment in part, reverse the circuit
court’s judgment in part, and remand the case for further proceedings.
I. BACKGROUND
Kirin, a “brewery,” as that term is defined in Code § 4.1-500, and Virginia Imports, a
“distributor,” as that term is defined in Code § 4.1-500, had a long-standing distributorship
agreement giving Virginia Imports the exclusive right to distribute particular brands of Kirin
beer in certain designated sales territories in Virginia.1 However, by letter dated August 3, 1999,
Kirin notified Virginia Imports and the ABC Board of its intent to terminate the distributorship
agreement in accordance with Code § 4.1-506. That termination letter, which Virginia Imports
received on or about August 5, 1999, specifically identified several reasons for the termination
that had been previously raised by Kirin in earlier letters to Virginia Imports. Those reasons
included Virginia Imports’ failure to remove stale beer from retail stores in conformance with
Kirin’s freshness policy; Virginia Imports’ unauthorized sales of Kirin beer outside its
designated sales territories and of Kirin brands not assigned to it; and Virginia Imports’ failure
“to invest in the Kirin brands,” “monitor pricing data on competitors’ products,” “keep chain
store reports,” and “to commit part of [its] truck fleet to Kirin decal programs.” The letter went
on to state that Virginia Imports’ sale of stale beer and its sale of Kirin products outside of its
designated sales territories were the “most egregious” of the cited deficiencies. The letter further
stated as follows:
Section 4.1-506 requires [Kirin] to give [Virginia Imports]
90 days written notice of its intent to terminate. Pursuant to that
section, [Virginia Imports] has 60 days to correct all of the
above-cited deficiencies. Should [Virginia Imports] fail to correct
1
Code § 4.1-503 prohibits a brewery from entering into a distributorship agreement with
more than one beer distributor in a particular sales territory.
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completely the deficiencies cited within the statutory period,
[Kirin] shall immediately request a hearing before the [ABC
Board] in order to terminate [Virginia Imports].
By letter dated October 4, 1999, Virginia Imports notified Kirin that it had cured all of
the deficiencies cited in Kirin’s termination letter.2 Virginia Imports, however, failed to send a
copy of that cure notice to the ABC Board, as required by Code § 4.1-506(B), which provides
that “[a] copy of the [cure] notice shall be mailed at the same time to the Board.” Thus, the ABC
Board was not notified that Virginia Imports had cured the deficiencies identified by Kirin in its
August 3, 1999 termination letter.
By letter dated October 22, 1999, Kirin requested a hearing before the ABC Board
pursuant to Code § 4.1-506(D).3 In pertinent part, that letter, addressed to Virginia Imports and
sent to both Virginia Imports and the ABC Board, stated as follows:
On August 3, 1999, we sent you a letter detailing the
numerous problems Kirin . . . has experienced and continues to
experience with Virginia Imports . . . . The most egregious of
these deficiencies continues to be out-of-code product on the
shelves of retail accounts in your market. . . .
Included with our August 3, 1999 letter to you were four
previous letters . . . . Throughout our dealings with [Virginia
Imports], we informed you of our concerns over out of code beer
and our dissatisfaction [with Virginia Imports’] poor service, and
sought improvements from you. Pursuant to our statutory right, we
copied the August 3, 1999 letter to the [ABC Board], and informed
you that we were invoking the ninety (90) day written notice
provision of Virginia Code Section 4.1-506, which allows a
manufacturer to give a distributor written notice of its intent to
terminate. Out of code product remains a problem in your market,
and we have not seen any material improvement in service. . . .
* * * * * * *
2
Neither party disputes the fact that Kirin received Virginia Imports’ cure notice within
the “sixty-day period” referenced in Code § 4.1-506(B).
3
Neither party disputes the fact that the ABC Board received Kirin’s hearing request
within the “ninety-day period” referenced in Code § 4.1-506(D).
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. . . As a result, we are compelled to request that the [ABC
Board] grant us a hearing to terminate Virginia Imports.
By copy of this letter to [the ABC Board Secretary], we
hereby request pursuant to Virginia Code Section 4.1-506(D) that
the [ABC Board] grant Kirin an appropriate hearing for
consideration of these issues.
By letter of February 9, 2000, the ABC Board Secretary wrote to Kirin as follows:
Our records indicate that by letter dated August 3, 1999,
your company gave notice to Virginia Imports, Ltd., of your intent
to terminate your agreement designating Virginia Imports, Ltd., as
the wholesale distributor of Kirin brands in certain territories in
Virginia. More than ninety days have now passed since that
notice, and we have received neither a notice from the wholesaler
that it has taken action to rectify the conditions constituting the
reason for the termination, nor a request for a hearing on the issue
of reasonable cause. Therefore, under the provisions of the Beer
Franchise Act, the agreement between Kirin and Virginia Imports,
Ltd., was effectively terminated ninety days after the August 3,
1999, notice.
Kirin is free to appoint other distributors for the territories
formerly held by Virginia Imports, Ltd.
In response, Kirin wrote to the ABC Board Secretary on February 10, 2000, indicating
that Kirin was designating Anheuser-Busch, Inc., as its distributor in the sales territories
previously served by Virginia Imports.
By letter dated February 11, 2000, Virginia Imports informed the ABC Board Secretary
that it had timely notified Kirin in its letter of October 4, 1999, that it had cured the deficiencies
identified in Kirin’s termination letter of August 3, 1999. Consequently, Virginia Imports
asserted, the burden shifted, upon receipt of that letter, to Kirin to request a hearing within fifteen
days of the expiration of the cure period if it was not satisfied with Virginia Imports’ cure, which
Kirin did not do. Virginia Imports asked the ABC Board Secretary to thus suspend the
effectiveness of his February 9, 2000 letter until the matter could be clarified. That request was
not granted.
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By letter dated February 16, 2000, Kirin advised the ABC Board Secretary that the
Secretary’s February 9, 2000 determination regarding the termination of the distributorship
agreement was correct, because Virginia Imports failed to send a copy of its October 4, 2000
letter to the ABC Board. Kirin also informed the ABC Board Secretary that Virginia Imports
had failed to cure the deficiencies set forth in Kirin’s termination letter and that Virginia Imports
had incorrectly stated in its February 11, 2000 letter that Kirin did not timely request a hearing
before the ABC Board. “In fact,” Kirin wrote, “on October 22, 1999 Kirin sent a letter to . . .
Virginia Imports, informing [it] that no cure had been achieved, and requesting that the [ABC
Board] convene a hearing to review Kirin’s request for termination.”
By letter dated April 17, 2000, the ABC Board Secretary informed the parties that, after
carefully reviewing the parties’ letters regarding his February 9, 2000 letter, he was referring the
matter for a hearing. The Secretary wrote as follows:
It appears that both parties have made procedural errors.
Virginia Imports . . . failed to mail its October 4, 1999 cure notice
to the Board within the sixty-day cure period as required by
subsection B of § 4.1-506 of the Code. Kirin[’s] . . . October 22,
1999 request for a hearing before the Board to determine if the
conditions have been rectified by the wholesaler failed to be made
within fifteen days after expiration of the sixty-day cure period as
required by § 4.1-506 B.
Nevertheless, Kirin did send the Board a written request for
a hearing within the ninety-day period provided by subsection A of
§ 4.1-506. Pursuant to subsection D of § 4.1-506[], the matter is
being referred to the Adjudication Division to determine if the
actions of the wholesaler have rectified the conditions.
By order dated May 15, 2000, the Adjudication Division denied Virginia Imports’ motion
to reinstate the distributorship agreement between Kirin and Virginia Imports in order to
maintain the status quo. By order dated June 23, 2000, the Adjudication Division denied
Virginia Import’s motion to reconsider the Adjudication Division’s May 15, 2000 order.
-5-
A hearing panel of the ABC Board held hearings in October and December 2000 “to
determine whether Kirin had good cause, as defined in Code Section 4.1-505, to terminate
Virginia Imports.” On June 28, 2001, the hearing panel issued its written decision, which set
forth extensive findings of fact regarding Kirin’s implementation of its freshness policy and
Virginia Imports’ efforts to comply with that policy. The hearing panel found that, “[a]lthough
other reasons were cited by Kirin in its letter of proposed termination dated August 3, 1999, the
issue that was of paramount importance to Kirin in terminating Virginia Imports was
unquestionably the out-of-code issue.” Accordingly, the hearing panel focused, in resolving the
issue of good cause, entirely on Kirin’s freshness policy and made no rulings on Kirin’s other
asserted reasons for terminating Virginia Imports as its distributor.
The hearing panel found that, “although conceptually an out-of-code policy may be
entirely reasonable, the manner in which [Kirin’s zero-tolerance] policy was enforced against
Virginia Imports was unreasonable, and, indeed, unattainable.” The hearing panel concluded,
therefore, that Kirin failed to prove that it had imposed a “reasonable and material requirement”
on Virginia Imports, as required by Code § 4.1-505. “Having failed to prove an essential
element of its case,” the hearing panel ruled, “Kirin . . . failed to establish the existence of good
cause.” The hearing panel further found that, even if Kirin’s freshness policy were reasonable,
“Virginia Imports substantially complied with that policy.” The hearing panel also found that
Kirin acted in bad faith in terminating the agreement because “the alleged deficiencies of
Virginia Imports and its violation of the zero-tolerance out-of-code policy were pretexts to
mask” Kirin’s true motive, which was to replace Virginia Imports with another distributor.
Both parties appealed the hearing panel’s decision to the ABC Board. On September 26,
2001, the ABC Board issued its final order. In that order, the ABC Board initially ruled as
follows:
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The issues in this case are framed by the series of letters
between the parties concerning the termination. Kirin stated
several reasons for the intended termination in its August 3, 1999
notice. Virginia Imports purported to have cured all of the stated
reasons in its October 4, 1999 response. . . . In its letter of October
22, 1999, in which Kirin requested . . . a hearing [before the ABC
Board], the only condition noted as not rectified by Virginia
Imports was that of out of code beer in the market. Therefore, the
primary issue to be decided is whether the actions of Virginia
Imports brought it into substantial compliance with Kirin’s out of
code beer policy.
Accordingly, like the hearing panel, the ABC Board focused only on Kirin’s freshness policy, in
resolving the issue of good cause, and made no rulings on Kirin’s other asserted grounds for
terminating its distributorship agreement with Virginia Imports.
Adopting the hearing panel’s findings of fact with respect to Kirin’s imposition of its
freshness policy and Virginia Imports’ efforts to comply with that policy, the ABC Board
overruled the hearing panel’s decision in part, finding that Kirin’s freshness policy was
reasonable. However, the ABC Board also found that Virginia Imports had substantially
complied with Kirin’s freshness policy.4 Thus, the ABC Board found that “Kirin’s termination
of its franchise agreement with Virginia Imports was without good cause, in violation of the Beer
Franchise Act.” As a remedy, the ABC Board ordered Kirin, pursuant to Code § 4.1-508, to
compensate Virginia Imports for the value of the distributorship agreement and for Virginia
Imports’ losses resulting from the termination.
The ABC Board also overruled the hearing panel’s decision with regard to the issue of
bad faith, noting as follows:
The hearing panel appears to adopt a theory that a brewery
terminating a franchise agreement is guilty of bad faith under the
Beer Franchise Act if it possesses a motive which does not amount
4
For purposes of this appeal, neither party disputes the ABC Board’s factual findings that
Kirin’s freshness policy was reasonable and that Virginia Imports substantially complied with
Kirin’s freshness policy.
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to good cause for termination under the Act, even if it has made
reasonable and material requirements with which the wholesaler
has not substantially complied. The Board does not adopt this
interpretation of the Act’s requirements.
However, the ABC Board found Kirin “guilty of bad faith in proceeding to terminate its
agreement with Virginia Imports in February 2000, even though it was on notice that Virginia
Imports had claimed to have taken corrective action with respect to all the causes for
termination.” As a remedy, the ABC Board ordered Kirin to pay Virginia Imports’ reasonable
costs and attorney’s fees, pursuant to Code § 4.1-509.
Kirin appealed the ABC Board’s decision to the circuit court. The circuit court issued an
opinion on August 27, 2002, finding that “Virginia Imports failed to preserve its right to contest
the termination” of the distributorship agreement between Kirin and Virginia Imports because it
neither timely mailed a copy of its cure letter to the ABC Board under Code § 4.1-506(B) nor
timely requested a hearing before the ABC Board under Code § 4.1-506(D). Based on that
finding, the circuit court further found that the ABC Board Secretary “correctly determined [in
his letter of February 9, 2000,] that the distributorship agreement was effectively terminated by
operation of law” ninety days after Kirin notified Virginia Imports and the ABC Board of its
intent to terminate the agreement. Hence, the circuit court concluded that the ABC Board did not
have authority to hear the dispute and render a final order in this case. The circuit court further
ruled, in the alternative, that, even if the ABC Board were authorized to adjudicate the dispute
regarding the termination of the distributorship agreement, the evidence in the record was
insufficient to support the ABC Board’s findings that Kirin lacked good cause to terminate the
agreement and that Kirin acted in bad faith in terminating the agreement in reliance on the ABC
Board Secretary’s February 9, 2000 letter. On September 24, 2002, the circuit court entered a
final order incorporating its rulings and remanding the case to the ABC Board for dismissal.
-8-
This appeal by Virginia Imports followed.
II. STANDARD OF REVIEW
Code § 4.1-509(B) provides that judicial review of a decision rendered by the ABC
Board under the Beer Franchise Act “shall be held in accordance with and governed by the
Virginia Administrative Process Act ([now found at Code §§ 2.2-4000 to 2.2-4031).” Code
§ 2.2-4027, which governs the scope of review when an agency’s decision is appealed under the
Administrative Process Act, provides, in pertinent part, as follows:
When the decision on review is to be made on the agency
record, the duty of the court with respect to issues of fact shall be
limited to ascertaining whether there was substantial evidence in
the agency record upon which the agency as the trier of the facts
could reasonably find them to be as it did.
* * * * * * *
. . . [T]he court shall take due account of the presumption
of official regularity, the experience and specialized competence of
the agency, and the purposes of the basic law under which the
agency has acted.
Under the substantial evidence standard, the reviewing “court may reject the agency’s
findings of fact ‘only if, considering the record as a whole, a reasonable mind would necessarily
come to a different conclusion.’” Virginia Real Estate Comm’n v. Bias, 226 Va. 264, 269, 308
S.E.2d 123, 125 (1983) (quoting B. Mezines, Administrative Law § 51.01 (1981)). “The phrase
‘substantial evidence’ refers to ‘such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.’” Id. (quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197,
229 (1938)). Furthermore, “the court must review the facts in the light most favorable to
sustaining the [agency’s] action.” Bio-Medical Applications of Arlington, Inc. v. Kenley, 4
Va. App. 414, 427, 358 S.E.2d 722, 729 (1987).
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However,
even though an agency’s findings of fact may be supported by
substantial evidence in the record, [its decision] may be subject to
reversal because the agency failed to observe required procedures
or to comply with statutory authority. Thus, where the legal issues
require a determination by the reviewing court whether an agency
has, for example, . . . failed to comply with statutory authority[] or
failed to observe required procedures, less deference is required
and the reviewing courts should not abdicate their judicial function
and merely rubber-stamp an agency determination.
Johnston-Willis, Ltd. v. Kenley, 6 Va. App. 231, 243, 369 S.E.2d 1, 7-8 (1998) (citation omitted).
III. CODE § 4.1-506
The Beer Franchise Act sets forth the requirements and processes for the termination of a
distributorship agreement between a brewery and a distributor and establishes remedies for
violations of those requirements and processes. Code § 4.1-505 provides, inter alia, that a
brewery seeking to terminate a distributorship agreement must comply with the notice provisions
of Code § 4.1-506. Code § 4.1-506 describes the specific procedures for terminating a
distributorship agreement.
On appeal, Virginia Imports contends the circuit court erred in concluding the ABC
Board did not have authority under Code § 4.1-506 to hold hearings and render a decision in this
case. Virginia Imports argues the ABC Board had such authority because Kirin timely submitted
a written request for a hearing to the ABC Board in accordance with Code § 4.1-506(D).
In response, Kirin argues the circuit court correctly held that, because Virginia Imports
failed to comply with the mailing requirement of Code § 4.1-506(B) or request a hearing under
Code § 4.1-506(D), the distributorship agreement between Kirin and Virginia Imports ended by
operation of law ninety days after Kirin sent its August 3, 1999 termination letter to Virginia
Imports. Thus, Kirin argues, the ABC Board did not have authority to hold hearings and render a
decision in this case.
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The issue before us, then, is whether the ABC Board had authority under Code § 4.1-506
to adjudicate the parties’ dispute regarding the termination of their distributorship agreement.
This issue involves a question of statutory interpretation and requires us to examine the relevant
language of Code § 4.1-506.
Although decisions by administrative agencies regarding matters within their specialized
competence are “entitled to special weight in the courts,” Johnston-Willis, Ltd., 6 Va. App. at
244, 369 S.E.2d at 8, “when, as here, the question involves an issue of statutory interpretation,
‘little deference is required to be accorded the agency decision’ because the issue falls outside
the agency’s specialized competence,” Sims Wholesale Co. v. Brown-Forman Corp., 251 Va.
398, 404, 468 S.E.2d 905, 908 (1996) (quoting Johnston-Willis, Ltd., 6 Va. App. at 246, 369
S.E.2d at 9). “In sum, pure statutory interpretation is the prerogative of the judiciary.” Id.
In addition, courts are required, “in reviewing an agency decision, . . . to consider . . . the
purposes of the basic law under which the agency acted.” Johnston-Willis, Ltd., 6 Va. App. at
246, 369 S.E.2d at 9. In Sims Wholesale Co., 251 Va. at 404, 468 S.E.2d at 908, the Supreme
Court “determine[d] the meaning of ‘good cause’ as used in the [Wine Franchise] Act,” Code
§§ 4.1-400 to 4.1-418. Although that Act, like the Beer Franchise Act, is “a part of the Alcoholic
Beverage Control Act,” id. at 400, 468 S.E.2d at 906, the Supreme Court rejected the ABC
Board’s interpretation of the statutory term, id. at 405, 468 S.E.2d at 909, and determined the
meaning of “good cause” based upon the purposes of the statute, id. at 400-01, 405-06, 468
S.E.2d at 906, 909.5
5
The purposes of the Wine Franchise Act are set forth in Code § 4.1-400, which reads as
follows:
Construction and purpose. — This chapter shall be liberally
construed and applied to promote its underlying purposes and
policies.
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The Beer Franchise Act, however, unlike the Wine Franchise Act, does not contain an
enumeration of its underlying purposes or a statement of the standard by which its provisions are
to be construed. Nevertheless, we believe that the two Acts, which, except for their specific
subject matter, are in every material respect similar, have the same general purposes and standard
of construction. Accordingly, we conclude that, like the Wine Franchise Act, the Beer Franchise
Act is to be “liberally construed and applied to promote its underlying purposes and policies.”
Code § 4.1-400. Two such purposes and policies are “[t]o promote the interest of the parties and
the public in fair business relations between [beer] wholesalers and [breweries], and in the
continuation of [beer] wholesalerships on a fair basis,” and “[t]o prohibit unfair treatment of
[beer] wholesalers by [breweries], promote compliance with valid franchise agreements, and
The underlying purposes and policies of the chapter are:
1. To promote the interests of the parties and the public in
fair business relations between wine wholesalers and wineries, and
in the continuation of wine wholesalerships on a fair basis;
2. To preserve and protect the existing three-tier system for
the distribution of wine, which system is deemed material to the
proper regulation by the Board of the distribution of alcoholic
beverages;
3. To prohibit unfair treatment of wine wholesalers by
wineries, promote compliance with valid franchise agreements,
and define certain rights and remedies of wineries in regard to
cancellation of franchise agreements with wholesalers;
4. To establish conditions for creation and continuation of
all wholesale wine distributorships, including original agreements
and any renewals or amendments thereto, to the full extent
consistent with the laws and Constitutions of the Commonwealth
and the United States; and
5. To provide for a system of designation and registration
of franchise agreements between wineries and wholesalers with the
Board as an aid to Board regulation of the distribution of wine by
wholesalers.
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define certain rights and remedies of [breweries] in regard to cancellation of franchise
agreements with wholesalers.” Code § 4.1-400(1) and 4.1-400(3).
We are further guided by the principle that,
[i]n the construction of statutes, the courts have but one object, . . .
and that is to ascertain the will of the legislature, the true intent and
meaning of the statute, which are to be gathered by giving to all the
words used their plain meaning, and construing all statutes in pari
materia in such manner as to reconcile, if possible, any discordant
feature which may exist, and make the body of the laws
harmonious and just in their operation.
Tyson v. Scott, 116 Va. 243, 253, 81 S.E. 57, 61 (1914). “Every part of a statute is presumed to
have some effect and no part will be treated as meaningless unless absolutely necessary.” Sims
Wholesale Co., 251 Va. at 405, 468 S.E.2d at 909.
Turning to the statute at issue, Code § 4.1-506 provides, in pertinent part, as follows:
A. [A] brewery shall provide a wholesaler at least ninety days’
prior written notice of any intent to amend, terminate, cancel or not
renew any agreement. The notice, a copy of which shall be mailed
at the same time to the Board, shall state all the reasons for the
intended amendment, termination, cancellation or nonrenewal.
B. Where the reason relates to a condition or conditions which
may be rectified by action of the wholesaler, he shall have sixty
days in which to take such action and shall, within the sixty-day
period, give written notice to the brewery if and when such action
is taken. A copy of the notice shall be mailed at the same time to
the Board. If such condition has been rectified by action of the
wholesaler, then the proposed amendment, termination,
cancellation or nonrenewal shall be void and without legal effect.
However, where the brewery contends that action on the part of the
wholesaler has not rectified one or more of such conditions the
brewery shall within fifteen days after the expiration of such
sixty-day period request a hearing before the Board to determine if
the condition has been rectified by action of the wholesaler.
C. Where the reason relates to a condition which may not be
rectified by the wholesaler within the sixty-day period, the
wholesaler may request a hearing before the Board to determine if
there is good cause for the amendment, termination, cancellation or
nonrenewal of the agreement.
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D. Upon request in writing within the ninety-day period provided
in subsection A from such brewery or wholesaler for a hearing, the
Board shall, after notice and hearing, determine if the action of the
wholesaler has rectified the condition or, as the case may be, if
good cause exists for the amendment, termination, cancellation or
nonrenewal of the agreement.
Subsections B, C, and D each address the process of requesting a hearing before the ABC
Board. As relevant to this case, Code § 4.1-506(B) permits the brewery, under certain
conditions, to request a hearing before the ABC Board for determination of whether the
distributor cured the deficiencies identified by the brewery as the grounds for terminating the
distributorship agreement. Code § 4.1-506(C) permits the distributor, under certain conditions,
to request a hearing before the ABC Board for determination of whether the brewery had good
cause to terminate the distributorship agreement. Code § 4.1-506(D) permits the brewery or the
distributor, under certain conditions, to request a hearing before the ABC Board for
determination of whether the distributor cured the asserted deficiencies or whether the brewery
had good cause to terminate the distributorship agreement.
The record shows that, despite having received a timely cure notice from Virginia
Imports, Kirin did not request a hearing in this case under Code § 4.1-506(B). The record
further shows that, in failing to mail a copy of its cure notice to the ABC Board, Virginia Imports
also failed to comply with Code § 4.1-506(B). The record additionally shows that Virginia
Imports did not request a hearing under Code § 4.1-506(C). It is clear, then, that the ABC
Board’s authority to conduct hearings and render a decision in this case was not triggered by
either subsection B or subsection C of Code § 4.1-506.
The record also shows, however, that, although Virginia Imports did not request a hearing
under Code § 4.1-506(D), Kirin did. Indeed, in its letter of October 22, 1999, which was sent to
both Virginia Imports and the ABC Board, Kirin specifically requested that the ABC Board grant
it “an appropriate hearing under Code § 4.1-506(D)” to “terminate Virginia Imports.”
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Code § 4.1-506(D) is an unambiguous directive plainly expressing the intent of the
General Assembly that, when either the brewery or the distributor timely submits a written
request for a hearing before the ABC Board, the ABC Board is required to hold a hearing and
determine, depending on the issue or issues in dispute, whether the distributor has cured the
asserted deficiencies and/or whether the brewery has good cause to terminate or otherwise
amend the distributorship agreement. Thus, liberally construing Code § 4.1-506(D) in such
manner as to make the provisions of Code § 4.1-506 harmonious and just in their operation, and
applying it in consideration of the purposes and policies of the Beer Franchise Act to the
particular facts and circumstances of this case, we conclude that the ABC Board had jurisdiction
in this case to hear and decide the parties’ dispute regarding their distributorship agreement.
In reaching this decision, we reject Kirin’s argument and the circuit court’s ruling that the
ABC Board did not have authority to adjudicate this case because Virginia Imports failed to
comply with the mailing requirement of Code § 4.1-506(B) or request a hearing under Code
§ 4.1-506(D). In light of Kirin’s failure to timely request a hearing under Code § 4.1-506(B),
despite having received a timely cure notice from Virginia Imports, we discern no good reason to
conclude that the ABC Board lacked authority to hear the matter upon Kirin’s request for a
hearing under Code § 4.1-506(D) simply because Virginia Imports failed to comply with the
mailing requirement of Code § 4.1-506(B). Moreover, there is no provision in Code
§ 4.1-506(D), or elsewhere in Code § 4.1-506, that indicates that the distributor’s compliance
with the mailing requirement of Code § 4.1-506(B) is a necessary prerequisite for adjudication
by the ABC Board pursuant to a request by the brewery for a hearing under Code § 4.1-506(D).
Nor is there any provision in Code § 4.1-506(D), or elsewhere in Code § 4.1-506, that indicates
that the distributor’s noncompliance with the mailing requirement of Code § 4.1-506(B)
precludes adjudication by the ABC Board pursuant to a hearing request by the brewery under
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Code § 4.1-506(D). Similarly, there is no language in Code § 4.1-506(D) that prohibits
adjudication of the dispute by the ABC Board when only one of the parties to the distributorship
agreement makes a timely request for a hearing under that subsection.
Indeed, to hold as Kirin urges would require us to add language to the plain and
unambiguous language of Code § 4.1-506(D), which we may not do. See Williams v
Commonwealth, 265 Va. 268, 271, 576 S.E.2d 468, 470 (2003) (“When the language of a statute
is unambiguous, courts are bound by the plain meaning of that language and may not assign a
construction that amounts to holding that the General Assembly did not mean what it actually
has stated.”). It would also contravene at least one of the purposes of the Beer Franchise Act.
Given the circumstances of this case, to permit the disputed termination of the distributorship
agreement to go forward without a hearing before the ABC Board plainly would not be in
keeping with the promotion of “the interests of the parties and the public in fair business
relations between [beer] wholesalers and [breweries], and in the continuation of [beer]
wholesalerships on a fair basis.” Code § 4.1-400(1).
Hence, we conclude that Virginia Imports’ failure to mail a copy of its cure notice to the
ABC Board under Code § 4.1-506(B) or request a hearing under Code § 4.1-506(D) did not
create a jurisdictional defect in the proceedings or otherwise divest the ABC Board of statutory
authority to adjudicate the parties’ dispute pursuant to Kirin’s hearing request under Code
§ 4.1-506(D). We hold, therefore, that the ABC Board had authority under Code § 4.1-506 to
hold hearings and render a decision in this case and that the circuit court erred in ruling to the
contrary.6
6
Our holding is limited to the circuit court’s error in ruling that the ABC Board was not
authorized to hear the parties’ dispute and render a final order in this case. In other words, we do
not determine the applicability and effect of Code § 4.1-506(B) and 4.1-506(D) under any other
circumstances than those presented in this appeal. Such matters are not before us here.
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We turn next to the circuit court’s alternative rulings regarding good cause and bad faith.
IV. GOOD CAUSE
Virginia Imports contends the circuit court erred in concluding that the evidence in the
record was insufficient to support the ABC Board’s finding that Kirin lacked good cause to
terminate the distributorship agreement with Virginia Imports. In the context of this case, we
agree.
Under the Beer Franchise Act, a brewery may not unilaterally terminate a distributorship
agreement with a distributor without good cause. Code § 4.1-505. Good cause includes, inter
alia, “[f]ailure by the wholesaler to substantially comply, without reasonable excuse or
justification, with any reasonable and material requirement imposed upon him in writing by the
brewery.” Id. The brewery has “the burden of proving the existence of good cause.” Code
§ 4.1-506(E).
Here, the ABC Board found in its final order that the continuing presence of stale beer in
retail stores was the only deficiency identified by Kirin in its October 22, 1999 letter as not
having been rectified by Virginia Imports. Accordingly, the ABC Board addressed and ruled
upon only that asserted deficiency, finding that Virginia Imports had substantially complied with
the requirements set forth in Kirin’s freshness policy. Thus, the ABC Board found that “Kirin’s
termination of its franchise agreement with Virginia Imports was without good cause.”
On review, the circuit court “defer[ed] to the Board’s findings regarding the issue of
Virginia Imports’ sale of out-of-code or stale beer.” The court then found as follows:
Kirin’s termination letter of August 3, 1999 set forth
numerous deficiencies in Virginia Imports’ performance. In
addition to the out-of-code sales issue, the letter complained of
“sales of beer outside of designated territory,” “sales of brands not
assigned to [Virginia Imports],” “failure to keep chain store
reports,” “failure to monitor pricing data on competitors products,”
and other alleged sales performance deficiencies.
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Kirin identified the sale of out-of-code beer as the “most
egregious” of Virginia Imports’ deficiencies. Virginia Imports and
the Board contend that Kirin waived the other identified
deficiencies in its letter of October 22, 1999 requesting a hearing
and by its counsel’s representations to the hearing panel that the
issue of stale beer was the most important issue and one for which
it would have terminated the contract even in the absence of the
other alleged deficiencies.
The Board found in its final order that “the only condition
noted [in Kirin’s October 22, 1999 letter] as not rectified by
Virginia Imports was that of out of code beer in the market.” That
finding is clearly erroneous. Kirin’s October 22, 1999 letter cited
the continuing problem with out-of-code beer. It also referred to
Kirin’s “dissatisfaction with [Virginia Imports’] poor service.”
The letter cited previous letters and memos to Virginia Imports
regarding “point of sale issues and . . . the drop off in sales of Kirin
beer in the market,” as well as the fact that Kirin had “not seen any
material improvement in service.” Kirin’s letter referred to memos
regarding “problems which continued in the market” and requested
“a hearing on these issues.”
The Court concludes that Kirin did not waive its complaints
regarding issues other than freshness by failing to enumerate all
such issues in its October 22, 1999 letter or by stating that the
freshness issue was its primary concern.
The Board failed to address and rule upon all of the issues
raised by Kirin with respect to its grounds for termination of the
agreement, most notably Kirin’s complaints about deficient sales
reports and sales efforts with chain stores. Therefore, the record
lacks substantial evidence to support the Board’s finding that Kirin
was without good cause for terminating the agreement.
The circuit court subsequently ordered that the case be remanded to the ABC Board “with
directions that it be dismissed in its entirety.”
We concur with the circuit court’s findings that “Kirin did not waive its complaints
regarding issues other than freshness by failing to enumerate all such issues in its October 22,
1999 letter or by stating that the freshness issue was its primary concern” and that the ABC
Board erred in finding in its final order that “‘the only condition noted [in Kirin’s October 22,
1999 letter] as not rectified by Virginia Imports was that of out of code beer in the market.’”
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Plainly, an indication by a party that a particular issue is more important than other issues does
not amount to a waiver of the other issues. Moreover, while it contains no specific listing of the
deficiencies relied upon by Kirin as grounds for terminating its distributorship agreement with
Virginia Imports, Kirin’s October 22, 1999 letter expressly refers to Kirin’s August 3, 1999
letter, which does contain such a list,7 and clearly expresses Kirin’s continuing concern with
Virginia Imports’ “poor service” and lack of “any material improvement” therein subsequent to
Kirin’s August 3, 1999 letter. Thus, Kirin’s October 22, 1999 letter was sufficient to notify the
ABC Board and Virginia Imports of Kirin’s claim that the deficiencies identified in Kirin’s
August 3, 1999 letter had not been rectified by Virginia Imports and were therefore grounds for
terminating the distributorship agreement.
We further concur with the circuit court’s finding that the ABC Board “failed to address
and rule upon all of the issues raised by Kirin with respect to its grounds for termination of the
agreement.” As previously noted, the ABC Board focused solely on Kirin’s claim that Virginia
Imports had failed to comply with it freshness policy.
We do not concur, however, with the circuit court’s conclusion that, because the ABC
Board failed to consider all of the deficiencies raised by Kirin and determine whether they
constituted good cause to terminate the distributorship agreement, “the record lacks substantial
evidence to support the Board’s finding that Kirin was without good cause for terminating the
agreement.” We believe that, in reaching that conclusion on such a basis, the circuit court has
misapplied the substantial evidence standard of review.
7
As the circuit court notes, Kirin’s August 3, 1999 letter specifically identifies several
instances of Virginia Imports’ “poor service,” including its failure to remove stale beer from
retail stores in conformance with Kirin’s freshness policy; its unauthorized sales of Kirin beer
outside its designated sales territories and of Kirin brands not assigned to it; and its failure “to
invest in the Kirin brands,” “monitor pricing data on competitors’ products,” “keep chain store
reports,” and “to commit part of [its] truck fleet to Kirin decal programs.”
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In addressing the substantial evidence standard in Johnston-Willis, Ltd., we stated as
follows:
The determination of an issue of fact is to be made solely on the
basis of the whole evidentiary record provided by the agency and
the reviewing court is limited to that agency record. “A reviewing
court may not, however, use its review of an agency’s procedures
as a pretext for substituting its judgment for the agency’s on the
factual issues decided by the agency.”
6 Va. App. at 243, 369 S.E.2d at 8 (citations omitted) (quoting State Board of Health v. Godfrey,
223 Va. 423, 434, 290 S.E.2d 875, 881 (1982)). By analogy, a reviewing court also may not use
its review of an agency’s compliance with statutory authority to impose its judgment on factual
issues that are to be decided by the agency.
Here, as previously noted, the ABC Board had authority to adjudicate the dispute in this
case under Code § 4.1-506(D). Code § 4.1-506(D) provides that, upon a properly submitted
request for a hearing, the ABC Board “shall . . . determine if the action of the wholesaler has
rectified the condition or, as the case may be, if good cause exists for the . . . termination.”
(Emphasis added.) Thus, having received a properly submitted request for a hearing from Kirin
in its October 22, 1999 letter, the ABC Board was required, in accordance with the clear mandate
of Code § 4.1-506(D), to determine, upon consideration of the testimonial and documentary
evidence presented by the parties, whether Kirin had satisfied its burden of proving that Virginia
Imports had not rectified all of the deficiencies identified in Kirin’s August 3, 1999 letter and
that at least one of the unrectified deficiencies, if any, constituted good cause to terminate the
distributorship agreement. See also Code §§ 4.1-505(4) and 4.1-506(E). However, in focusing
solely on the stale-beer issue and failing to make the required determination with regard to the
other deficiencies identified in Kirin’s August 3, 1999 letter, the ABC Board failed to comply
with the mandatory directive of Code § 4.1-506(D).
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If a court finds that an agency has failed to comply with statutory authority, “the court
shall suspend or set the decision aside and remand the matter to the agency.” Virginia Bd. of
Medicine v. Fetta, 244 Va. 276, 280, 421 S.E.2d 410, 412 (1992); Code § 2.2-4029. Hence,
having found in this case that the ABC Board had “failed to address and rule upon all of the
issues raised by Kirin with respect to its grounds for termination of the agreement,” the circuit
court, rather than imposing its own judgment on the matter, should have suspended the ABC
Board’s decision and remanded the matter back to the ABC Board with instructions to make the
additional required factual determinations.
We hold, therefore, that the circuit court erred in ruling that, because the ABC Board did
not make the requisite factual findings, the record lacks substantial evidence to support the ABC
Board’s finding that Kirin did not have good cause to terminate the distributorship agreement.
Accordingly, we reverse the circuit court’s ruling, suspend the ABC Board’s decision regarding
the issue of good cause, and remand this matter to the circuit court for remand to the ABC Board
with instructions to consider, upon the existing evidentiary record, all of the deficiencies asserted
by Kirin in its August 3, 1999 letter, except the deficiency already addressed and ruled upon
relating to Kirin’s freshness policy, and to determine with respect to each of those previously
unaddressed deficiencies whether Kirin satisfied its burden of proving it had good cause to
terminate the subject distributorship agreement.8
V. BAD FAITH
Virginia Imports contends the circuit court erred in determining that there was not
substantial evidence in the record to support the ABC Board’s findings that Kirin acted in bad
faith in terminating the distributorship agreement in reliance on the ABC Board Secretary’s
8
Virginia Imports suggests that we make this determination ourselves, but we may not.
See Fetta, 244 Va. at 280, 421 S.E.2d at 412 (holding that the “court itself may not undertake the
agency action directly”).
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February 9, 2000 letter.9 The evidence, Virginia Imports asserts, shows that Kirin “knew or
should have known . . . that the February 9 letter was a clear mistake” and that Kirin
purposefully exploited that “obvious mistake” to terminate the distributorship agreement before a
hearing by the ABC Board was held. Thus, Virginia Imports concludes, the ABC Board’s
finding that Kirin was guilty of bad faith was justified. We disagree.
Code § 4.1-509 provides that the ABC Board “may, if it finds that a brewery or beer
wholesaler has acted in bad faith in violating any provision of this chapter or in seeking relief
pursuant to this chapter, award reasonable costs and attorneys’ fees to the prevailing party.”
Here, the ABC Board found that Kirin, having received Virginia Imports’ October 4,
1999 cure letter, acted in bad faith in terminating the distributorship agreement in reliance on the
ABC Board Secretary’s February 9, 2000 letter. The ABC Board’s final order reads as follows:
Kirin is guilty of bad faith in proceeding to terminate its agreement
with Virginia Imports in February, 2000, even though it was on
notice that Virginia Imports had claimed to have taken corrective
action with respect to all the causes for termination. Such action
triggered statutory provisions requiring a hearing and providing for
continuation of the agreement pending the Board’s decision and
any judicial review thereof, unless the Board made a finding of
9
Virginia Imports also argues in its opening appellate brief that Kirin, having already
decided to replace Virginia Imports with another distributor, employed “bad faith tactics” in
imposing an “unachievable” freshness-dating requirement on Virginia Imports in order to
“manufacture” evidence of Virginia Imports’ performance deficiencies and, thus, establish “good
cause” to terminate its distributor agreement with Virginia Imports. That issue, however, is not
before us in this case. In its final order, the ABC Board rejected the same claim, finding that,
Kirin’s motives notwithstanding, Kirin’s imposition of a freshness-dating requirement on
Virginia Imports was “reasonable” and “material.” “It would not be bad faith,” the ABC Board
concluded, “for a manufacturer to terminate a franchise agreement if a wholesaler failed to
substantially comply, without reasonable excuse or justification, with such a requirement.”
Virginia Imports did not appeal the ABC Board’s ruling to the circuit court in this case, and the
circuit court did not address that issue. Accordingly, we will not consider it here. See Ohree v.
Commonwealth, 26 Va. App. 299, 308, 494 S.E.2d 484, 488 (1988) (holding that, pursuant to
Rule 5A:18, we “will not consider an argument on appeal [that] was not presented to the trial
court”).
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good cause for the termination.10 While the Secretary to the Board
was unaware of Virginia Imports’ claim of corrective action due to
the failure of Virginia Imports to forward a copy of its letter to the
Board, Kirin knew at the time it requested a letter allowing it to
proceed to appoint a new wholesaler in the territory formerly
served by Virginia Imports that such an action was not statutorily
permitted. Therefore, the Board ORDERS that Kirin pay to
Virginia Imports reasonable costs and attorney’s fees.
(Footnote added.)
There is, however, as the circuit court observed, “no evidence in the record that Kirin
requested a letter allowing it to appoint a replacement for Virginia Imports.”11 Likewise, there is
no evidence in the record establishing what Kirin knew or did not know on February 10, 2000,
when, in response to the ABC Board Secretary’s February 9, 2000 letter informing Kirin that its
agreement with Virginia Imports was terminated and that it was “free to appoint other
distributors for the territories formerly held by Virginia Imports,” Kirin selected a new
distributor to replace Virginia Imports. Moreover, we cannot say, as a matter of law, that Kirin’s
reliance on the ABC Board Secretary’s letter was unreasonable. Despite Virginia Imports’
assertions to the contrary, the ABC Board Secretary’s determination that the parties’
distributorship agreement “was effectively terminate[d] ninety days after [Kirin’s] August 3,
1999 notice” plainly was not a “clear” or “obvious mistake,” as reflected by the complexity of
the issues involved in that determination (see, e.g., our discussion above regarding Code
10
Code § 4.1-506(E) provides, in pertinent part, as follows:
Where a petition is made to the Board in a timely manner
for a determination, the agreement in question shall continue in
effect pending the Board’s decision and any judicial review
thereof, except in any case in which the Board makes a finding that
there is good cause, as defined in [Code] § 4.1-505, for the . . .
termination . . ., in which case the brewery may, unless otherwise
ordered by a court of record, discontinue the agreement in
question.
11
Virginia Imports concedes as much in both of its appellate briefs.
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§ 4.1-506) and the disparate rulings regarding that determination of those who have adjudicated
this case. Hence, we agree with the circuit court that “Kirin should not be required to
second-guess the [ABC Board] Secretary’s interpretation of the [Beer Franchise] Act.”
We conclude, therefore, that the record lacks substantial evidence to support the ABC
Board’s finding that Kirin acted in bad faith in terminating the distributorship agreement with
Virginia Imports in reliance on ABC Board Secretary’s February 9, 2000 letter. Accordingly, we
affirm the circuit court’s reversal of that judgment by the ABC Board.
VI. CONCLUSION
In sum, we affirm the circuit court’s ruling that the record does not contain substantial
evidence to support the ABC Board’s finding that Kirin acted in bad faith in terminating the
distributorship agreement with Virginia Imports; we reverse the circuit court’s rulings that the
ABC Board did not have authority under Code § 4.1-506 to hold hearings and render a decision
in this case and that, because the ABC Board failed to consider all of the deficiencies identified
in Kirin’s August 3, 1999 letter, the evidence in the record was insufficient to support the ABC
Board’s finding that Kirin lacked good cause to terminate the distributorship agreement; and we
remand the case to the circuit court for remand to the ABC Board for further proceedings
consistent with this opinion.
Affirmed, in part, and
reversed and remanded, in part.
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