R&R Marketing, L.L.C. v. Brown-Forman Corp.

307 N.J. Super. 474, 204 A.2d 1327 (App. Div. 1998)
  • Opinion Date: January 27, 1998

LIMITED LIABILITY COMPANIES; FRANCHISES—When two authorized liquor distributors joined together as a limited liability company, they did not lose the protection of New Jersey’s liquor wholesaler anti-discrimination statute.

N.J.S. 33:1-93.6 prohibits discrimination against distributors of distilled spirits by liquor suppliers who previously authorized sales by such distributors. Two liquor distributors combined their businesses into a single limited liability company (LLC). In determining the form the combination was to take, retaining the benefit of the statute was of paramount importance. Each distributor had been authorized to distribute distilled spirits for a particular supplier for over 20 years but this supplier refused to fill orders for the LLC, which then sought protection under the statute from the Division of Alcoholic Beverage Control (ABC). The supplier alleged that it never authorized the LLC to sell for it, and that the independent distributors lost their separate authorizations under the statute because they gave up their ability to act as independent wholesalers when they formed the LLC. The LLC argued that the authorizations of both distributors were expressly conveyed to the LLC, and that, in any event, the combination was analogous to a corporate merger so that the authorizations were legally transferred. The ABC granted the supplier’s motion for summary judgment, concluding that the LLC was not an authorized distributor under the statute, and thus not entitled to its protection. The ABC also concluded that the independent distributors could not retain their individual authorizations to distribute the supplier’s products because they remained separate entities only as a “front” for the LLC. This was evidenced by the LLC’s operating agreement, which prohibited either distributor from engaging in alcohol distribution activities outside of the LLC.

Even though the judiciary is not bound by an agency determination, the Appellate Division stated that it would not upset a decision unless it was arbitrary, unreasonable or in violation of legislative policies. It nevertheless reversed the ABC’s judgment. It considered New Jersey’s interest in promoting LLCs and the purpose of the statute, which is to prevent suppliers from arbitrarily terminating their relationships with distributors and to secure equitable competition among distributors. The Appellate Division held that providing the LLC protection under the statute would not defeat the purpose of the statute and would advance New Jersey’s goal in promoting the formation of LLCs. The Court noted that had the distributors effectuated a corporate merger, the new corporate entity would have preserved the authorized status each distributor enjoyed separately. Additionally, since both distributors were separately authorized, the ABC’s concern about auctioning authorizations or circumventing the statute was misplaced.