August 21, 2008
10th U.S. Circuit Court of Appeals Rules for Okla. Distributor in Case Against Pabst
By Marie Price
A federal appeals court Tuesday upheld a $674,000 jury verdict in favor of Oklahoma beer distributor Specialty Beverages LLC in a breach-of-contract lawsuit against Pabst Brewing Co.
The 10th U.S. Circuit Court of Appeals upheld most of a lower federal court's ruling, but reversed and remanded the case for a trial on Specialty Beverages' fraud claim, upon which the U.S. District Court for the Western District of Oklahoma had ruled for Pabst.
Specialty Beverages was first licensed as a nonresident seller in 2003.
According to the appellate opinion, written by Senior Judge David Ebel, Pabst became unhappy with its previous distributing company's efforts to market its products, and started talking with Specialty Beverages.
Pabst notified the previous company, Marrs Distributing Co., that its letter of appointment would not be renewed.
A one-year-term appointment letter was issued to Specialty Beverages.
The court said Specialty then tripled its warehouse space with added temperature controls, added office space and administrative staff, purchased a refrigerated trailer to store Pabst keg products, hired a new sales force, committed money and resources to marketing, increased its bank loans and line of credit and bought thousands of cases of Pabst beer.
Marrs sued Pabst, alleging breach of an exclusive distribution agreement, and obtained a temporary restraining order. Pabst reinstated Marrs and the suit was settled.
Pabst directed Specialty not to sell any of its beer, although Specialty told the court it was not informed of the TRO nor otherwise informed about the progress of the litigation.
"During this time, Pabst still encouraged Specialty Beverages to continue placing monthly beer orders, which Specialty did for several months," the appeals court said. "Pabst, however, never delivered any more beer to Specialty. Pabst did eventually pick up some of the beer that it had already delivered to Specialty. The rest of the beer that Pabst delivered to Specialty grew stale in Specialty Beverages' warehouse."
Specialty told the court that its reputation was destroyed with wholesalers and retailers, who complained when the nonresident seller could not fill orders for Pabst products.
Specialty Beverages, which sued Pabst in October 2004, was out of business by February 2005.
As to the fraud claim, the appellate court said a reasonable jury could conclude that Pabst owed Specialty Beverages a duty to disclose fully its contractual relationship with Marrs, which involved an exclusive distributor arrangement that cold be canceled only in limited circumstances.
By not doing so, the court said, "Pabst created a false impression and thereby had a duty to correct that misrepresentation."
Specialty relied on Pabst's failure to disclose, suffering damages as a result, the court said.
Originally published by Marie Price.
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