A new legal perspective, Part II: an interview with the principals of Ettelman & Hochheiser - Gary Ettelman, Keith Hochheiser - Interview

Modern Brewery Age, Nov 11, 2002

Keith Hochheiser and Gary Ettelman of the Garden City, NY-based law firm of Ettelman and Hochheiser made their first substantive entry into the beer industry representing Boening Brothers, Inc. during a termination action with Heineken USA. Since then, the partners have made distribution law one of their specialties. In the interview that follows, we discuss the changing nature of the body of law that regulates brewer-wholesaler relations. The first part of this interview appeared in the September edition. Part II follows, with some initial overlap from Part I to help lead into the continuing conversation.

You have said previously that you can "go beyond the contract" in negotiations between supplier and wholesaler...

KEITH: Absolutely. The contract represents perhaps 10% of the actual relationship. You have bodies of law that automatically pertain to this relationship. There are more than one. That's why I sometimes refer to a holistic approach. It's important to understand the different bodies that affect the relationship and address each one in a practical manner. If something is not mentioned in a contract, then you look to the statute that addresses it. A well-written contract can be very short, and very friendly, and still tie into more draconian bodies of law. You can draft a 4-5 page contract that doesn't look like much, but is very overwhelming. You can tie into bodies of law without referencing it in the agreement. An agreement is only designed to trigger different pieces of law.

Sometimes, an item in an agreement may not be enforceable because it is violating a law that can't be changed by agreement. There is a lot that goes into looking at a contract, but it remains a small part of the overall relationship. For example, you can't just say in a contract

"The uniform commercial code doesn't apply to this contract." You can write that, and sometimes people do, but it's meaningless. The relationship is quite dynamic. You have state franchise laws, you have SLA laws, you have commercial laws, tax laws, and intellectual property laws. All these things must be taken into consideration.

For the layman, an agreement seems pretty black and white.

It really isn't at all. That's not just our view. It's commonly held that a contract is subject to a variety of laws. But what I find interesting about distribution agreements in general is how very rarely they are tied into the applicable laws. It is shocking. It is surprising how these agreements are not addressing important aspects of the law. Brewers shoot themselves in the foot by creating certain types of contracts. They put themselves into one section of the law, by writing it they way they did, and it will come back and bite them.

How do you tie a contract into these various bodies of law?

KEITH: You can make a very congenial, friendly change that really makes a difference. There is a way to tie into other bodies of law. Both sides should understand this. Whenever you have one-sided agreements, it opens the way to litigation. People who have contracts shouldn't despair. That contract is just a small part of the relationship.

Take the A-B contract. That is quite rigid.

KEITH: Yes, it's quite rigid. But not everything in there is enforceable. Anheuser-Busch has very good attorneys, and they do things the right way. But there are issues with that contract I think there are ways to deal with the A-B contract. When you call out a particular issue, and you demonstrate that you understand what it is doing, sometimes it is so absurd that they will back off it. There is more than one way to skin a cat. Things are negotiable, even though they say they're not. There are also things you can do internally to modify a contract.

How do you think a broader understanding of intellectual property issues will change the beer business?

KEITH: From a commercial perspective, I think we will see things start to change. It will be better for brewers, and better for distributors. This industry needs a little more stability.

How will that come about?

KEITH: In two ways. One, by giving the distributors the ability to negotiate a more equitable agreement Brewers aren't bad people, but I think if there are more recognized distributor rights, they won't approach distribution agreements in such a heavy-handed fashion. I would use the car industry as an analogy. In the car industry there is arigorous review process. There are prerequisites before getting a franchise. Maybe that's what will happen with beer. If people take the relationship more seriously, then they won't go into it thinking, if it doesn't work out, we'll just make a change.

Was the A-B contract an effort to do that?

KEITH: A-B does take this very seriously. The curious thing to me is that A-B is talking consolidation constantly, but I don't see them doing as many consolidations now, I see everyone else doing consolidations. Anheuser-Busch has their act together in a lot of ways. I don't see as much turmoil in the A-B distributor system at this point.