Beer Wholesaler Required To Arbitrate In Europe Over Distribution Dispute

A federal court judge recently ordered Geneva

International Corporation (GIC) of Illinois to abide by a distribution

agreement provision that requires all disputes with the supplier, Pilsner

Urquell (Urquell), to be arbitrated in the Czech Republic. The decision

represents a triumph of the Federal Arbitration Act (FAA) over Illinois'

Beer Industry Fair Dealing Act (BIFDA).

GIC originally entered into a beer

distribution agreement in July of 1997 with Radegast, a Czech brewer, such

that GIC would become Radegast's exclusive distributor for the United

States. Subsequently, Radegast merged with Urquell, another Czech

brewer.

Subsequent to their merger, the suppliers

notified GIC of an intent to terminate the pre-existing distribution

relationship. Invoking diversity jurisdiction because of the

suppliers' status as foreign corporations, GIC filed a lawsuit in the U.S.

District Court for the Northern District of Illinois, seeking damages for

unlawful termination of its beer distributorship.

GIC filed three counts: Counts I and II

involved claims against both Czech breweries under BIFDA; Count III was

against Radegast only, alleging a breach of warranty claim under Illinois'

Commercial Code.† In response, the Czech breweries moved to dismiss the

complaint on grounds that, under the terms of the 1997 distribution agreement

between GIC and Radegast, GIC is required to arbitrate any dispute in the

County Commercial Court in Ostrava, the Czech Republic.

In a decision dated December 22, 2000, U.S.

District Judge John F. Grady issued an order putting the case on hold, pending

arbitration. Judge Grady directed the parties to initiate arbitration

proceedings in the Czech Republic, in accordance with the distribution

agreement between GIC and Radegast. The court ruled that the arbitration

clause of the distribution agreement in question was governed by the Federal

Arbitration Act ìbecause the transaction at issue involved interstate

commerce: defendants, Czech Brewers, sold beer to plaintiff, an Illinois

wholesaler, for distribution throughout the United States.î According

to Judge Grady, the FAA requires the court to stay proceedings and direct the

parties to proceed to arbitration when a valid arbitration clause exists.

GIC had argued that the arbitration was not

required because the arbitration...