                             COURT OF APPEALS OF VIRGINIA


Present: Judges Humphreys, Beales and Senior Judge Coleman
Argued at Richmond, Virginia


LOUIS LATOUR, INC.
                                                                    OPINION BY
v.     Record No. 1836-06-2                                  JUDGE RANDOLPH A. BEALES
                                                                    MAY 29, 2007
VIRGINIA ALCOHOLIC BEVERAGE
 CONTROL BOARD AND THE COUNTRY VINTNER, INC.


                FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
                             Theodore J. Markow, Judge

               Michael J. Lockerby (Walter A. Marston; Kevin R. McNally;
               Foley & Lardner LLP; Reed Smith LLP, on briefs), for appellant.

               Carla R. Collins, Assistant Attorney General (Robert F. McDonnell,
               Attorney General; Frank S. Ferguson, Deputy Attorney General;
               K. Michelle Welch, Assistant Attorney General, on brief), for
               appellee Virginia Alcoholic Beverage Control Board.

               E. Duncan Getchell, Jr. (Stephen D. Busch; M. Stuart North; Erin M.
               Sine; McGuire Woods LLP, on brief), for appellee The Country
               Vintner, Inc.

               Amicus Curiae: Virginia Wine Wholesalers Association, Inc.
               (Thomas A. Lisk; Jacqueline S. McClenney; LeClair Ryan, on brief),
               for appellant.


       Louis Latour, Inc. (“Latour”) appeals a decision of the Circuit Court of the City of

Richmond, which affirmed a decision of the Virginia Alcoholic Beverage Control Board

(“Board”). Specifically, Latour contends that the circuit court erred in failing to apply a de novo

standard of review, and in finding that Latour (1) unilaterally amended its agreement with The

Country Vintner, Inc. (“Vintner” or “TCV”) without good cause; (2) discriminated among its

wholesalers in violation of the Virginia Wine Franchise Act (“VWFA”); and (3) acted in bad
faith in its dealings with Vintner. For the following reasons, we affirm the judgment of the

circuit court.

                                                I.

                                     STANDARD OF REVIEW

        “On appeal, we will review the evidence, and all reasonable inferences deducible

therefrom, in the light most favorable to [Vintner], the party prevailing below.” The Country

Vintner, Inc. v. Rosemount Estates, Inc., 35 Va. App. 56, 60, 542 S.E.2d 797, 799 (2001).

                                                II.

                                          BACKGROUND

                                       A. Factual History

        On December 10, 1990, Latour entered into a wine distribution agreement with The

Country Vintner, Inc. According to the agreement, Vintner would sell Latour’s wine throughout

the Commonwealth with a primary area of responsibility in Surry and Gloucester Counties.1 It

was understood that Vintner was selling, and intended to continue selling, Latour wine in

Northern, Central, and Eastern Virginia.2 Between December 1990 and April 2003, Latour

permitted Vintner to order as much wine as it could sell throughout the Commonwealth. And,

from November 5, 1999 to April 3, 2003, Vintner was the only wholesale distributor of Latour

wines in the Commonwealth.



        1
        The original agreement was never distilled to writing. However, forms filed with the
Board in 1990 and 1997 indicate that Vintner’s territory designation was Surry and Gloucester
Counties.
        2
         In 1990, two other distributors had written agreements to distribute Latour wines in
Virginia. Specifically, King & Roberts was authorized to distribute Latour wine in
Charlottesville, and Virginia Imports had an agreement to distribute Latour wine in Northern
Virginia. In 1996, Virginia Imports and Vintner entered into a brand swap, and thus, Vintner
acquired the Northern Virginia Territory. Subsequently, King & Roberts sold its business to
Broudy-Kantor.
                                               -2-
       In 2002, Latour sought to change its marketing strategy, and with the help of Charles

Ducker (“Ducker”), Latour’s new Southeast Manager of Sales, attempted to create a network of

regionally based distributors. Specifically, Latour decided to appoint new distributors with

primary areas of responsibility outside of Surry and Gloucester Counties. Latour planned to mail

distribution agreements to three new distributors,3 receive them back, and file the new territory

appointments with the Board. Latour made these plans without alerting Vintner.

       Latour entered into written distribution agreements with three new wholesalers, and on

April 3, 2003, filed the appropriate forms with the Board. On April 18, 2003, Latour sent

Vintner a new proposed distribution agreement. The proposed agreement designated Vintner’s

primary area of responsibility as Surry and Gloucester Counties and required certain

performance measures. For example, it required Vintner to maintain, and file with Latour,

detailed stock depletion reports.4 In essence, Latour intended for this written agreement to

replace the existing franchise agreement which existed “by virtue of prior designations, actions,

understandings, and course of dealings” between Vintner and Latour.5 Vintner refused to sign

the agreement.

       In response, Latour sent Vintner a Requirements Announcement (“announcement”),

stating that it was “prepared as a unilateral amendment to the commercial relationship.” The

announcement incorporated all aspects of the proposed agreement and declared that it would


       3
           The new distributors included Select Wines and Virginia Distributing.
       4
        The depletion reports were to contain “the names and addresses of the retail licensees to
which [Vintner] ha[d] sold the Latour wines during said month and the volume of sales of the
Latour wines for that month.”
       5
         By acquiring agreements with the new distributors, Latour hoped to pressure Vintner
into signing the new franchise agreement. The new distributors were subject to a written
agreement, which included, among other things, the requirement for filing depletion reports. As
such, Latour hoped to push Vintner into signing the agreement by indicating that the other
wholesalers in the Commonwealth were subject to the same terms.
                                              -3-
become effective ninety-one days after its receipt by Vintner. The announcement defined

Vintner’s sales territory as Surry and Gloucester Counties, and stated that Latour had no

obligation to “support in any way” sales activities of Vintner related to retailers located outside

of the defined territory. It further provided that Latour could “in its sole discretion allocate the

Latour wines among distributors in any manner” that it deemed in the best interests of Latour.

Vintner objected to all aspects of this announcement and, subsequently, filed a complaint with

the Board.

       After Vintner refused to sign the agreement, Latour began offering price discounts and

marketing incentives to the new distributors, Select Wines and Virginia Distributing, and ceased

offering any such opportunities to Vintner.6 Latour gave the new distributors access to Vintner’s

confidential business records in order to facilitate the new distributors’ marketing efforts. Latour

also deliberately delayed the processing of Vintner’s purchase orders, while almost immediately

filling those from the new distributors, and, moreover, never filled two purchase orders

submitted by Vintner.

                                       B. Procedural History

       On August 6, 2003, Vintner filed an original complaint with the Board against Latour.

The complaint alleged that Latour violated the VWFA by creating dual distributorships and by

attempting to impose specific performance requirements on Vintner without good cause. On

February 11, 2004, Vintner filed an amended complaint with the Board alleging that Latour acted


       6
          We note that the record is unclear as to whether Latour failed to offer these price
discounts and marketing incentives to Vintner in general, or just in relation to its sales outside of
its primary area of responsibility. When questioned at oral argument, Latour’s counsel could
only indicate that Latour offered wine tasting events to the new wholesalers within their primary
area of responsibility and that Latour did not offer Vintner the same events outside of its primary
area of responsibility. However, the record does not contain any indication that Latour offered
these services to Vintner within its primary area of responsibility. Based upon our standard of
review, we will view this in the light most favorable to Vintner, the prevailing party below. See
Rosemount, 35 Va. App. at 60, 542 S.E.2d at 799.
                                                 -4-
in bad faith and unilaterally amended its franchise agreement without good cause. A Hearing

Panel (“Panel”) heard the case over a seven-day period, and on March 21, 2005, issued an

opinion finding that Latour: (1) violated the VWFA’s dual distributorship provisions;

(2) unilaterally amended Vintner’s agreement with Latour without good cause because the

“modification [of the agreement was] in direct contravention of the Act”; (3) discriminated

among its wholesalers, in violation of the VWFA; and (4) acted in bad faith in its dealings with

Vintner.

       Latour appealed, and on November 29, 2005, the Board affirmed all but one portion of

the Panel’s decision. Specifically, “The Board concur[red] with the analysis and findings of the

hearing panel on the issue of Latour’s unilateral amendment of its agreement with TCV. It

likewise concur[red] with the hearing panel on the issues involving unlawful discrimination

between wholesalers and bad faith on the part of Latour.” However, the Board reversed the

Panel’s decision with regard to Latour’s alleged creation of a dual distributorship. The Board

found that Vintner’s “primary area of responsibility [was] Surry and Gloucester Counties, and

therefore, Latour [had] not entered into a dual distributorship situation in [Vintner’s] territory.”

       Latour appealed the Board’s decision to the Circuit Court for the City of Richmond. On

June 28, 2006, the circuit court affirmed the Board’s final order, stating that it was “without

error.” Latour timely appealed to this Court.

                                                 III.

                                             ANALYSIS

       In reviewing the decisions of a regulatory agency, the agency’s findings of fact are

conclusive if supported by the evidence. Rosemount, 35 Va. App. at 62-63, 542 S.E.2d at 799;

see also Code § 4.1-410 (“All proceedings under this chapter and any judicial review thereof

shall be held in accordance with the Virginia Administrative Process Act (§ 2.2-4000 et seq.).”).

                                                 -5-
Accordingly, “[t]he 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.”

Johnston-Willis, Ltd. v. Kenley, 6 Va. App. 231, 242, 369 S.E.2d 1, 7 (1988).

       However, “[a]lthough decisions by administrative agencies regarding matters within their

specialized competence are ‘entitled to special weight in the courts,’” id. at 244, 369 S.E.2d at 8,

decisions which involve issues of statutory interpretation require “little deference” 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); see also Va. Imports, Ltd. v. Kirin Brew.

of Am., LLC, 41 Va. App. 806, 821, 589 S.E.2d 470, 477 (2003). Said differently, “pure

statutory interpretation is the prerogative of the judiciary.” Id. Thus, we review an issue of

statutory construction de novo. See Mattaponi Indian Tribe v. Dep’t of Envtl. Quality ex rel.

State Water Control Bd., 43 Va. App. 690, 707, 601 S.E.2d 667, 675 (2004).

                         A. The Circuit Court and the Standard of Review

       Latour argues that the circuit court erred in failing to apply the de novo standard of

review in reviewing the Board’s final order. Specifically, Latour argues that issues of statutory

construction and the meaning of terms found in the VWFA are questions “which [fall] squarely

[within] the province of the courts.” We agree with the proposition that these issues are subject

to de novo review by the courts, but we find that the record does not support Latour’s contention

that the circuit court failed to apply this standard of review.

       We have long held that, “[a]bsent clear evidence to the contrary in the record, the

judgment of a trial court comes to us on appeal with a presumption that the law was correctly

applied to the facts.” Yarborough v. Commonwealth, 217 Va. 971, 978, 234 S.E.2d 286, 291

(1977); Shenk v. Shenk, 39 Va. App. 161, 169, 571 S.E.2d 896, 900 (2002) (“A trial court is




                                                 -6-
presumed to apply the law correctly.”); Oliver v. Commonwealth, 35 Va. App. 286, 297, 544

S.E.2d 870, 875 (2001) (“The trial court’s judgment is presumed to be correct.”).7

       Here, the circuit court held, “Having reviewed and considered the record before the

Board, this court is of the opinion that the decision of the Virginia Alcoholic Beverage Control

Board is without error.” Even though the circuit court did not explicitly set forth the standard of

review in its holding, on appeal, we presume that in reviewing and considering the record, the

circuit court used the appropriate standard of review. Moreover, during discussion with trial

counsel, the circuit court acknowledged that it was “bound” by the facts as found by the Board.

However, the circuit court also noted that such a deferential standard of review is “not true with

regard to questions of law.” Therefore, because the record does not contain “clear evidence to

the contrary,” we cannot say that the circuit court applied an incorrect standard of review.

                                     B. Dual Distributorships

       Neither party appeals the Board’s finding that Vintner’s “primary area of responsibility

[was] Surry and Gloucester Counties, and therefore, Latour [had] not entered into a dual

distributorship situation in [Vintner’s] territory.” Instead, the parties disagree regarding the

impact of this finding. Specifically, Latour argues that the Board’s determination that “Latour

lawfully appointed new wholesalers . . . is legally irreconcilable with the Board’s adoption of the

Hearing Panel’s holdings that Latour nevertheless violated the WFA by engaging in unilateral

amendment, bad faith, and discrimination.” In contrast, Vintner and the Commonwealth argue

that the Board recognized “that the other findings do not depend upon the primary area of

responsibility” and that those findings are “legally unassailable” in light of the Board’s holding.




       7
          Although in cases such as this, the circuit court functions as an appellate court rather
than a trial court, the principle remains applicable.
                                                 -7-
       Because neither party presents the issue of Vintner’s “primary area of responsibility” on

appeal, we will not address it. Accordingly, we are bound by the Board’s decision that Latour

had not created a dual distributorship, in violation of the VWFA, and that, according to the

parties’ agreement, Vintner’s primary area of responsibility was Surry and Gloucester Counties.

Therefore, we will approach the other issues on appeal in light of these uncontested facts.

                            C. Unilateral Amendment and Good Cause

       Latour contends that the circuit court erred in finding that it unilaterally amended its

franchise agreement with Vintner without good cause, thereby violating Code § 4.1-406. Vintner

responds that the evidence supports the finding that Latour unilaterally amended the franchise

agreement without good cause, and the fact that Code § 4.1-404’s prohibition of the

establishment of dual distributorships was not violated does not contradict that finding. For the

reasons that follow, we affirm the circuit court on this issue.

                                     1. Unilateral Amendment

       Initially, we note that the VWFA does not preclude a winery from proposing changes to

the contractual relationship with its distributors, and we would certainly not uphold the

imposition of any sanctions on a winery for solely proposing changes to its contractual

relationship with its distributor. To do so would be contrary to the VWFA. In the absence of an

agreed upon change (i.e., a bilateral amendment), however, the VWFA also provides a

framework for unilaterally amending an existing agreement. See Code §§ 4.1-406 and 4.1-407.

According to that framework, a winery may not unilaterally amend a contract without good

cause. Id.




                                                -8-
       In this case, the Panel explicitly concluded that Latour’s actions “constitute[d] a

unilateral change or modification of an agreement without good cause.”8 In reaching this

conclusion, the Panel noted that Vintner “objected to all aspects of the Requirements

Announcement. Consequently, it was not implemented by Louis Latour as to TCV.” Latour

contends this sentence constitutes a finding that the amendment was not actually implemented

and that, therefore, “the issue of the propriety” of the announcement “has been rendered moot.”

This claim, however, completely overlooks the Panel’s other numerous findings and

explanations that Latour had indeed unilaterally amended the franchise agreement, emphasizing

one phrase over the vast majority of the Panel’s opinion.

       The Panel, after noting that Latour did not implement the proposal “as to” Vintner,

immediately then, however, found:

               However, Louis Latour delayed orders placed by [Vintner] and
               assisted the other distributors by granting them price breaks and
               other incentives not offered to [Vintner] in order to enable them to
               compete against [Vintner] . . . .

                                 *    *    *     *    *     *   *

               [The new distributors] had already been told by Mr. Ducker
               [Latour’s Southeast Manager of Sales] that Louis Latour intended
               to limit [Vintner’s] supply of wine in order to restrict [Vintner’s]
               distribution of Latour wine to Surry and Gloucester Counties. Mr.
               Retornaz also testified that this was Louis Latour’s intention. This
               is directly contrary to the provisions of Section 404 of the Act in
               that such a scheme restricted the sales of Latour wine by [Vintner]
               to retailers located within Surry and Gloucester Counties.

                                 *     *    *    *    *     *   *



       8
         While the dissent questions our examining Latour’s actions subsequent to Vintner’s
receipt of the requirements announcement (i.e., the unilateral amendment), we nonetheless find it
necessary to address those actions given the Board’s factual findings, which Latour challenges
on appeal. With that in mind, we feel we must address Latour’s question presented of whether or
not Latour unilaterally amended, without good cause, its existing agreement with Vintner by
imposing the requirements announcement.
                                              -9-
               In the case herein, Louis Latour’s primary objective, in attempting
               to force [Vintner’s] signing of the Distribution Agreement and
               complying with the Requirements Announcement, was to limit
               [Vintner] from selling Latour wines outside of what Louis Latour
               considered [Vintner’s] primary area of responsibility. This is in
               direct contravention of Section 404 of the Act and makes this case
               easily distinguishable from Schieffelin. If anything, Schieffelin
               supports [Vintner’s] contentions in this case. [Vintner] had been
               the sole distributor for Latour wines in Virginia from 1999 to April
               2003. The plan or scheme conceived by Louis Latour was to
               enable other distributors to distribute Latour wines in areas of
               Virginia formerly serviced by [Vintner] pursuant to a longstanding
               agreement and to limit [Vintner’s] distribution to Surry and
               Gloucester Counties. This, in the Hearing Panel’s view,
               constitutes a unilateral change or modification of an agreement
               without good cause. Good cause cannot exist when the unilateral
               change or modification is in direct contravention of the Act.

(Emphasis added.)

       Latour clearly could not implement all of the provisions of the requirements

announcement because it was impossible for them to implement the provisions that required

Vintner to act. Latour could not unilaterally have Vintner furnish the depletion reports – only

Vintner could perform that provision. Moreover, the requirements announcement, i.e., the

unilateral amendment, contained more provisions than just the requirement for depletion reports.

Paragraph 1 of the requirements announcement stated, in part:

               Retail licensees located in such Primary Area of responsibility
               shall be considered by Supplier and Distributor as the target market
               to which Distributor’s obligation under this contract shall be
               focused; moreover, Supplier shall have no obligation to facilitate
               or support in any way . . . any activities in which Distributor
               chooses to engage relating to retail licensees located outside the
               Territory.

Latour implemented as much of this provision as it possibly could unilaterally. For example,

Latour limited Vintner’s ability to sell outside of Surry and Gloucester Counties – in parts of

Virginia that were not part of the other distributors’ primary areas of responsibility where

Vintner had previously been distributing wine -- by refusing to follow previous shipping

                                               - 10 -
arrangements that were part of the existing franchise agreement between Latour and Vintner.

This is exactly the type of behavior that Code § 4.1-406 was enacted to prevent. See Code

§ 4.1-400(3), (4).9

       To find that Latour proposed, but did not implement the amendment would provide

suppliers with an easy loophole to Code § 4.1-406. A supplier could propose an amendment that

includes a part that can only be implemented by the distributor, such as depletion reporting, and

then implement whatever other provisions it sees fit without violating the statute, since the entire

proposal has not been implemented. We find such an interpretation contrary to the purpose of

Code § 4.1-406. Therefore, while the Panel’s preliminary finding that Latour did not implement

the proposed amendment to the agreement “as to” Vintner is accurate (if inartfully worded), so

also is the Panel’s conclusion that Latour actually unilaterally implemented the portions of the

announcement that it could -- on its own -- unilaterally implement.

       Finally, the text of the announcement itself states that Latour’s requirements

announcement was, in fact, a unilateral amendment to the existing agreement. The

announcement reads,

               The enclosed “Requirements Announcement” has been prepared as
               a unilateral amendment to the commercial relationship between
               Louis Latour Inc. and The Country Vintner Inc. It essentially
               incorporates all of the performance aspects of the proposed


       9
          We expressly do not hold, as the dissent seems to state (and as we discuss infra), that
the statute requires a winery, such as Latour, to assist a wholesaler in its efforts to distribute the
winery’s product in another wholesaler’s primary area of responsibility. Such a requirement
would create dual distributorships and would violate the statute’s express prohibition against
creating dual distributorships. The statute also does not require a winery to assist a wholesaler
outside the wholesaler’s own primary area of responsibility. However, as noted, the statute
expressly allows a wholesaler to sell the winery’s product outside of the wholesaler’s primary
area of responsibility (and prevents a winery from restricting the wholesaler to its primary area
of responsibility). Furthermore, in this case, the existing franchise agreement required Latour to
assist Vintner in selling outside of Vintner’s primary area of responsibility. It is Latour’s
unilateral implementation of that proposed change to the existing franchise agreement with
Vintner that violates the statute.
                                                - 11 -
               contract, those relating to the distributor’s performance and those
               relating to Louis Latour Inc.’s performance.

(Emphasis added.) The announcement also states, “The effective date of the amendments

contained in the Requirements Announcement is the 91st day following the date of receipt by

The Country Vintner, Inc.” 10 Consequently, Latour makes clear that it is unilaterally amending

the existing franchise agreement via the requirements announcement, which notes that the

unilateral amendment takes effect on “the 91st day following the date of receipt by The Country

Vintner, Inc.” Therefore, we affirm the finding that Latour unilaterally amended the parties’

contract, and, in accordance with Code § 4.1-406, Latour must demonstrate that good cause

existed for such a unilateral amendment.

                                           2. Good Cause

       We now turn to whether the record supports the finding that Latour unilaterally amended

the parties’ agreement without good cause, in violation of Code § 4.1-406.

       Under the VWFA, a winery is permitted to impose requirements on a wholesaler by

unilateral amendment, so long as the winery complies with the requirements set forth in the

VWFA. Code § 4.1-406; Code § 4.1-407. Specifically, Code § 4.1-406 requires that “the winery

first compl[y] with § 4.1-407 and good cause [must] exist[] for amendment, termination,

cancellation, nonrenewal, noncontinuance or causing a resignation.” (Emphasis added.) Code

§ 4.1-406 delineates the parameters of “good cause” as follows:

               Good cause shall not include the sale or purchase of a winery.
               Good cause shall include, but is not limited to the following:

                1. Revocation of the wholesaler’s license to do business in the
               Commonwealth;

                 2. Bankruptcy or receivership of the wholesaler;

       10
          Code § 4.1-407(A) states, in pertinent part, “a winery shall provide a wholesaler at
least ninety days’ prior written notice of any intention to amend, terminate, cancel or not renew
any agreement.”
                                                - 12 -
                3. Assignment for the benefit of creditors or similar disposition
              of the assets of the wholesaler, other than the creation of a security
              interest in the assets of a wholesaler for the purpose of securing
              financing in the ordinary course of business; or

                4. Failure by the wholesaler to substantially comply, without
              reasonable cause or justification, with any reasonable and material
              requirement imposed upon him in writing by the winery including,
              but not limited to, a substantial failure by a wine wholesaler to
              (i) maintain a sales volume or trend of his winery’s brand or brands
              comparable to that of other distributors of that brand in the
              Commonwealth similarly situated or (ii) render services
              comparable in quality, quantity or volume to the services rendered
              by other wholesalers of the same brand or brands within the
              Commonwealth similarly situated. In any determination as to
              whether a wholesaler has failed to substantially comply, without
              reasonable excuse or justification, with any reasonable and
              material requirement imposed upon him by the winery,
              consideration shall be given to the relative size, population,
              geographical location, number of retail outlets and demand for the
              products applicable to the territory of the wholesaler in question
              and to comparable territories.

              Nothing in this section shall be construed to prohibit a winery from
              proposing or effecting an amendment to a contract with a wine
              wholesaler in the Commonwealth provided that such amendment is
              not inconsistent with this chapter.

              Good cause shall not be construed to exist without a finding of a
              material deficiency for which the wholesaler is responsible in any
              case in which good cause is alleged to exist based on
              circumstances not specifically set forth in subdivisions 1 through 4
              of this section.

Upon review, “the issue of whether a winery had ‘good cause’ to [unilaterally amend] a franchise

agreement with a wholesaler is a mixed question of fact and law.” Rosemount, 35 Va. App. at

63, 542 S.E.2d at 799.

       Latour argues that the unilateral amendment avoided dual distributorships, which are

prohibited by Code § 4.1-404, and that, therefore, “Latour’s amendment was in ‘good faith’ as a




                                              - 13 -
matter of law.”11 As previously stated, we review issues of statutory construction de novo. See

Mattaponi, 43 Va. App. at 707, 601 S.E.2d at 675. Code § 4.1-404 states that “[e]ach winery

which enters into an agreement with a wine wholesaler shall designate a sales territory as the

primary area of responsibility of that wholesaler which is applicable to the agreement.”12

However, Code § 4.1-404 also states that “the term ‘primary area of responsibility’ shall not be

construed as restricting sales or sales efforts by a wine wholesaler exclusively to retailers located

within the designated sales territory, and any agreement to the contrary shall be void.”

       The plain language of the statute commands that the winery “shall” designate a “primary

area of responsibility” for the wholesaler. Furthermore, the statute contemplates that, pursuant to

the franchise agreement, the winery may not restrict the wholesaler’s sales to that “area of

responsibility.” Code § 4.1-404. In other words, the winery may not limit the wholesaler to

selling solely within its primary area of responsibility, nor may the winery qualify the

wholesaler’s sales territory as solely limited to that primary area of responsibility. See Black’s

Law Dictionary 1317 (7th ed. 1999) (defining restriction as “a limitation or a qualification”).

       Of course, the statute does not require that the winery assist a wholesaler in its effort to

distribute outside of the wholesaler’s “primary area of responsibility.” However, in this case, the

parties’ franchise agreement did require Latour to assist Vintner outside of Surry and Gloucester


       11
          Code § 4.1-406 delineates the parameters of “good cause” to cancel or amend an
existing agreement. Appellant, however, uses the term “good faith” in its argument on this issue.
The Virginia Supreme Court has explicitly noted the difference in the two terms as contemplated
by that section. See Sims Wholesale Co., 251 Va. at 405, 468 S.E.2d at 909. Therefore, we will
address the concept of “good cause” in this section and discuss the VWFA’s provision that
requires good faith in all dealings infra.
       12
          Here, Latour designated Surry and Gloucester Counties as the primary area of
responsibility for Vintner, certain cities and counties in Northern Virginia as the primary area of
responsibility for Select Wines, and certain cities and counties in the Roanoke area, Central
Virginia, and Eastern Virginia as the primary area of responsibility for Virginia Distributing
Company. No other areas of Virginia were designated as any wholesaler’s primary area of
responsibility.
                                                 - 14 -
Counties, and such assistance had taken place throughout the parties’ course of dealing. In other

words, while Code § 4.1-404 does not require that Latour assist Vintner with sales outside of its

primary area of responsibility, the parties’ existing contract did. Code § 4.1-404, rather than

precluding such a contract provision, provides for such assistance by including the provision,

“The term ‘primary area of responsibility’ shall not be construed as restricting sales or sales

efforts by a wine wholesaler exclusively to retailers located within the designated sales territory,

and any agreement to the contrary shall be void.”

        Here, Latour admitted before the Panel that it intended to limit Vintner to Surry and

Gloucester Counties. Assisting new distributors, with whom they had recently signed contracts,

in the areas outside each of the distributors’ primary areas of responsibility (i.e., in areas of

Virginia not assigned to any distributor and which were formerly serviced by Vintner), while

disregarding Vintner’s orders for sales in these same areas outside of any distributors’ primary

area of responsibility, were all attempts to limit Vintner’s sales to only Surry and Gloucester

Counties. While Latour is not required by statute to assist Vintner outside its primary area of

responsibility and, in fact, cannot assist Vintner within another distributor’s primary area of

responsibility, Latour cannot impede Vintner’s efforts and ability to sell outside its primary area

of responsibility (while assisting other distributors in this “unclaimed territory”), which Latour

clearly did.13

        Latour’s unilateral amendment was, therefore, intended to limit Vintner to its primary

area of responsibility, in violation of Code § 4.1-404. Specifically, Latour intended to use the



        13
          The Board’s finding that Latour did not violate the prohibition on dual distributorships
contained in Code § 4.1-404, see supra, does not contradict this finding. Code § 4.1-404
contains more than one provision. It both precludes wineries from assigning the same primary
area of responsibility to two distributors and prevents wineries from limiting those distributors to
their primary areas of responsibility. While Latour did not violate the first provision, it violated
the second provision by its unilateral amendments to the contract with Vintner.
                                                - 15 -
depletion reports from Vintner to limit its supply of wine and, therefore, its distribution territory.

In addition, as the Panel noted:

               Latour delayed orders placed by [Vintner] and assisted the other
               distributors by granting them price breaks and other incentives not
               offered to [Vintner] in order to enable them to compete against
               [Vintner]. Louis Latour also gave the new distributors a letter of
               authorization to take to the retailers, in areas formerly serviced by
               [Vintner], announcing a change in the distribution network . . . .

In short, not only did Latour act without good cause, it also acted in bad faith as discussed infra.

       Latour’s actions towards Vintner both before and after Vintner’s rejection of the

proposed written amendment to their contract further establishes that Latour attempted to

unilaterally amend the agreement with Vintner without good cause. Although Latour argues that

the VWFA “anticipates and permits wineries to impose sales volume requirements and to make

comparisons of product demand among sales territories” and “only by requiring depletion reports

of their wholesalers can wineries make such comparisons,” Latour does not offer evidence of any

“material deficiency for which the wholesaler is responsible” nor does Latour argue that any of

the examples of good cause enumerated in Code § 4.1-406 applies in this case. We thus affirm

the finding of the Panel, the Board, and the circuit court on this issue.

                                         D. Discrimination

       Latour contends that because the issue of discrimination is “hopelessly intertwined with

the Hearing Panel’s decision regarding the scope of Vintner’s territory,” the circuit court erred in

finding that Latour discriminated against Vintner, in violation of Code § 4.1-415. For the

following reasons, we disagree.

       Code § 4.1-415 provides that “[n]o winery shall discriminate among its wholesalers in

any business dealings including, but not limited to, the price of wine sold to the wholesaler,

unless the classification among its wholesalers is based upon reasonable grounds.” In general,

discrimination is defined as “differential treatment; esp. a failure to treat all persons equally
                                                - 16 -
when no reasonable distinction can be found between those favored and those not favored.”

Black’s Law Dictionary, supra at 479. Thus, according to Code § 4.1-415, no winery may treat

its wholesalers differently unless the winery has reasonable grounds to do so.

       In this case, the record reflects that Latour offered direct import pricing, depletion

allowances, and marketing activities to Select Wines and Virginia Distributing. However, the

record gives no indication that the same direct import pricing, depletion allowances, or

marketing activities were offered to Vintner. In essence, Latour allowed the new distributors to

purchase the same wine at lesser prices, compensated the new distributors following the sale of

the wine, and offered free wine to the new distributors. After April 2003, none of these

incentives were offered to Vintner. Moreover, Latour made a conscious decision to immediately

process the purchase orders from Select Wines and Virginia Distributing, while delaying or

simply not fulfilling the purchase orders from Vintner, in order to allow the new distributors to

sell more wine. Thus, the record provides ample support for the Board’s finding that Latour

discriminated against Vintner in favor of other distributors. Accordingly, we affirm the circuit

court on this issue.

                                          E. Good Faith

       Latour argues that the circuit court erred in affirming the Board’s finding that Latour

failed to act in good faith, in violation of the VWFA. For the following reasons, we disagree

with this argument as well.

       “Good faith” is a legal term of art, and thus on appeal whether a party acted in good faith

is a mixed question of law and fact. Again, we give deference to the factual findings of the

Board and the Panel, but review the application of those facts to the law de novo. See generally

Rosemount, 35 Va. App. at 63, 542 S.E.2d at 799.




                                               - 17 -
       The VWFA requires that, “[e]very agreement entered into under this chapter shall impose

on the parties the obligation to act in good faith.” Code § 4.1-418. Although good faith is not

defined under the VWFA, it is generally defined as “[a] state of mind consisting in (1) honesty

and belief in purpose, (2) faithfulness to one’s duty or obligation, (3) observance of reasonable

commercial standards of fair dealing in a given trade or business, or (4) absence of intent to

defraud or to seek unconscionable advantage.” Black’s Law Dictionary, supra at 701.14

       In this case, Latour discriminated against Vintner, in favor of other distributors, in

violation of the VWFA. Moreover, Latour provided confidential business information to the

new wholesalers so that they could compete more effectively with Vintner in territories outside

of Vintner’s and their own primary areas of responsibility. Latour acknowledged that disclosing

the information was wrong and that it did not condone such business practices. Regardless,

Latour argues that because under Code § 4.1-404 a winery is not obligated to facilitate the

wholesaler’s activities outside of the primary area of responsibility, Latour’s actions cannot, as a

matter of law, constitute bad faith. This argument, however, ignores the fact that Latour’s

actions -- delaying and not filling purchase orders, offering incentives to all wholesalers except

Vintner, and disclosing confidential business documents -- went far beyond simply not

facilitating sales outside Vintner’s primary area of responsibility. These actions applied to

Vintner’s entire business and affected its entire operation. Stated another way, Latour frustrated

Vintner’s ability to sell wine anywhere to anyone so that Latour’s new distributors could gain a

competitive advantage and, consequently, increase their market share.




       14
         The Panel relied upon the Uniform Commercial Code, which defines good faith as
“honesty in fact and the observance of reasonable commercial standards of fair dealing.” Code
§ 8.3A-103; see Johnston v. First Union Nat’l Bank, 271 Va. 239, 244, 624 S.E.2d 10, 12 (2006).
                                              - 18 -
       Because Code § 4.1-418 requires that “[e]very agreement entered into under this chapter

. . . imposes on the parties the obligation to act in good faith” and Latour clearly violated this

obligation, we affirm the circuit court on this issue.

                                            F. Remedies

                              1. Compensation under Code § 4.1-409

       Latour argues that the circuit court erred in granting Vintner compensation in the form of

the value of the agreement, pursuant to Code § 4.1-409, because “Latour had every right under

the WFA to propose amendments without incurring liability,” i.e., Latour had good cause to

amend the parties’ distribution agreement. We disagree.

       Code § 4.1-409 provides that,

               in any case in which a winery is found to have attempted or
               accomplished an amendment, termination, cancellation, or refusal
               to continue or renew an agreement without good cause as defined
               in § 4.1-406, the Board shall, upon the request of the wholesaler
               involved, enter an order requiring that (i) the agreement remain in
               effect or be reinstated or (ii) the winery pay the wholesaler
               reasonable compensation for the value of this agreement as
               determined pursuant to subsection B.

(Emphasis added.) As we have held supra, Latour did not demonstrate good cause to amend the

parties’ agreement. Consequently, the remedy awarded pursuant to Code § 4.1-409 was

appropriate, and we affirm the circuit court on that issue.

                                         2. Attorney’s fees

       Latour contends that because the circuit court erred in finding that Latour acted in bad

faith, the circuit court also erred in awarding Vintner attorneys’ fees, pursuant to Code § 4.1-410.

According to Code § 4.1-410, “[t]he Board may, if it finds that the winery or wine 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.” (Emphasis



                                                - 19 -
added.) Because we find that Latour acted in bad faith in violation of Code § 4.1-418,15 and

because Code § 4.1-410 allows for attorneys’ fees when a party acts in bad faith in violation of

any provision of this chapter, we affirm the circuit court’s decision to award attorneys’ fees.

                                                IV.

                                           CONCLUSION

       For the foregoing reasons, we hold that the circuit court did not err in applying the

appropriate standard of review, in finding that Latour unilaterally amended the parties’

agreement without good cause, in finding that Latour discriminated against Vintner, in finding

that Latour acted in bad faith, in fashioning an appropriate remedy under Code § 4.1-409, and in

awarding attorney’s fees. Accordingly, we affirm the judgment of the circuit court.

                                                                                     Affirmed.




       15
           The Panel awarded attorneys’ fees stating, “having concluded that Louis Latour acted
in bad faith in its dealings with [Vintner], [Vintner] is entitled to its reasonable costs and
attorneys’ fees under Section 410 of the Act.” The circuit court held that Latour was obligated to
pay Vintner “reasonable costs and attorneys’ fees.”
                                                - 20 -
Humphreys, J., concurring, in part, and dissenting, in part.

       I concur with the analysis and holding with respect to subsections A, B, D and F(2) of

section III of the majority opinion that Latour acted in bad faith and discriminated against

Vintner under the terms of their existing oral agreement. However, for the reasons that follow, I

respectfully dissent from the analysis and holding of subsection C with regard to whether Latour

attempted a unilateral amendment to the franchise agreement without good cause, in violation of

Code § 4.1-404. Furthermore, because I would reverse the circuit court and the Board on that

issue, I also partially dissent from the analysis and holding in subsection F(1) of section III of the

majority opinion, and would remand to the circuit court with direction to remand to the Board to

reconsider the issue of the appropriate sanction limited to the remaining issues.

                                         I. Unilateral Amendment

       The primary point of my disagreement with the majority is with respect to the issue of

whether Latour violated Code § 4.1-406 by attempting to amend its agreement with Vintner

through the Requirements Announcement without good cause. The hearing panel found that,

               Latour’s primary objective, in attempting to force [Vintner’s]
               signing of the Distribution Agreement and complying with the
               Requirements Announcement, was to limit [Vintner] from selling
               Latour wines outside of what Louis Latour considered [Vintner’s]
               primary area of responsibility. This is in direct contravention of
               Section 404 of the Act . . . . The plan or scheme conceived by
               Louis Latour was to enable other distributors to distribute Latour
               wines in areas of Virginia formerly serviced by [Vintner] pursuant
               to a longstanding agreement and to limit [Vintner’s] distribution to
               Surry and Gloucester Counties. This in the Hearing Panel’s view,
               constitutes a unilateral change or modification of an agreement
               without good cause. Good cause cannot exist when the unilateral
               change or modification is in direct contravention of the Act.

The majority affirms this decision holding that because Latour implemented as much of the

requirements announcement that it could on its own — for example, refusing to follow “previous

shipping arrangements”— Latour unilaterally amended the parties’ agreement for which Latour

                                                - 21 -
must demonstrate good cause. And because Latour’s professed intention behind the

requirements announcement was to limit Vintner to its primary area of responsibility, the

attempted unilateral amendment to the agreement was done without good cause. I disagree with

the majority and would reverse the Board on this issue.

        Initially, I note that the majority has conflated the issue of Latour acting in bad faith with

respect to its obligations under the existing agreement with the issue at hand. While

acknowledging the Board’s factual finding that “Latour did not implement the proposal ‘as to’

Vintner,” the majority then promptly ignores that explicit finding, and holds that “It is Latour’s

unilateral implementation of the proposed change to the existing franchise agreement with

Vintner that violates the statute.” See Footnote 9. Moreover, contrary to the apparent view of

the majority, the question before us is not whether the Board erred in holding that Latour’s

actions subsequent to Vintner’s refusal to accept the requirements announcement constituted a

unilateral amendment to the existing agreement without good cause. Instead, the question

presented is whether the Board erred in holding that the proposed requirements announcement

constituted a unilateral amendment to the existing agreement without good cause.16 In my view,

it did not.


        16
           The majority characterizes the hearing panel’s factual finding that Latour did not
implement the proposed amendment to the agreement “as to” Vintner as nothing more than a
“preliminary finding.” The majority then asserts that the panel’s “final conclusion” was that
“Latour actually unilaterally implemented the portions of the announcement that it could — on
its own — unilaterally implement.” Characterizing an explicit finding of fact as “preliminary,”
and then substituting its own factual conclusion, is utterly revisionist on the part of the majority.
In point of fact, the plain language used by the hearing panel, and later adopted by the Board and
the circuit court, was that “Latour’s primary objective, in attempting to force [Vintner’s] signing
of the Distribution Agreement and complying with the Requirements Announcement, was to
limit [Vintner] from selling Latour wines outside of what Louis Latour considered [Vintner’s]
primary area of responsibility . . . . This in the Hearing Panel’s view, constitutes a unilateral
change or modification of an agreement without good cause.” (Emphasis added.) In other
words, and contrary to the characterization of the majority, the hearing panel found that Latour,
through the provisions in the announcement, was attempting to limit Vintner to its primary area
of responsibility, in direct contravention of the Code. And although the panel acknowledged that
                                                  - 22 -
       Latour’s announcement stated that, (1) “[r]etail licensees located in such Primary Area of

responsibility shall be considered by Supplier and Distributor as the target market to which

Distributor’s obligation under this contract shall be focused;” (2) “Supplier shall have no

obligation to facilitate or support in any way . . . any activities in which Distributor chooses to

engage relating to retail licensees located outside the Territory”; and (3) “Distributor shall

furnish monthly depletion and inventory reports for the Latour Wines to Supplier.” The

requirements announcement also contained a provision stating, “Supplier shall supply the Latour

Wines to Distributor in sufficient quantities to meet the demand for Latour Wines in the

Territory. If however, supply of any Latour Wines in [sic] limited, Supplier may, in its sole

discretion, allocate the Latour Wines . . . in any manner that it determines to be in the best

interest of Latour Wines.”

       Vintner argues, and the Board found, that these terms, when considered in light of the

course of dealings between Vintner and Latour, amount to restricting Vintner to selling solely to

retailers within the primary area of responsibility, in violation of Code § 4.1-404. And because

in the Board’s view, the requirements announcement illegally restricted Vintner to its primary

area of responsibility, the Board held that, “Good cause cannot exist when the unilateral change

or modification is in direct contravention of the Act.”

       However, in affirming the circuit court and the Board on this point, the majority reaches a

different issue from the one presented to us. As the majority acknowledges, the Virginia Wine

Franchise Act (“VWFA”) clearly does not forbid a winery from merely proposing changes to the



Latour had delayed price orders and given the other distributors price incentives, the panel never
tied these facts to its finding regarding the unilateral amendment without good cause. And
although I agree with the majority that we must “address those actions,” in my view, they are
more properly addressed in the context of discrimination and good faith with regard to
compliance with the existing agreement. They are not, however, properly addressed when
determining whether the requirements announcement, in and of itself, constituted a unilateral
amendment to the agreement without good cause.
                                                 - 23 -
contractual relationship with its distributors, as long as such changes are not unilaterally

implemented except in compliance with the VWFA. Indeed, the VWFA specifically provides

for such amendments, and the Board found — as a fact binding on this Court — that no

unilateral implementation of the proposed amendments had occurred. See Code §§ 4.1-406 and

4.1-407.

       In any event, Latour’s announcement to Vintner proposing amendments to the existing

agreement does not forbid Vintner from selling Latour products outside of Surry and Gloucester

Counties, and in fact, would have been void had it done so. Rather, it simply relieves Latour

from any responsibility to actively participate in or promote Vintner’s efforts to sell outside of

Vintner’s primary area of responsibility. Moreover, it allows the winery to allocate its resources

among distributors when quantities of a particular product may be low. Thus, in answer to the

issue actually presented to us, I would hold that the proposed announcement, standing alone, did

not violate Code § 4.1-404.

       It seems to me that the chilling effect of the majority’s approval of the Board’s

imposition of sanctions for merely proposing changes in a contractual relationship between a

winery and its distributors, as distinguished from the sanctions that were appropriately imposed

for the actions of Latour with respect to its existing agreement, frustrates rather than furthers the

legislative intent of the statute. Specifically, Code § 4.1-400 clearly indicates that the legislative

intent behind the VWFA was, in part, “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.” By requiring a winery to facilitate a

wholesaler outside of its designated primary area of responsibility, even pursuant to an existing

franchise agreement, the majority runs afoul of the clear legislative intent to create a territorial

system through which the Board can more easily regulate the distribution of wine throughout the

                                                - 24 -
Commonwealth. Moreover, by doing so, the majority has in effect encouraged the de facto

creation of a dual distributorship, in direct contravention of the VWFA. See Code § 4.1-404

(“No winery shall enter into any agreement with more than one wholesaler for the purpose of

establishing more than one agreement for its brands of wine in any territory.”).

                                            II. Good Cause

       In light of the fact that I believe that the announcement did not violate Code § 4.1-404, I

now turn to whether the remaining facts support the conclusion that Latour’s attempted unilateral

amendment to the agreement was without good cause, in violation of Code § 4.1-406. 17



       17
            Code § 4.1-406 delineates the parameters of “good cause” as follows:

                 Good cause shall not include the sale or purchase of a winery.
                 Good cause shall include, but is not limited to the following:

                  1. Revocation of the wholesaler’s license to do business in the
                 Commonwealth;

                  2. Bankruptcy or receivership of the wholesaler;

                   3. Assignment for the benefit of creditors or similar disposition
                 of the assets of the wholesaler, other than the creation of a security
                 interest in the assets of a wholesaler for the purpose of securing
                 financing in the ordinary course of business; or

                   4. Failure by the wholesaler to substantially comply, without
                 reasonable cause or justification, with any reasonable and material
                 requirement imposed upon him in writing by the winery including,
                 but not limited to, a substantial failure by a wine wholesaler to
                 (i) maintain a sales volume or trend of his winery’s brand or brands
                 comparable to that of other distributors of that brand in the
                 Commonwealth similarly situated or (ii) render services
                 comparable in quality, quantity or volume to the services rendered
                 by other wholesalers of the same brand or brands within the
                 Commonwealth similarly situated. In any determination as to
                 whether a wholesaler has failed to substantially comply, without
                 reasonable excuse or justification, with any reasonable and
                 material requirement imposed upon him by the winery,
                 consideration shall be given to the relative size, population,
                 geographical location, number of retail outlets and demand for the
                                                  - 25 -
       Under the VWFA, a winery is permitted to impose requirements on a wholesaler by

unilateral amendment, so long as it complies with the procedural requirements set forth in the

VWFA. Code § 4.1-406; see Code § 4.1-407.18 Specifically, Code § 4.1-406 requires that in

order to impose a unilateral amendment upon the wholesaler, “the winery [must] first compl[y]

with § 4.1-407 and good cause [must] exist[] for amendment, termination, cancellation,

nonrenewal, noncontinuance or causing a resignation.” (Emphasis added.)

       Here, the Board found that Latour complied with the notice requirements as set forth in

Code § 4.1-407. The Board also found that although the proposed agreement was never

implemented, the proposed unilateral amendment to the existing agreement was intended to limit

Vintner to its primary area, in violation of Code § 4.1-404. Thus, because the provisions violated

the VWFA, Latour necessarily could not prove good cause existed to amend the agreement.

Because the Board did not make any other factual findings with respect to its determination of

good cause, and because I would hold that the proposed unilateral amendments alone did not

violate the VWFA, I would reverse on this issue, and remand to the circuit court with




               products applicable to the territory of the wholesaler in question
               and to comparable territories.

               Nothing in this section shall be construed to prohibit a winery from
               proposing or effecting an amendment to a contract with a wine
               wholesaler in the Commonwealth provided that such amendment is
               not inconsistent with this chapter.

               Good cause shall not be construed to exist without a finding of a
               material deficiency for which the wholesaler is responsible in any
               case in which good cause is alleged to exist based on
               circumstances not specifically set forth in subdivisions 1 through 4
               of this section.
       18
          Code § 4.1-407(A) states, in pertinent part, “a winery shall provide a wholesaler at
least ninety days’ prior written notice of any intention to amend, terminate, cancel or not renew
any agreement.”
                                                - 26 -
instructions to remand to the Board for a review of the remedy consistent with this holding and

the results of any further proceedings before the Board.




                                              - 27 -
