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Los Angeles, CA - California appellate justices on Thursday dismissed Carolina Beverage's $2 million jury win in a contract case accusing Fiji Water of violating their distribution deal by selling directly to retailers. The court found that the agreement wasn't constructively terminated because Carolina Beverage continued to deliver Fiji products to retailers as per their contract.

In a 30-page opinion certified for partial publication, a three-judge panel of the Second District Court of Appeal reversed a jury verdict that favored plaintiff Carolina Beverage on its claims for breach of contract and breach of implied covenant of good faith and fair dealing against the premium bottled-water manufacturer.

The dispute centered on a five-year distribution deal Fiji struck with Carolina Beverage in 2009, granting the latter exclusive rights to deliver Fiji products within a designated territory. Fiji retained the right to distribute to national account customers within that territory after negotiating terms with Carolina Beverage.

The deal also allowed Carolina Beverage to receive an "invasion fee" of $1 per case of bottled water sold and directly distributed to retailers. Both parties had the right to terminate the agreement upon a breach, provided a 30-day window was given to remedy the violation. Fiji could also terminate the deal with 30 days' written notice and a termination payment of $5 per case of water sold by Carolina Beverage in the previous calendar year.

In late 2018, Fiji invaded approximately 85% of Carolina Beverage's territory but never invoked its right to end the distribution contract, leading Carolina Beverage to sue for a termination payment of $1,993,670.

On Friday, the appellate judges reversed the judgment in Los Angeles County Superior Court, which had ruled in favor of Carolina Beverage. The judges noted that Fiji owed Carolina Beverage nothing for ending their contract, as the termination payment was only required with a 30-day written notice of termination.

"Indeed, the jury was specifically instructed that 'constructive termination' occurs whenever one party to a contract 'interferes with another party's ability to obtain the benefits of the contract,'" the opinion stated. However, the judges clarified that constructive termination isn't a viable theory for recovery under California common law, and the deal did not contain a constructive-termination clause.

The panel also rejected Carolina Beverage's argument that it lacked any remedy without a constructive-termination provision, stating that any shortage of available remedies was a function of the agreement that Carolina Beverage itself negotiated.

"For starters, any shortage of available remedies is a function of the agreement that Carolina Beverage itself negotiated; [when] two sophisticated and longstanding commercial businesses negotiate a contract, they are stuck with the terms of that contract," the justices said. "To the extent Carolina Beverage feels that the agreement is unconscionable, it had the right to raise that challenge but opted not to do so."

The panel also upheld the jury's verdict rejecting Carolina Beverage's concealment claim.

Carolina Beverage filed its complaint against Fiji in September 2019 after Fiji decided the previous year to directly distribute its products to retailers, gradually phasing out third-party distributors. By fall 2018, many of Carolina Beverage's retailers had switched to direct distribution with Fiji, which notified Carolina Beverage it would not renew their agreement after its expiration in January 2019.

The panel also declined Carolina Beverage's request for a new trial on the breach claims to pursue alternative damages, noting the plaintiff "intentionally presented the jury with a stark choice — award us the $2 million termination payment or award us nothing."

"Carolina Beverage is not entitled to revisit its strategy and obtain a second bite at the apple now that we have rejected as unviable the sole legal theory it decided to prosecute," the justices said.

The panel vacated the lower court's award of $4.3 million in attorney fees for the plaintiff and remanded the case for further proceedings regarding the fees.

In a statement, Fiji Water Co. LLC's general counsel, Craig Cooper, said the Court of Appeal affirmed that direct sales under its contract with Carolina Beverage Corp. were permissible and that Fiji Water acted within its legal rights.

"In fact, Carolina now owes Fiji Water for legal fees and costs," Cooper said. "The appellate court ruled that no constructive termination occurred as a matter of law and that Carolina could not claim the contract's termination fee as damages. If Carolina chooses to appeal to the California Supreme Court, we will continue to present our case and expect that court to also rule in our favor."

Representatives for the plaintiffs did not immediately respond to requests for comment Friday.

Justices Brian M. Hoffstadt, Judith Ashmann-Gerst, and Victoria M. Chavez sat on the panel for the Second District Court of Appeal.

Carolina Beverage Corp. and its co-plaintiffs are represented by David Allan Berkley, Ronald R. Davis, and Kristin Lee Probst of Womble Bond Dickinson (U.S.) LLP, and by Jan T. Chilton of Severson & Werson.

Fiji Water is represented by Steven S. Fleischman and Emily V. Cuatto of Horvitz & Levy LLP, and by Matthew David Moran and Courtney E. Vaudreuil of Roll Law Group PC.

The case is Carolina Beverage Corp. et al. v. Fiji Water Co. LLC, case number B324609, in the Second District Court of Appeal.