Atlantic Beverage Distributors’ fight to keep Jack’s Abby Craft Lagers from terminating their wholesaler relationship hit a roadblock this week when a judge denied the distributor’s motion for a preliminary injunction against a pending arbitration hearing.
Framingham, Massachusetts-based Jack’s Abby notified Holliston-based Atlantic of its intent to terminate their relationship on January 14, days after Gov. Charlie Baker signed franchise law reform into effect in the commonwealth.
Atlantic countered on March 1 with a petition filed with the Massachusetts Alcoholic Beverage Control Commission (ABCC) to fight the termination, and a lawsuit in Suffolk Superior Court on March 29 seeking a permanent injunction against arbitration between the parties and a judgement that Jack’s Abby’s termination violates the terms of the newly signed franchise law (25E ½), among other requests.
During an April 6 hearing, Atlantic sought a preliminary injunction to stay the arbitration hearing scheduled for April 19. However, Suffolk Superior Court Justice Karen F. Green denied the motion in an April 7 ruling.
“Atlantic has not demonstrated that it likely will succeed on the merits, nor has it shown that denial of the injunction requested will result in its irreparable harm,” Green wrote.
During the hearing, Green questioned the irreparability of Atlantic’s potential harm if Jack’s Abby were to leave, according to Law360.
“Tell me why you contend any harm here cannot be remedied by the payment of money,” Green said.
Atlantic’s attorney, J. Mark Dickison, responded that the loss of Jack’s Abby and Springdale would hurt Atlantic’s reputation. Dickinson told Brewbound that Atlantic will appeal Green’s decision.
“We are disappointed with the court’s decision,” he said. “At this time Atlantic is appealing the decision and also asking the arbitration panel to dismiss the arbitration.
“Atlantic believes it has an enforceable, binding contract to be the exclusive distributor for Jack’s Abby, and it will continue to fight to uphold its contractual rights — a contract that Jack’s Abby voluntarily agreed to and from which it willing[ly] received the benefit of over $1.5 million in marketing support,” he continued.
Atlantic is seeking a jury trial and declaratory judgements that 25E ½ is unconstitutional and Jack’s Abby’s termination notice is defective. The wholesaler is arguing that Jack’s Abby’s termination attempt is “defective” because the brewery named itself as a successor wholesaler and that 25E ½ is unconstitutional because it denies Atlantic its right to a jury trial by using an arbitrator to determine fair market value of the beer company’s brand rights.
Under Massachusetts’ franchise reform law, brewers producing fewer than 250,000 barrels annually are allowed to terminate their wholesaler relationships at any time by giving 30 days’ notice and paying fair market value for their brand rights. Previously, brewers needed to prove “good cause” for wanting to leave. If both parties cannot agree on fair market value, an arbitrator must step in, which is slated to happen in this case later this month.
According to 25E ½, there can be no more than 120 days between the delivery of a termination notice and the determination of an arbitration award, Jack’s Abby co-owner Sam Hendler said. If arbitration proceeds, he expects a decision to come in May, barring complications from Atlantic’s lawsuit.
“If [Atlantic president and owner] Sean [Siegal] wants to try to drag this through the court for the next couple of years, I don’t know what avenues will be available to him,” Hendler said. “But he certainly seems to be pretty litigious at this point.”
Jack’s Abby said that its nine-year relationship with Atlantic had deteriorated to the point that it began requesting a meeting with the wholesaler’s leadership about concerns over salesforce layoffs in June 2020 and was not granted a meeting until February 2021, nearly a month after it sent the termination notice.
In its complaint, Atlantic pushed back against Jack’s Abby’s claims that it laid off a significant portion of its sales force and shifted 1,000 accounts from in-person sales to online portal ordering, which the craft brewery cited among its reasons for wanting to terminate the relationship.
“By making these false statements, Jack’s Abby has damaged Atlantic’s reputation and diminished the value of its distribution rights,” Atlantic wrote.
Jack’s Abby is confident in the numbers it cited about Atlantic’s changes to account service, a spokesperson told Brewbound.
Last year, Atlantic distributed 25,903 barrels of Jack’s Abby and Springdale products to 1,115 on-premise accounts and 1,677 off-premise accounts — a “significant portion of Atlantic’s total beer sales,” but a decline of 11% from the 29,108 barrels distributed in 2019, according to the filing.
Atlantic argued that the Jack’s Abby and Springdale brands are “highly sought after” and give its sales team a “‘foot in the door’ to retail accounts that might not otherwise utilize Atlantic.”
Jack’s Abby posted a loss of $893,713 in 2020, and a loss of $322,491 in the first two months of 2021, according to an affidavit signed by Hendler that accompanied Jack’s Abby’s opposition to Atlantic’s motion for preliminary injunction.
Shipments to Atlantic, which typically accounts for 70% of Jack’s Abby’s distribution sales, declined 28.1% in Q1 2021 compared to Q1 2020. The brewery attributed 93.2% of its wholesale sales decline in Q1 2021 to Atlantic.
“Granting an injunction will only elongate the period where Jack’s Abby and Atlantic must continue to work together in this unsustainable manner, significantly increasing the likelihood that Jack’s Abby will go out of business leaving both parties with nothing to show for their efforts,” Hendler wrote.
While Atlantic has fought Jack’s Abby’s ability to leave, it shopped the brand’s rights in February to three other Massachusetts wholesalers — Horizon Beverage, Burke Distributing and Sheehan Family Companies, which operates three distributors in the commonwealth — according to an April 5 affidavit signed by Hendler. In an email included in the affidavit, Horizon principal and managing director Sam Rubenstein declined Siegal and Atlantic operations manager Jon Halpin’s offer to acquire Jack’s Abby and Springdale’s rights.
“This is unlike any deal we have ever done,” Rubenstein wrote. “In every other situation, we have had the opportunity to speak with the brand owner to get their overall vision and plan for the future (and of course to make sure they want to work with Horizon). Without that conversation, it is difficult to put a value on the brand and even harder to commit significant dollars with so much uncertainty around a future relationship.”
Jack’s Abby has named itself as its successor wholesaler, something Atlantic claims is legally defective, because under its farmer brewery license it can only sell up to 1,612 barrels. But Hendler said finding a new Massachusetts wholesaler is not a primary concern.
“We’re still focused on getting the heck out of this toxic relationship,” he said.