Massachusetts-based Quality Beverage has filed a lawsuit against Constellation Brands, alleging the bev-alc giant has interfered with its pending sale to wine and spirits wholesaler Martignetti Companies.
Quality, the largest Anheuser-Busch InBev distributor in Massachusetts, struck a deal to be acquired in March, but Constellation said it would not approve the sale of its brands in a phone call in June and confirmed with a letter in July, according to the complaint Quality filed in Massachusetts Superior Court on October 10.
The lawsuit follows a mediation session September 6-7 in which the parties “were unable to resolve their differences,” the complaint reads.
The loss of Constellation’s portfolio – which includes popular Mexican import brands Modelo, Corona and Pacifico – would reduce Quality’s sale price by $34 million, the company alleges.
Martignetti agreed to acquire Quality’s three warehouses and its book of 400-plus brands for $191,790,248, according to the lawsuit.
Martignetti’s acquisition of Quality was scheduled to close June 30, which was discussed in a meeting of representatives from all three companies on June 8. Then, Constellation Brands Beer Division chief customer officer Bill Renspie said the planned closing date “would not be a problem,” according to the complaint.
As June went on, Constellation changed its mind about granting consent. Constellation told Quality that approving the sale of its brand rights to Martignetti “does not further the act of simplifying or consolidating our beer portfolio in the state of Massachusetts, which we see as a growing industry-wide trend that has historically proven beneficial to our portfolio in the future.”
Fred Barrios, Constellation SVP of the east business unit, wrote in the July letter: “We understand that you are disappointed by our decision and want to structure a deal that receives full supplier approval. To that end, we encourage you to notify myself or [beer division chief customer officer] Bill [Renspie] at least 30 days prior to entering into any purchase agreement, as outlined in the distributor’s agreement. We are confident that Quality will find the right buyer to fulfill both its immediate needs and our long-term interests.”
Constellation told Quality it would approve a sale to the two Bay State distributors (Randolph-based Burke Distributing and Auburn-based Atlas Distributing) in Constellation’s network that aren’t aligned with A-B.
“The two MillerCoors distributors [Burke and Atlas] do not currently distribute any malt beverage products in [Quality’s] territory and would have to expend considerable sums for additional personnel and equipment to service this new territory and establish new relationships with all of the customers in the territory,” Quality wrote, adding this condition “artificially limits the market for the sale and process [Quality] to sell its business at less than fair market value.”
Quality argued that if Constellation had “seriously been concerned about consolidating its beer portfolio in Massachusetts,” it should have followed Section 5.5 of the companies’ distribution agreement when it was told of the proposed sale in March, which would have given the supplier 60 days of “exclusive good faith negotiation rights.”
Constellation has been shifting its brands out of A-B houses for years, particularly in California, which does not have franchise law. The company, which acquired the rights to produce and sell Grupo Modelo’s brands in 2013 for $4.75 billion due to A-B’s need to gain Department of Justice approval for its acquisition of the Mexican brewer, strongly favors the Reyes Beverage Group in markets where it operates. Those states include California, Texas, Hawaii, Illinois, Tennessee, Michigan, Indiana, Florida, South Carolina, Virginia, Maryland, and Washington, D.C.
Quality has accused Constellation of breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, intentional interference with contractual relations, failure to approve a sale and conditioning approval.
The case is scheduled to go before Judge Micael D. Ricciuti in a business litigation session on January 18, 2024.