THE GIST
Craft Brewers Guild, the distribution company at the center of the pervasive pay-to-play scandal in Massachusetts, is facing a new lawsuit alleging its illicit tactics go deeper than previously reported. Nine months after being fined a record $2.6 million for illegally paying Boston-area bars to put its beers on tap, a prominent importer that sells through the company now says Craft Brewers Guild also willfully neglected its portfolio in favor of other suppliers.
Shelton Brothers, Inc., importer of prominent brands such as Mikkeller and Cantillon, alleges the company had for years engaged in a form of brand squatting, whereby it hiked prices of Shelton beers while simultaneously selling preferred products at more competitive rates. Shelton is seeking $1.7 million in damages. Craft Brewers Guild has denied any wrongdoing, telling The Boston Globe it “will vigorously defend itself against the meritless allegations.”
WHY IT MATTERS
This is a hugely important fight for the companies involved here for obvious reasons. But the outcome of this suit will have a resounding impact on the Massachusetts beer industry at large.
On top of the pay-to-play issue underlying this fight, it also must be noted that Massachusetts law essentially bounds suppliers to wholesalers indefinitely. To sever a tie with an underperforming wholesaler, a supplier must show just cause, which can be difficult, and more importantly to smaller brewers and importers, extremely costly to prove. And that wrinkle is key here. Per the Globe:
“Shelton Brothers alleges these tactics are part of a larger strategy by Craft Brewers Guild: Sign on numerous brewers and importers to keep them away from competing wholesalers, then impede their sales to block competition with similar, lucrative brands that the wholesaler relies on.”
Should Shelton win a judgment here, it would likely go a long way in helping to clear up, if only on one front, what constitutes the abovementioned “just cause,” which again is necessary to cut ties with a wholesale partner. Additionally, it would set a monetary precedent with actual damages.
But because these laws aren’t at all unique to Massachusetts, the outcome of this suit will resonate even beyond state borders. Craft Brewers Guild itself is owned by Sheehan Family Companies, which operates distributors in 19 states. Shelton, too, operates in a number of states and has historically been pugnacious on the litigation front. As such, a ruling in Shelton’s favor could inspire a torrent of similar suits wherever suppliers have little recourse to take control of their brands back from wholesalers. Conversely, a ruling favorable to Craft Brewers Guild would likely strengthen a wholesaler’s case the next time a brewer attempts to fire its distribution partner.
How it all plays out remains to be seen. One thing is clear though: Given the uptick in brewers launching creative workarounds to onerous laws (like operating distribution businesses of their own) and lawsuits like this, many in the industry are done waiting for traditional legislative change.
—Dave Eisenberg
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Distributors’ tactics cost us $1.7 million, beer importer says [Boston Globe]