Just when you think Massachusetts has its ridiculous franchise law drama settled, a distributor is raising a big challenge against Jack’s Abby Brewing’s attempt to terminate its deal, pointing largely to the disparate impact of COVID on both companies’ business (and their strategies for surviving it).
UPDATE (April 8, 2021): On March 31, Atlantic filed a civil complaint in the Suffolk County Superior Court, requesting an injunction to stop arbitration. Here’s the public complaint. Jack’s Abby submitted its opposition to the complaint. Here’s the public filing.
On April 7, Suffolk Superior Court Justice Karen Green denied Atlantic’s motion for a preliminary injunction. Here’s the final decision.
Arbitration hearings are continuing and will conclude April 23. The arbitrators have up to 30 days from then to issue a decision.
“Franchise Law Reform was passed to create a clear and practical path for a small brewery and a distributor to ‘break up,'” says Jack’s co-founder Sam Hendler about the decision. “We are heartened that the court rejected Atlantic’s arguments to veer off of that course. From the start we have had one clear goal – determine a reasonable fair market value for the brands, pay Atlantic and move on with the work required to stabilize this brewery which has had a very challenging year. We look forward to that process playing out in the clear and practical manner that Franchise Law Reform envisioned.” / End of April 8 update.
Background: Signed into law in January, Franchise Law Reform is a monumental piece of legislation following a compromise agreed to between the Massachusetts Brewers Guild and the Beer Distributors of Massachusetts. This law enables brewers that produce fewer than 250,000 barrels a year to leave their distributor after paying fair market value. Previously, a brewer was effectively locked to its distributor in perpetuity. This new law allows breweries to assert more control over this integral part of their business.
What’s happening now: On Jan. 14, Jack’s Abby Brewing LLC notified Atlantic Importing Company of termination of Massachusetts distribution rights pursuant to M.G.L. Chapter 138 Section 25e ½ (Franchise Law Reform) and offered to pay fair market value for the brand. Atlantic Importing has since filed a motion to challenge their ability to do this, one of their arguments being that Franchise Law Reform is unconstitutional.
Here is Jack’s Abby’s statement on the situation.
Based on the terms of the Franchise Law Reform legislation, we are confident in our ability to terminate our relationship with Atlantic by paying fair market value for the brand, as outlined in the law,” the Jacks Abby team states. We are concerned by the direction that the ownership of Atlantic Importing Company is taking the business based on the following actions and feel that it is essential to our survival to part ways:
● On June 22nd, 2020, Atlantic informed Jack’s Abby of its intention to lay off a significant portion of its sales staff. This was troubling to us, especially considering at the time this was communicated, Atlantic’s 2020 company wide sales were actually up in volume and dollars as compared to 2019. As of 2021, their sales department staffing levels have been reduced by about 33% compared to January 2020 levels. We believe that this reduction in staff decreases the ability for Atlantic to adequately cover retail accounts across the state.
● To that end, following these layoffs, we were presented with a list of over 1,000 accounts by Atlantic management that would no longer be serviced by Atlantic with in-person sales representatives, instead switching to an online-only ordering portal. These accounts make up about 40% of our off-premise accounts through Atlantic, a critical market especially during COVID-19, and puts 20% of our overall volume (on- and off- premise) at risk.
● After the above changes were communicated to Jack’s Abby by Atlantic management, repeated requests were made for a meeting with Sean Siegal, President/Owner of Atlantic Importing Company so he could explain why these changes were made and what the long term outlook was to get back to full staffing levels. These requests were again and again pushed off and no meeting took place until February 10, 2021, following the passing of Franchise Law Reform.
We are taking a fair and honest approach to regain control of the future of our business. We enlisted a third party economist with experience in distribution rights valuations to provide an evaluation of the fair market value for the brand, which we have offered to pay Atlantic in return for the full brand rights.
On March 1st, Atlantic Importing Company filed essentially a lawsuit known as a 25e Petition with the Alcoholic Beverages Control Commission (ABCC) to challenge our ability to terminate the relationship. Moreover, Atlantic is claiming in the ABCC proceeding that Franchise Law Reform is unconstitutional, even though the representatives of all the beer distributors agreed on the new statute, and agreed that they should and would be paid the fair market value of their distributorships. We believe their case is without merit and we are confident in a positive outcome.