Massachusetts Court Dismisses Brand Owner’s Suit against Wholesaler

By on October 30, 2017

Earlier this month, a Massachusetts Superior Court judge granted beer wholesaler Craft Beer Guild, LLC’s (Craft) motion to dismiss a civil suit, Shelton Bros., Inc. v. Craft Beer Guild, LLC d/b/a Craft Brewer’s Guild, brought against it by beer importer Shelton Brothers, Inc. (Shelton) in connection with Craft’s alleged breach of its distribution agreement with Shelton. Craft distributed beer imported by Shelton throughout Massachusetts.

In November 2016, Shelton filed a complaint alleging that Craft breached a 2009 oral agreement between Craft and Shelton by failing to follow through on its promises regarding pricing and providing two dedicated sales people to support Shelton’s brands. In its complaint, Shelton alleged that sales of its products were in “steep decline” by 2011 due to Craft’s discriminatory pricing of Shelton’s products in the market.

Shelton sought: (1) a declaratory judgment from the court that it could distribute its products through other wholesalers in Craft’s territory, (2) breach of contract damages of $1.6 million for lost sales and (3) an injunction to prevent Craft from interfering with any successor wholesaler of Shelton’s products in Craft’s territory. In support of its claims, Shelton’s complaint referenced two proceedings by the Massachusetts Alcoholic Beverages Control Commission (ABCC) against Craft for multiple trade practice violations. The ABCC ultimately levied $2.6 million in fines against Craft for those violations. Craft challenged the fines, but they were recently upheld by a Massachusetts court. Specifically, as discussed in one of our recent posts, the ABCC found that Craft had violated the trade practice prohibitions of the Massachusetts alcohol beverage control laws (Mass. Gen. Laws ch. 138) (Chapter 138) by implementing schemes with multiple retailers and third-party management companies to provide payments in exchange for the retailers committing tap lines to Craft distributed brands.

Craft filed a motion to dismiss Shelton’s claims and the court granted that motion in an order dated October 2, 2017.

In dismissing Shelton’s request for declaratory judgment, the court noted that Shelton is clearly free to utilize another wholesaler because the Massachusetts franchise law does not require exclusive territories (Mass. Gen. Laws ch. 138 § 25E). The parties even acknowledged in their respective pleadings that Shelton was already using another wholesaler in Craft’s territory. The court left the question of whether Shelton could discontinue sales to Craft up to the ABCC.

With respect to Shelton’s contract claims, the court found that they were barred by the four year statute of limitations applicable to a “sale of goods” under the Uniform Commercial Code (UCC). Though Shelton argued the distribution agreement was primarily a contract for services—and therefore subject to a six year limitations period—the court determined that the nature of the arrangement (i.e., a contract for the distribution of goods) constituted a sale of goods under the UCC for purposes of Massachusetts law. Therefore, the court granted Craft’s motion to dismiss.

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There is one very interesting point to take away from the Shelton v. Craft dispute. The court’s order included a very short discussion of the validity of Shelton’s contract claims; specifically, Craft argued that Shelton’s contract claims should be dismissed because they arose from violations of Chapter 138 and there is no private right of action provided for in Chapter 138. In a brief paragraph, the court stated the following:

The fact that a regulatory statute does not provide for private enforcement does not foreclose a private action. “It is well established that ‘an existing common law remedy is not to be taken away by statute unless by direct enactment or necessary implication.’” Lipsitt v. Plaud, 466 Mass. 240, 244 (2013), quoting Ferriter v. Daniel O’Connell’s Sons, 381 Mass. 507, 521 (1980). Chapter 138 does not contain any express language abrogating common law claims between parties to an alcohol distribution agreement, nor does its language imply preemption of such claims. Id., at 245.

In short, the court determined that Shelton had a right to sustain its contract claims against Craft arising from Craft’s violations of Chapter 138 because Chapter 138 does not contain any express language abrogating common law claims, and does not preempt such claims by implication. This is a substantial insight in a very brief portion of the opinion. It tells us that at least one court in Massachusetts will allow a supplier-tier entity operating under an oral agreement with its Massachusetts wholesaler to maintain a private cause of action against the wholesaler for the wholesaler’s violation of Chapter 138.

Barrett. K. Lopez
Barrett K. Lopez focuses his practice on mergers and acquisitions (M&A), private equity transactions, securities transactions and general corporate matters. Read Barrett Lopez's full bio.