[co-author: Stephanie Kozol]*
On January 26, a Massachusetts Superior Court rejected an effort by the Massachusetts Attorney General (AG) to vacate an order that cast doubt on the constitutionality of a new Massachusetts liquor law.
The law at issue (Mass. Gen. Laws ch. 138, § 25E½) allows brewers to end their relationship with wholesalers under certain circumstances without a showing of “good cause.” The new law also gives either party the right to unilaterally request binding arbitration of the compensation due to the affected wholesaler. The predecessor law required brewers to demonstrate “good cause” and did not allow for arbitration of disputes (Mass. Gen. Laws ch. 138, § 25E).
Two days after the new law took effect, Jack’s Abby Brewing, LLC, terminated its relationship with Atlantic Importing Company, Inc. and requested binding arbitration. Atlantic sued, and the Massachusetts Superior Court found that Section 25E½ violated Atlantic’s right to a trial by jury, because Atlantic did not consent to the arbitration or have sufficient notice of the mandatory arbitration requirement. While the decision was on appeal, the Massachusetts AG sought to intervene, but the craft brewer and wholesaler settled the case, rendering the appeal moot.
Upon request, the trial court declined to vacate its prior order, finding that no “exceptional circumstances” in the case warranted vacating the prior decision. To the contrary, the court observed that Massachusetts was not a party or even an intervenor at the time when the order issued and is not bound by the prior decision.
In addition, the court limited the finding of unconstitutionality only to the facts of the specific case. In particular, the court found that Atlantic had insufficient notice of the binding arbitration requirement because Atlantic received a termination notice from Jack’s Abby Brewing only two days after Section 25E½ took effect. Indeed, in its original order, the court made clear in a footnote that Section 25E½ would be constitutional in other circumstances, including (1) in scenarios where the brewer and the wholesaler agree to arbitration or (2) when “termination may occur sufficiently after the enactment of Section 25E½,” such that parties might be deemed to be aware of the arbitration requirement and accepted that requirement by continuing to do business together.
The court also rejected the Massachusetts AG’s argument that the court’s decision introduced confusion in the marketplace, finding that the AG had not provided any evidence to support the contention that a brewer could be confused by the court’s order or chilled from exercising its right to terminate a distributor under Section 25E½.
Why It Matters
For Massachusetts brewers and wholesalers, the court made clear that its finding of Section 25E½’s unconstitutionality applied only to the unique circumstances of the case at issue, including the limited two-day-period that Atlantic had to react to the termination notice from Jack’s Abby Brewing, after passage of Section 25E½. The court’s opinion suggests that Section 25E½ will be found constitutional moving forward, given that three years have passed since the law took effect. Therefore, we expect brewers will continue to utilize Section 25E½ to terminate relationships with wholesalers and seek to compel arbitration.
This episode is also a good reminder that it is the state AGs’ duty to defend the constitutionality of state laws. Lawsuits between private litigants that advance arguments challenging the constitutionality of state laws should expect that state AGs may take an interest in their case and seek to intervene — especially in those states that require notice of unconstitutionality arguments to the AG.
*Senior Government Relations Manager
