Martignetti Grocery Co. v. Alcoholic Beverages Control Commission

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18-P-1258 Appeals Court
MARTIGNETTI GROCERY CO., INC. 1 vs. ALCOHOLIC BEVERAGES CONTROL
COMMISSION & others. 2
No. 18-P-1258.
Suffolk. September 5, 2019. - December 17, 2019.
Present: Rubin, Massing, & Englander, JJ.
Alcoholic Liquors, Alcoholic Beverages Control Commission,
Supplier, Wholesaler. Corporation, Sale of
assets. Administrative Law, Agency's interpretation of
statute. Words, "Continuing affiliation."
Civil action commenced in the Superior Court Department on
August 24, 2017.
The case was heard by Rosemary Connolly, J., on motions for
judgment on the pleadings.
J. Mark Dickison for the plaintiff.
Mary E. O'Neal for Constellation Brands, Inc., & another.
Julie E. Green, Assistant Attorney General, for Alcoholic
Beverages Control Commission.
William F. Coyne, Jr., for M.S. Walker, Inc., & another,
amici curiae, was present but did not argue.
1 Doing business as Carolina Wine Company.
2 Constellation Brands, Inc.; and Constellation Brands U.S.
Operations, Inc.
2
MASSING, J. By statute, when a licensed Massachusetts
wholesaler of alcoholic beverages has been distributing a
particular brand name item for more than six months, the
supplier cannot discontinue sales of the brand to the wholesaler
without good cause. See G. L. c. 138, § 25E (§ 25E). When the
supplier sells the brand to a new owner in an arm's-length
transaction, however, the new owner is generally not required to
assume the prior supplier's obligations to its Massachusetts
wholesaler. In this case, the producer and supplier of a
popular brand of California wine sold the brand to a new owner
through an asset purchase agreement. At issue is whether this
transaction, which did not produce an immediate, clean break
between the operations of the prior supplier and the new owner,
created a continuing affiliation such that the prior supplier's
§ 25E obligations must be imputed to the new owner. The
Alcoholic Beverages Control Commission (commission) determined
that it did not, and a judge of the Superior Court agreed. We
affirm. 3
Background. The plaintiff, Martignetti Grocery Co., Inc.,
doing business as Carolina Wine Company (Carolina), is a
Massachusetts wholesaler of alcoholic beverages licensed under
3 We gratefully acknowledge the amicus curiae brief filed by
M.S. Walker, Inc., and Ruby Wines, Inc.
3
G. L. c. 138, § 18. Carolina had been the Massachusetts
distributor of Meiomi wines, a brand produced and sold by Copper
Cane, LLC (Copper Cane), until Copper Cane sold the brand to
defendant Constellation Brands U.S. Operations, Inc., a wholly
owned subsidiary of defendant Constellation Brands, Inc.
(collectively, Constellation). Shortly after the asset purchase
agreement between Constellation and Copper Cane was completed,
Constellation notified Carolina, as required under § 25E, that
Constellation intended to discontinue sales of Meiomi wines to
Carolina. Carolina promptly appealed Constellation's notice of
discontinuance to the commission. See § 25E ("Either party may
appeal to the commission for a hearing on the notice of
discontinuance and the commission shall make a determination
after hearing on the issue of good cause for discontinuance").
As the commission decided the appeal on cross motions for
summary decision, we summarize the facts in the light most
favorable to Carolina. 4
Joseph Wagner, a fifth-generation Napa Valley, California,
winemaker, began selling the Meiomi brand in 2007. The brand,
4 Because a motion for summary decision is "the
administrative equivalent of a motion for summary judgment,"
Zoning Bd. of Appeals of Amesbury v. Housing Appeals Comm., 457
Mass. 748, 763 (2010), principles applicable to summary judgment
decisions inform our review. See, e.g., Casseus v. Eastern Bus
Co., 478 Mass. 786, 792 (2018) (in reviewing decision on cross
motions for summary judgment, evidence viewed in light most
favorable to losing party).
4
and particularly its Pinot Noir, a variety that was experiencing
a dramatic rise in popularity, was very successful. Carolina
began distributing Meiomi wines in Massachusetts in 2012 and
continued doing so in 2014 after Wagner formed Copper Cane to
produce and sell the brand.
In August 2015 Constellation and Copper Cane entered into
an asset purchase agreement, whereby Constellation purchased all
of Copper Cane's assets and inventory associated with the Meiomi
brand, including trade secrets, brand names, designs,
procedures, good will, and its existing stock of wine in all
states of production. Constellation also assumed certain
contracts Copper Cane had with grape growers. At the same time,
the parties entered into a number of transitional agreements to
ensure the uninterrupted production and consistent quality of
the brand through the transition in ownership. Because the
production and bottling of the 2014 vintages were ongoing at the
time of the acquisition, Copper Cane and Wagner agreed to
continue the work necessary to complete bringing those wines to
market for Constellation, which took until May 2016. This work
required Copper Cane to maintain its Federal basic permit 5 as
well as its California winemaker's license. Constellation also
5 A Federal basic permit is required to import, produce,
bottle, sell, purchase for resale, or distribute wine in the
United States. See 27 U.S.C. § 203 (2012).
5
assumed Copper Cane's agreements with a winery and a bottling
company that were integral in the production, storage, and
bottling of the 2014 vintages. In addition, Copper Cane and
Wagner, as an independent contractor, entered into a two-year
consulting agreement with Constellation, in which they agreed to
provide advice with respect to production and marketing of the
brand. 6 Wagner, in his personal capacity, also agreed to allow
Constellation to use his name and likeness in marketing and
advertising the 2014, 2015, and 2016 vintages.
The parent company of Constellation, which possessed a
certificate of compliance issued under G. L. c. 138, § 18B,
allowing it to distribute alcoholic beverages in Massachusetts,
assumed responsibility for sales of the brand. Intending to
engage Horizon Beverage Company, with which it had a pre-
existing distribution agreement, as its Massachusetts
wholesaler, Constellation gave notice to Carolina that it would
be discontinuing sales of the Meiomi brand to Carolina. 7
6 The consulting agreement anticipated that Copper Cane and
Wagner would devote no more than twenty hours per month during
the harvest and no more than ten hours in other months during
the first year, then ten and five hours per month in those
periods of the second year.
7 The asset purchase agreement also included a provision
requiring Copper Cane, upon the public announcement of the sale
of the brand, to give notice of termination to each of its
distributors.
6
Carolina appealed the notice of discontinuance to the
commission, arguing that Copper Cane's and Wagner's continued
involvement with the brand amounted to a continuing affiliation
with Constellation, such that Copper Cane's obligations to
Carolina under § 25E should be imputed to Constellation. On the
parties' cross motions for summary decision, the commission
determined that Constellation's asset purchase agreement with
Copper Cane was a bona fide, arm's-length transaction, and that
the transitional agreements among Constellation, Copper Cane,
and Wagner were not intended to evade § 25E and did not amount
to a continuing affiliation. Accordingly, the commission denied
Carolina's appeal and allowed Constellation to discontinue sales
of Meiomi brand wines to Carolina. A Superior Court judge
affirmed the commission's decision.
Discussion. 1. The "continuing affiliation" doctrine of
§ 25E. Section 25E "makes it an unfair trade practice for a
manufacturer (or other supplier), absent good cause, to refuse
to sell a brand of alcohol to a wholesaler if the manufacturer
has made regular sales of such brand to the wholesaler during
the preceding six-month period." Heublein, Inc. v. Capital
Distrib. Co., 434 Mass. 698, 699-700 (2001). 8 The purpose of
8 For the purposes of this appeal, the relevant provisions
of § 25E are as follows:
7
§ 25E is to strike a balance between the competing interests of
suppliers, who generally enjoy superior bargaining power, and
wholesalers. See Seagram Distillers Co. v. Alcoholic Beverages
Control Comm'n, 401 Mass. 713, 716-717 (1988). However, while
§ 25E serves "to counteract a tendency toward vertical
integration in the liquor distribution industry . . . and to
redress economic imbalances in the relationship of wholesalers
and their suppliers," it is not "intended to 'generate
inequities against suppliers.'" Pastene Wine & Spirits Co.
"It shall be an unfair trade practice and therefor unlawful
for any manufacturer, winegrower, farmer-brewer, importer
or wholesaler of any alcoholic beverages, to refuse to
sell, except for good cause shown, any item having a brand
name to any licensed wholesaler to whom such manufacturer,
winegrower, farmer-brewer, importer or wholesaler has made
regular sales of such brand item during a period of six
months preceding any refusal to sell.
". . .
"Good cause as used herein shall be limited to the
following conduct:
"(a) disparagement of the product so as to impair the
reputation of the brand owner or the brand name of any
product,
"(b) unfair preferment in sales effort for brand items of a
competitor,
"(c) failure to exercise best efforts in promoting the sale
of any brand item,
"(d) engaging in improper or proscribed trade practices, or
"(e) failure to comply with the terms of sale agreed upon
between supplier and wholesaler."
8
v. Alcoholic Beverages Control Comm'n, 401 Mass. 612, 618-619
(1988), quoting Amoco Oil Co. v. Dickson, 378 Mass. 44, 49-50
(1979).
"Generally speaking, a supplier is not obligated under
§ 25E to continue to make sales to those wholesalers with whom
an unaffiliated predecessor did business." Brown-Forman Corp.
v. Alcoholic Beverages Control Comm'n, 65 Mass. App. Ct. 498,
499 (2006). Section 25E obligations attach to the supplier
rather than to the brand. See Heublein, Inc., 434 Mass. at
706; Brown-Forman Corp., supra. Because Constellation did not
"ma[k]e regular sales of such brand item [to Carolina] during a
period of six months preceding any refusal to sell," § 25E, the
"literal wording of the statute" does not prohibit Constellation
from refusing to sell the brand to Carolina. Heublein,
Inc., supra at 708.
Carolina nonetheless asserts that Copper Cane's § 25E
obligations to it must be imputed to Constellation because
Copper Cane is not an unaffiliated predecessor. Carolina
contends that the transitional agreements in which Copper Cane
and Wagner agreed to complete the production of the 2014
vintages for Constellation, to consult for a two-year period in
the production and marketing of the brand, and for Wagner to
allow use of his name and likeness, amount to a "continuing
9
affiliation" that operates under § 25E to prevent Constellation
for discontinuing sales of the Meiomi brand to Carolina.
The § 25E obligations that a brand's supplier owes to its
wholesalers are not imputed to the purchaser of the brand "where
the acquisition of the product assets and their distribution
rights were made at arm's length," unless there is evidence of
an "agency relationship or continuing affiliation between [the
prior supplier] and [the new owner] following the completion of
the sale" (emphasis added). Heublein, Inc., 434 Mass. at 708.
See Gilman & Sons, Inc. v. Alcoholic Beverages Control Comm'n,
61 Mass. App. Ct. 916, 918 (2004) ("buyer's general contractual
assumption of the seller's liabilities under an arm's-length
asset purchase agreement" did not impute seller's § 25E
obligations to the buyer). Section 25E obligations may be
imputed not only in in the case of a continuing affiliation or
an agency relationship between the prior supplier and the new
owner, but also in the case of "an assignment of distribution
rights," Heublein, Inc. v. Alcoholic Beverages Control Comm'n,
30 Mass. App. Ct. 611, 614 (1991), "where the commission finds
that a transfer of distribution rights was undertaken primarily
for the purpose of evading those obligations imposed by the
statute," Brown-Forman Corp., 65 Mass. App. Ct. at 500, 9 or where
9 Structuring an arm's-length acquisition so as not to
assume the seller's distributor or wholesaler agreements serves
10
"some other principle of law" so requires, Heublein, Inc., 434
Mass. at 708.
Our decisions offer little guidance concerning the nature
of the relationship between a former supplier and a purchaser of
a brand that would amount to a continuing affiliation under
§ 25E. Our review of numerous decisions of the commission and
of cases dealing with relevant principles of corporate and
agency law suggest some broad guideposts. At one extreme, a de
facto merger between the original supplier and its successor, in
which the successor business is in essence a continuation of the
predecessor's operations, would require assumption of the
original supplier's § 25E obligations. See Cargill, Inc.
v. Beaver Coal & Oil Co., 424 Mass. 356, 359 (1997) ("the
liabilities of a selling predecessor corporation are not imposed
on the successor corporation which purchases its assets unless
[1] the successor expressly or impliedly assumes the liability
of the predecessor, [2] the transaction is a de facto merger or
consolidation, [3] the successor is a mere continuation of the
predecessor, or [4] the transaction is a fraudulent effort to
avoid liabilities of the predecessor"). On the other hand,
there is no continuing affiliation after an arm's-length
a legitimate business purpose and does not by itself equate with
an intent to circumvent § 25E. See Heublein, Inc., 434 Mass. at
704 & nn.11-12.
11
transaction where "[c]ertain transitional agreements between
[the buyer] and the seller obligated the seller to assist [the
buyer] in producing the brands of gin and scotch in question
during an interim period" (emphasis added). Gilman & Sons,
Inc., 61 Mass. App. Ct. at 918. 10
Decided in the context of the doctrine of agency, our
decision in Brown-Forman Corp., 65 Mass. App. Ct. at 498, is
instructive with respect to the issue of continuing affiliation.
The question in Brown-Forman Corp. was whether J. Wray & Nephew
Limited (Wray), the producer and seller of Appleton Rum, had a
10The commission's recent decisions concerning whether
transitional agreements form the basis for a continuing
affiliation follow a Superior Court decision, Beam Spirits &
Wine, LLC vs. Alcoholic Beverages Control Comm'n, Mass. Super.
Ct., No. SUCV201302229C (Suffolk County Aug. 18, 2014), in which
a Superior Court judge reversed a commission decision. In that
case, Beam Spirits & Wine, LLC (Beam) purchased the right to
produce, market, promote, distribute, and sell the "Skinnygirl
Margarita" brand from Skinny Girl Cocktails, LLC (Skinny Girl).
Prior to the sale, Palm Bay International (Palm Bay), through a
distributor agreement with Skinny Girl, sold the brand to a
Massachusetts wholesaler, United Liquors, LLC. The commission
found a continuing affiliation among Beam, Palm Bay, and Skinny
Girl because two of Palm Bay's principals were ancillary
signatories to the asset purchase agreement between Beam and
Skinny Girl, and because the brand's celebrity founder and
coowner retained control of the product recipe for a substantial
period of time after the sale. The founder also agreed to
provide services to help Beam advertise and market the brand and
develop new products. The Superior Court judge reversed the
commission's decision, concluding that Palm Bay and its
principals had no affiliation with Beam and that the founder's
postacquisition services on Beam's behalf, which were limited to
production and marketing, provided no basis to impute Palm Bay's
§ 25E obligations to Beam.
12
principal-agent relationship with its distributor, United
Distillers and Vintners (UDV), such that when Wray chose Brown-
Forman Corporation as a successor to UDV, Brown-Forman was
required to assume UDV's § 25E obligations to its Massachusetts
wholesaler. Id. at 500-502. Although Wray controlled the
marketing, advertising, and promotion of the product, UDV
purchased the product from Wray, appointed wholesalers without
Wray's input or approval, and sold the product for "its own
account," assuming the risk of loss. Id. at 506-507. Stating
that "the relevant inquiry is whether UDV was acting as an agent
for Wray for the discrete purpose of making regular sales of
Appleton Rum to downstream customers," id. at 506, we held that
UDV was not acting as Wray's agent for this purpose, id. at 508.
Accordingly, when Wray terminated its distributor arrangement
with UDV and contracted with a new distributor unaffiliated with
UDV, Brown-Forman Corporation, the new distributor was not bound
to continue sales of Appleton Rum to the Massachusetts
wholesaler previously engaged by UDV.
2. Review of the commission's decision. In the present
case, the commission determined that the transitional agreements
between Constellation, Copper Cane, and Wagner did not support a
finding of continuing affiliation. 11 Like the Superior Court, we
11The commission further found that no agency relationship
existed between Constellation and Copper Cane, that Copper Cane
13
review the commission's decision under G. L. c. 30A, § 14, to
determine whether the decision is warranted by the summary
decision record and not based on any error of law.
See Heublein, Inc., 434 Mass. at 704-705; Heineken U.S.A., Inc.
v. Alcoholic Beverages Control Comm'n, 62 Mass. App. Ct. 567,
571-572 (2004).
The commission began its analysis of the continuing
affiliation question by noting that the transitional agreements
"were temporary and limited in scope." Citing Brown-Forman
Corp., 65 Mass. App. Ct. at 507, and a Superior Court decision,
see note 10, supra, the commission concluded that "it is not
evidence of a continuing affiliation between the former supplier
company and new supplier company where the brand's creator,
individually on his/her own, continues to assist with the
marketing of the brand." The commission noted that the
transitional agreements did not "allow Copper Cane to provide
input or control in the selection of distributors or downstream
customers," and that Copper Cane retained no "rights or
obligations regarding the sales, distribution, or wholesaler
did not assign its distribution rights to Constellation, and
that the transaction was made at arm's length and was not
structured to evade § 25E. Carolina does not challenge any of
these findings. See Pastene Wine & Spirits Co., 401 Mass. at
616 (commission's factual finding that acquisition is not
intended to circumvent § 25E will be upheld if based on
substantial evidence).
14
network" of the brand. The commission also observed that
Constellation did not assume or make use of Copper Cane's
certificate of compliance to sell wine in Massachusetts. 12
The commission's decision is sound as a matter of law and
supported by substantial evidence. The asset purchase agreement
was an arm's-length transaction; Copper Cane and Wagner did not
retain any ownership or profit-sharing interest in the brand.
Constellation did not need to assume Copper Cane's licenses to
distribute the brand in Massachusetts, as Constellation
possessed its own G. L. c. 138, § 18B, certificate of
compliance. The transitional agreements did not leave Copper
Cane, which had sold the brand to Carolina for more than six
months, in the position of controlling Constellation's sales of
12The commission, distinguishing one of its prior
decisions, Martignetti Grocery Co. vs. Pine Ridge Winery, LLC,
ABCC decision No. 25E-1285 (Nov. 20, 2013) (Pine Ridge), also
observed that Constellation did not hire any of Copper Cane's
employees in permanent, significant management roles. In Pine
Ridge, the commission found a continuing affiliation based in
part on the fact that the terms of the asset purchase agreement
required the purchaser of a family-owned wine label to offer
employment to fifty-five of the prior owner's employees,
including the two family members who acted as the chief
executive officer and the head winemaker, stating, "It is
axiomatic that without a winemaker, there is no wine; without
any wine, there can be no wine business." The commission's
emphasis in Pine Ridge on the new owner's retention of managers
from the prior owner involved in the production process, absent
any factors that would impose the prior owner's liabilities on
it successor, was misplaced. See Brown-Forman Corp., 65 Mass.
App. Ct. at 506. The commission had no need to distinguish this
aspect of its prior decision.
15
the brand to downstream customers. Although Copper Cane and
Wagner continued to be involved in winemaking, bottling, and
advertising, such activities are not indicative of the type of
continuing affiliation that would require Constellation to
assume the Copper Cane's § 25E obligations to its Massachusetts
wholesalers. 13
Judgment affirmed.
13Carolina also contends that the commission erred by not
viewing the facts in the light most favorable to it in the
summary decision. Specifically, Carolina argues that for
Constellation to complete production of the 2014 vintages, it
had to rely on Copper Cane's Federal basic permit and its
California winemaking permit. We discern no error. This
evidence is neither disputed nor material. While Copper Cane's
permits may have been necessary to complete the production of
the 2014 vintages, they were not necessary for Constellation to
distribute the wine, which is the relevant concern.