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.

Troutman Pepper State Attorneys General Team

	Ashley Taylor – Co-leader and Firm Vice Chair Ashley is co-leader of the firm’s nationally ranked State Attorneys General practice, vice chair of the firm, and a partner in its Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He helps his clients navigate the complexities involved with multistate attorneys general investigations and enforcement actions, federal agency actions, and accompanying litigation.
	Clay Friedman – Co-leader Clayton is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice, multidisciplinary teams with decades of experience crafting effective strategies to help deter or mitigate the risk of enforcement actions and litigation.
	Judy Jagdmann Judy is a partner in the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) practice, based in the Richmond office. She brings experience serving as chair and commissioner of the Virginia State Corporate Commission (VSCC) from 2006 through 2022, which includes regulating the utilities, insurance, banking, and securities industries. She also served as Virginia’s attorney general from 2005-2006.
	Stephen Piepgrass Stephen leads the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He focuses his practice on enforcement actions, investigations, and litigation. Stephen primarily represents clients engaging with, or being investigated by, state attorneys general and other state or local governmental enforcement bodies, including the CFPB and FTC, as well as clients involved with litigation, with a particular focus on heavily regulated industries.
	Avi Schick A former deputy attorney general of New York, Avi applies his experience in bet-the-company matters, representing clients in criminal and civil investigations and enforcement actions before state and federal regulators, prosecutors and enforcement agencies.
	Michael Yaghi Michael is a partner in the firm’s State Attorneys General and Regulatory Investigations, Strategy + Enforcement (RISE) Practice Groups, nationwide teams that advise clients on consumer protection enforcement matters and other regulatory issues.
	Samuel E. “Gene” Fishel Gene is a member of the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) practice, based in the Richmond office. He brings extensive regulatory experience, having most recently served as senior assistant attorney general and chief of the Computer Crime Section in the Office of the Attorney General of Virginia, and as special assistant U.S. attorney in the Eastern District of Virginia for 20 years.
	Tim Bado Tim is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, where he represents corporations and individuals facing potential civil and criminal exposure. Tim’s experience in government investigations, enforcement actions, and white-collar litigation spans a number of industries, including financial services, pharmaceutical, health care, and government contracting, among others.
	Chris Carlson Chris Carlson represents clients in regulatory, civil and criminal investigations and litigation. In his practice, Chris regularly employs his prior regulatory experience to benefit clients who are interacting with and being investigated by state attorneys general.
	Natalia Jacobo Natalia is an associate in the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) practice. She focuses her practice on two primary areas: government contracting and state attorney general work.
	Namrata Kang Namrata (Nam) is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, based in the Washington, D.C. office. She routinely advises clients on a wide variety of state and federal regulatory matters, with a particular emphasis on state consumer protection laws relating to consumer financial services and marketing and advertising.
	Michael Lafleur Michael is an associate in the firm’s Regulatory Investigations, Strategy, and Enforcement Practice Group. Based out of the firm’s Boston office, Mike has deep experience in litigation, investigations, and other regulatory matters involving state-level regulators and state attorneys general.
	Susan Nikdel Susan is an associate in the firm’s Consumer Financial Services Practice Group, and focuses her practice on consumer financial services matters. She has defended several of the nation’s largest and most influential financial institutions in individual and class action litigation involving the Telephone Consumer Protection Act (TCPA), Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), and other consumer privacy statutes.
	John Sample John is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He focuses his practice on a wide range of general and complex litigation matters, including shareholder disputes, fraud, products liability, breach of contract, and Biometric Information Privacy Act claims.
	Whitney Shephard Whitney is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. She represents clients facing state and federal regulatory investigations and enforcement actions, as well as related civil litigation.
	Trey Smith Trey is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice. He focuses his practice on helping financial institutions and consumer facing companies navigate regulatory investigations and resulting litigation.
	Daniel Waltz Daniel is a member of the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and State Attorneys General team. He counsels clients in connection with navigating complex government investigations, regulatory compliance, and transactions, involving state and federal government contracting obligations. Drawing on his broad experience as a former assistant attorney general for the state of Illinois, Daniel is a problem solver both inside and outside the courtroom.
	Stephanie Kozol Stephanie is Troutman Pepper’s senior government relations manager in the state attorneys general department.