A California superior court judge has sided with Anderson Valley Brewing Company’s (AVBC) parent company Mainsheet Capital in a dispute with Reyes Holdings subsidiary Harbor Distributing/Golden Brands.
At issue in phase one of the trial was the definition of a “beer manufacturer” and a “successor beer manufacturer” under the California Alcoholic Beverage Control Act and whether Mainsheet was a successor beer manufacturer ahead of the acquisition of the brewery.
California’ ABC act defines a “beer manufacturer” as “any person that has facilities and equipment for the purposes of, and is engaged in, the commercial manufacture of beer.”
The act defines a “successor beer manufacturer” as “a beer manufacturer that acquires the rights to manufacture, import, or distribute a product,” which is defined as “a brand or brands of beer.”
Harbor filed the lawsuit after Mainsheet terminated the distributor on March 26, 2020, and refused to pay for AVBC’s brand rights. In May 2020, Mainsheet transferred AVBC’s rights to Eagle, Mussetter and Wine Warehouse. Harbor alleged violations of the Unfair Competition, Law, Business and Profession code, as well as conversion and intentional interference with prospective economic advantage.
Harbor argued that Mainsheet was a “successor beer manufacturer” since the firm “sold the same beer, out of the same brewery, with a license that was exclusive to the brewery, with no interruption in commercial brewing operations.”
Mainsheet countered that the firm wasn’t a beer manufacturer prior to the AVBC acquisition, arguing that the company had no legal right to produce, buy or sell beer prior to its license going into effect. Kevin McGee and his father Michael McGee created Mainsheet to acquire AVBC in a cash deal at 11:59 p.m. on December 12, 2019, with the deal closing at midnight December 13, 2019.
Mainsheet filed a cross complaint on July 24, 2022, alleging federal trademark infringement, common law trademark infringement and unfair competition, intentional interference with contractual relations, unjust enrichment and unfair business practices.
The company added that “the 60-second period between the closing of the asset purchase transaction and Mainsheet’s license going into effect, has no real significance, except that Mainsheet needed to possess the real property assets of the brewery, as a condition for its license to issue (as it attached to real property).”
Judge Andre K. Campbell, in the Superior Court of California County of Sacramento, ultimately agreed with Mainsheet in the June 7 ruling, writing: “The court agrees with Mainsheet that Harbor’s proffered interpretation of ‘beer manufacturer’ would lead to an absurd result when viewing the language of sections 23012 and 25000.2 in the context of the act as a whole.”
Campbell added that “Mainsheet was not a ‘beer manufacturer’ for the sixty seconds it owned the assets it acquired from AVBC before its license went into effect at midnight on December 13, 2019.”
“Mainsheet did not manufacture beer before the asset purchase, and it did not have a preexisting network of distributors,” Campbell wrote. “Mainsheet was not an existing brewer that acquired another brand of beer (AVBC) seeking to use its own network of distributors for that product.”
Campbell wrote that the transfer of AVBC’s beer manufacturing license to Mainsheet was “intended by ABC to be ‘seamless.’ Thus, there was not intended to be a time when any entity was without a license.”
Now, the case moves on to Mainsheet’s cross-complaint against Harbor.
In a LinkedIn post Tuesday, McGee wrote: “All of Reyes’ claims were found meritless and their case is over, but we still have claims for unlawful business practices, trademark infringement and interference with our business relationships.
“Reyes was trying to use a strained and ‘creative’ argument to try and fool a judge into defining a California statute so broadly that it would basically create franchise protections for distributors any time a brewery transaction happened,” he continued. “This would have effectively shifted tens if not hundreds of millions of dollars of value from breweries to distributors. In a time where there is a huge power imbalance that favors distributors, this is an important win for all breweries in California, but especially for small, independent breweries.”
A Reyes Beverage Group spokesperson shared the following statement with Brewbound: “We disagree with the decision and will be evaluating our options. We remain committed to protecting the fair market value of distribution rights, which incentivizes investment and helps ensure that California is a strong and orderly marketplace for the distribution of beer to retailers and consumers.”