Massachusetts Judge Upholds $2.6 Million ‘Pay-to-Play’ Fine Against Craft Beer Guild

A Massachusetts judge has rejected Craft Beer Guild LLC’s attempt to appeal a $2.6 million fine levied against the beer wholesaler for violating laws that prohibit unfair trade practices and illegal “pay-to-play” activities. The Boston Globe first reported on the ruling.

Suffolk Superior Court Judge Douglas H. Wilkins sided with the Massachusetts Alcoholic Beverages Control Commission (ABCC), which had slapped Craft Beer Guild, a subsidiary of Sheehan Family Companies, with a 90-day license suspension last February after an investigation revealed the company had “engaged in a pervasive illegal enterprise involving numerous retailers and corporations that spanned at least five years.”

In March 2016, Craft Beer Guild, which also does business as Craft Brewers Guild, offered to pay a $2.6 million fine — the largest fine ever imposed on any Massachusetts alcoholic beverage license holder — in lieu of the three-month suspension.

However, 10 days later, Craft Beer Guild asked a Massachusetts Superior Court to determine that “the penalty, including the fine, was unlawful and require it to be reduced, refunded or, alternatively, recalculated and reduced.”

In Monday’s order, Wilkins denied Craft Beer Guild’s claim that the $2.6 million fine amounted to an “extraordinary circumstance” requiring the court to vacate the penalty. The judge also denied Craft Beer Guild’s argument that the Legislature had invalidated “regulatory enforcement of the anti-[price] discrimination” law.

Wilkins also sided with the ABCC’s determination that Craft Beer Guild had violated state law prohibiting “price discrimination” — a practice in which distributors sell the same quantity of a product at different prices to different retailers — by offering rebates to some retailers but not others. The ABCC also found that those “rebates were intended as an inducement to favor particular brands.”

“Craft’s employees initially disclaimed knowledge of the rebates before finally admitting the truth,” Wilkins wrote. “The scheme itself involved invoices for fictitious services. There was no serious question that Craft knew about the illegality of price discrimination and sought to hide it.”

Wilkins also refuted Craft Beer Guild’s claims that it avoided breaking the law by making “indirect” payments to marketing firms that share parent companies with its bar clients, rather than making payments directly to the bars themselves. The judge called that scheme a “closed loophole.”

In a statement released Tuesday, the ABCC said it was “very pleased the court agreed with our original ruling.”

It’s unclear whether Craft Beer Guild will appeal the judge’s ruling. A spokesman for Sheehan Family Companies told Brewbound that the company is “reviewing the court’s ruling.”

The investigation into Craft Beer Guild began in October 2014 when Dan Paquette, the founder of now-defunct Pretty Things Beer and Ale Project, embarked on a late night tweetstorm, criticizing Boston bar owners for illegally selling draft lines.

The ABCC found that Craft Beer Guild, which distributes more than 200 craft brands from throughout Massachusetts, had paid bars about $120,000 over a two-year period from 2013 to 2014 for tap handle placements. During a hearing, Craft Beer Guild admitted to paying up to $2,000 per tap handle and as much as $20,000 annually for “committed lines.”

Sheehan, which operates a network of wholesalers in 13 states, has faced similar pay-for-play charges in other states.

In June, the New Jersey Division of Alcoholic Beverage Control (ABC) and Sheehan subsidiary Hunterdon Brewing Company reached a $2 million settlement over trade practice violations. In that case, the ABC found that Hunterdon had sold draft beer tap systems for “below fair market prices” and hid the charges in mislabeled invoices.

In a separate settlement, Craft Beer Guild paid the Alcohol and Tobacco Tax and Trade Bureau (TTB) $750,000 in November 2016 for its conduct in Massachusetts, which also violated federal laws that prohibit illegal inducements and unfair trade practices.

Monday’s ruling could also have implications for an Anheuser-Busch InBev wholesaler in Massachusetts.

In an unrelated case, August A. Busch & Co. of Massachusetts, a wholly-owned Anheuser-Busch wholesaler based in Medford, allegedly provided nearly $1 million in free Budweiser-branded coolers and draft equipment to bars and liquor stores between 2014 and 2015 for use specifically with the beer company’s products.

A hearing in that case is scheduled for November 28.

It’s also worth noting that the TTB is currently investigating possible pay-to-play violations in the greater Chicago and Miami markets.

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