A judge has granted Pullayup, Washington-headquartered Olympic Eagle Distributing a preliminary injunction against Constellation Brands’ termination in the U.S. District Court for the Western District of Washington.
U.S. District Judge David G. Estudillo denied Constellation’s motion to reconsider the injunction in the same ruling in which he granted it to Olympic, issued on December 11.
“The Washington Legislature clearly finds a public interest in the relationship between beer distributors and suppliers,” Estudillo wrote. “It also recognized the importance of distributors’ ability to continue their distribution rights that they codified ‘protections which are deemed to be incorporated into every agreement of distributorship.’ Thus, the court finds a public interest in maintaining that status quo in the continued enforcement of the distribution agreement.”
Constellation – which sells popular Mexican imports Modelo, Corona and Pacifico – informed Olympic it intended to terminate their 19-year relationship in Pierce and King counties on September 8, according to Estudillo’s ruling.
“The letter did not state the termination was for cause, without cause, or because Olympic failed to meet its obligations under the distribution agreement,” Estudillo wrote. “In essence, no information was provided.”
Columbia Beverages CEO Chris Steffanci told Olympic CEO Steve Knight that Constellation had named Columbia its successor wholesaler, and offered to compensate Olympic Eagle about $70 million, which was equivalent to seven times one year’s trailing earnings of Constellation’s offerings, according to the ruling.
Without Constellation’s products in its portfolio, Olympic would stand to lose $5.5 million annually, which would make it unprofitable, according to court filings.
For Olympic, “the termination of its second largest supplier and most critical to its growth will be a Hindenburg type event, making it a highly unprofitable business and requiring many employees to be fired,” according to court filings.
In addition, Olympic employees would lose their status as shelf set captains at many of the retailers it calls on, which would result in Olympic products losing the ability to select preferential store placements. Such placements also allow Olympic to “build up smaller brands in its portfolio,” which “would not be able to sell as well” without “preferential treatment.”
Constellation’s termination “would create a cascading effect of shrinking [the] catalog of products it offers to its customers, reducing its ability to sell its products in those stores, and harming its relationships with its current and potential suppliers,” Olympic argued.
“The court finds this would irreparably harm the goodwill and reputation Olympic has built up over decades in the industry,” Estudillo wrote, adding that it would be “a harm that cannot be adequately compensated by monetary damages.”
Washington franchise law (the Washington Franchise Investment Protection Act) prohibits the termination of a “franchise prior to the expiration of its term except for good cause,” according to the ruling.
“Because the court finds Olympic has a high likelihood of success as to its claim under the act, the court finds the first prong of the preliminary injunction standard is satisfied,” Estudillo wrote.
In addition to Constellation, Olympic distributes the Anheuser-Busch InBev (A-B) portfolio, regional craft offerings, wine, spirits and non-alcoholic beverages. It serves King, Pierce, Thurston, Kitsap, Mason, Gray’s Harbor, Lewis and Pacific counties.
Constellation has forced the sale of its brands from several A-B wholesalers in California in recent years, most frequently to subsidiaries of the Reyes Beer Division, which does not operate in Washington. In California, where franchise laws are not as strong as in other states, Constellation’s terminations have become an existential threat to independent wholesalers, prompting the formation of the California Family Beer Distributors, a trade organization representing independent distributors in the state.