Sparkling hard tea and canned cocktail company Loverboy has filed a civil suit against Night Shift Distributing (NSD), citing fraud and breach of contract, in the U.S. District Court of Massachusetts on May 7.
The move is the latest step in a dispute that became public in March, following Loverboy’s attempt to terminate its wholesaler relationship with NSD, the distribution arm of the Everett, Massachusetts-based craft brewery, without paying for its brand rights.
The federal lawsuit lists Rob Burns and NSD as defendants, claiming the brewery co-founder and his company’s “false, misleading, unfair and deceptive practices” induced Loverboy into a contractual relationship.
At the center of the lawsuit is a disagreement over whether Loverboy owes NSD “fair market value” compensation for its brand rights and Section 25E of Chapter 138 of the Massachusetts General Laws. Massachusetts Gov. Charlie Baker signed 25E1/2 on January 12, 2021, reforming the state’s franchise law to allow suppliers making fewer than 250,000 barrels annually to terminate wholesaler relationships at any time by giving 30 days’ notice and paying fair market value for their brand rights.
Loverboy and NSD entered a distribution agreement in October 2019, allowing Night Shift to distribute Loverboy products throughout Massachusetts. The agreement includes a clause that allows Loverboy to terminate the contract with 30 days’ written notice, notwithstanding Section 25E, but does not outline any guidelines for compensation.
Last year, NSD sold 75,000 cases of Loverboy product, worth about $3 million and accounting for nearly 12% of the wholesaler’s case sales. On December 1, 2020, Loverboy informed Night Shift of its intention to terminate the relationship, effective January 3, 2021.
According to Loverboy’s lawsuit, NSD breached contract by failing to make “commercially reasonable efforts” to supply Loverboy products to customers, execute Loverboy’s marketing programs, and maintain business organization “reasonably sufficient to market and distribute Loverboy’s products.”
“Although we did everything within our power to resolve the matter amicably — the last thing we ever wanted was to spend our time and money litigating with Night Shift — we were forced to defend ourselves against these claims that threaten the core of our business,” Kyle Cooke, Loverboy’s founder, told Boston Business Journal.
Loverboy claims retailers wanting to sell Loverboy products were unable to meet NSD’s “unreasonably high” minimum order requirements, and those who did place orders were “required to wait an unreasonable amount of time” to receive deliveries. The lawsuit says Loverboy raised its concerns about distribution strategy to NSD multiple times.
According to Massachusetts Alcoholic Beverages Control Commission (ABCC) filings, NSD submitted purchase orders for product on December 15, 2020, and January 11, 2021. Both were rejected by Loverboy. On January 13, NSD asked for an ABCC hearing to order Loverboy to continue sales to NSD while they worked out their contract termination details. On March 1, a second petition was filed requesting “full compensation” for the cost of “merchantable inventory” plus a 10% handling charge, the cost of sales and marketing material, and “the fair market value of the distribution rights of the brand that are being terminated by Loverboy.”
Loverboy claims NSD’s attempt to receive compensation contradicts its contractual agreement to waive Section 25E rights. They also argue NSD’s legal moves against Loverboy go directly against Burns and the company’s messaging to potential suppliers, leading Loverboy and “other small businesses” to be misled.
As cited in the lawsuit, NSD’s website promotes “no lifetime contacts” and states that “archaic franchise laws will be ignored.”
Loverboy calls for fraud claims against Burns personally, saying he “participated in these tortious acts of making false statements.”
In a March, 2017 Boston Business Journal article, Burns said “I would definitely say that [Night Shift] publicly denouncing the 25E franchise law has brought in these smaller brewers that wouldn’t otherwise be comfortable selling beer in the state.”
“The idea being we’re able to give them an opportunity to get their name out and sell beer and not regret the decision down the road.”
During a “Distribution Disruptors” panel at the 2017 Brewbound Session business conference, Burns emphasized the need to change franchise laws, and his commitment to allow breweries to end contracts if their shared goals change.
“We’re gonna do the best possible job,” Burns said. “And if we’re not doing that … let’s part ways amicably and move on.”
Although Burns has lobbied for franchise reform in Massachusetts, he still believes that brewers should have to purchase their distribution rights.
“The metaphor I use is when you get married, do you get a prenup? Or do you not get a prenup?” Burns told Brewbound in March. “You can divide it up front, or you can wait ‘til the marriage falls apart. But at the end of the day, there’s compensation being transacted.”
“We want nothing more than the best for the Loverboy brand and team behind it, and we want them to succeed in the Massachusetts market. All we’re looking for is our reasonable compensation for the effort and the brand rights, and we’re more than happy to transition to whatever wholesaler they’ve elected,” he continued.
Loverboy is requesting monetary compensation that is greater than $75,000 and for an order declaring the manufacturers agreement with NSD to be void “as a result of Night Shift’s fraudulent inducement.”
Burns did not respond to Brewbound’s request for comment.