Washington Wholesalers Owed $21 Million After Losing Pabst Business

Ten months after Pabst Brewing Company terminated agreements with three Washington wholesalers, an arbitrator has determined that Columbia Distributing — which was awarded the distribution rights to several Pabst brands last February — owes a combined $21.2 million to The Odom Corporation, Craig Stein Beverage, and Marine View Beverage.

A federal judge determined last May that Pabst had breached its contracts with the three wholesalers and separate wrongful termination lawsuits filed against the beer supplier, which seek additional monetary damages, are scheduled to go to trial in December 2018.

Nevertheless, according to Washington franchise law, successor wholesalers “must compensate the terminated distributor for the fair market value of the terminated distributor’s rights to distribute the brand.”

On December 29, 2017, Peggy Rasmussen, who was appointed by the American Arbitration Association to determine the fair market value of the distribution rights, concluded that Marine View Beverage and The Odom Corporation were each owed more than $8 million for the loss of the Pabst business. Craig Stein Beverage is also owed more than $4.5 million.

In an email to Brewbound, Gavin Skok, a partner with Fox Rothschild LLP who represented the terminated wholesalers, called the arbitrator’s decision a “major victory” for his clients.

“The Arbitrator’s award affirms that when valuable brands are taken away from distributors involuntarily and without cause, distributors can protect themselves and seek appropriate compensation,” he wrote, noting that the three wholesalers were awarded fair market value after being forced to give up the rights to the Pabst, Rainier, Olympia, Small Town and Tsingtao beer brands.

He added that Rasmussen used a discounted cash flow methodology to determine the fair market value of the lost business.

Reached by phone, Skok said the multiples for the brands – which ranged between 1.84x for Marine View’s slice of the Tsingtao business, and 8.11x for Craig Stein’s portion of the Olympia beer business – were higher than what many industry observers might expect.

“The truth is that these three brands (Pabst, Olympia, and Rainier) are hot brands in Washington,” he said, noting that his firm argued for greater compensation for the Rainier and Olympia products because of their cache within the region.

The decision could have additional implications for beer companies looking to terminate contracts with wholesalers in Washington as well as other states.

“This shows that franchise protection laws are still important and do have quite a bit of force,” Skok told Brewbound. “It will probably make brewers think twice about transferring brands if they have existing distribution agreements.”

Skok, who admitted that Washington’s franchise protections made it easier for the three wholesalers to make a case for fair market value compensation from Columbia Distributing, added that the methodology used to determine the multiples could impact how future multiples are calculated in distributor termination cases.

“One of the great things about these statutes is that it gives protection to distributors in the case of an involuntary sale,” he said. “If we didn’t have that state statute that says we also get to recover damages from Columbia, we likely would have just been focusing on Pabst.”

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