Wednesday, March 5, 2014

Court Rules that Sidney Frank's Suit Against Beam Can Proceed

As we learned last Wednesday, distilleries often produce spirit for customers who are also their competitors. Most businesses have no trouble competing on one level and cooperating on another.

But sometimes, for one reason or another, a deal can go bad. When Beam Inc. bought Ireland's Cooley Distillery in 2012, it decided to stop producing for other companies to concentrate on its own portfolio. One of the losers was Sidney Frank Importing Company (SFIC), which used Cooley whiskey for its Michael Collins Irish Whiskey brand.

In March of 2013, SFIC filed a lawsuit against Beam, Inc. alleging that Beam improperly sought to destroy the Collins brand and seeking $100 million in damages. Last week, the judge in that case ruled that SFIC's suit can continue.

In response, SFIC released the following statement by its Chief Executive Officer, Lee Einsidler: "We are pleased by the Court’s ruling although not surprised, as the facts are known and they will speak loudly for themselves. The fact that the Court ruled completely and entirely in our favor on all three causes of action clearly shows that, given our day in Court, we will establish that our long-term contract with Cooley Distillery was in full force and effect, and that Beam wrongfully terminated the contract by unilaterally cutting off the whiskey supply at the source.”

According to SFIC's statement, the judge denied Beam’s motion to dismiss, rejecting Beam’s argument that no long-term contract existed between the parties as a matter of law. The judge further rejected Beam’s bid to dismiss claims for unfair competition and tortious interference, stating that SFIC sufficiently alleged quantifiable economic injury caused by Beam’s actions. He also ruled that the complaint alleges valid claims that Beam “unilaterally and wholly without justification abandoned its supply contract with SFIC,” and that Beam monopolized its distillery production capacity for the benefit of its newly acquired portfolio of Irish Whiskey brands.

Finally, SFIC sufficiently alleged that Beam launched a campaign to undermine SFIC’s wholesale and retail distribution networks by telling key wholesalers and retailers that “[t]here is no doubt Michael Collins is going away.”

SFIC's statement goes on and on about how wonderful SFIC is and how badly Beam has behaved. All that has really happened here is that the judge ruled there is enough substance for the case to go to trial. Nothing was decided.

Beam's retort is short and to the point: "This claim is without merit. We will defend this case vigorously and we are confident that we will prevail."

Normally, when you buy a business, any existing contracts that business has come with it. They aren't cancelled by the sale. SFIC says there was a contract, Beam says there wasn't. Unless the parties settle, that's what the trial will decide.

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