Distributor Employees Caught Up in Retailer Lawsuit

FILED JULY 7, 2009

Dear Client:

Here's a lesson in reining in over-zealous salespeople and setting boundaries: A beer distributor's sales employees have been implicated in a lawsuit between two New York supermarket chains. The Price Chopper chain has filed a $20 million lawsuit against Giant Market for allegedly routinely stealing ad pricing information before it was published, allegedly through a beer distributor's sales department.

Here's what the lawsuit says happened: A former salesman for blue silver distributor A.L. George LLC was charged by police earlier and accused of stealing copies of the Price Chopper ad circulars from a closet in one of their stores. He would then allegedly give the ad to his supervisor, who would then give them to an executive at Giant. The supervisor at the distributor denies this in an interview with the Ithaca Journal.

The complaint alleges that the store's surveillance tapes show the beer salesman taking copies of the circulars and stuffing them down his pants on Wednesday mornings, and handed them to his manager in the parking lot (is that an ad in your pocket or are you just happy to see me?). Price Chopper says that Giant has been seeing its ad prices in advance to its advantage for years, and it seeks compensatory damages of $5 million, profit recovery of $5 million, and $10 million in punitive damages. Price Chopper chief Neil Golub told the Ithaca Journal: "It's like someone walking into our stores and stealing our financial records. People were stealing our ads. They were using that information to change their pricing."


THREE-TIER COURT VICTORY "STRONGEST PRECEDENT IN DECADES"

That's what one prominent alcohol beverage attorney wrote in a recent article analyzing last week's Second Circuit Court of Appeals decision, which reaffirmed the lower courts ruling that Indiana alcohol retailers can't ship direct to New York residents because alcohol must first pass through New York's state-mandated three-tier system. Richard Blau of GrayRobinson P.A. writes that "the Second Circuit has produced the strongest precedent in decades for support of traditional alcohol regulation", and suggests that this unanimous ruling, and the accompanying concurring opinion issued in this case, may be the beginnings of a reverse of a decade of activists judges putting the Commerce Clause ahead of the 21st Amendment in an effort to "modernize" beverage alcohol law. This ruling could be the break three-tier advocates need to help turn the tide.

One interesting twist in this case is that the ruling actually uses the Granholm Supreme Court ruling to protect the state of New York against the plaintiff out-of-state retailers, instead of knocking the state on the head with it like in other rulings. Richard notes that "state governments have a poor track record of demonstrating to courts that their alcohol laws are reasonable and justifiable in the face of a Commerce
Clause challenge" after Granholm. Before Granholm, the states just had to basically show up, because courts used to respect the fact that alcohol is in a category all by itself due to the 21st Amendment and therefore is insulated from Commerce Clause threats. Today, they are getting clobbered in many instances.

But in this case, the court actually uses Granholm to help make its case. Richard writes: "In fact, the appellate court turned the plaintiffs' primary weapon against them, citing Granholm for the proposition that the 'unquestionably legitimate' nature of the 3-tier system precludes any need to undertake the kind of balancing test previously associated with an incidental discrimination case."

So what is the legacy of this ruling, and how can it help turn the tide of direct shipping rulings? For one thing, the Second Circuit makes some convincing arguments which could have an impact on other pending cases, like the Texas case on appeal, Siesta Village Market LLC v. Perry. It could also set up a conflict with other cases, setting the stage for a another possible Supreme Court challenge.

Indeed, another bev-alc attorney on the other side, Corbin Houchins, writes on the ShipCompliant blog that this ruling "emphasizes the developing differences among federal circuits in understanding that landmark case. While it is doubtful the Supreme Court has much appetite for revisiting Granholm, divergent interpretations at the intermediate level slowly increase the probability of high court review."

I agree. At some point the Supreme Court is going to have to clarify to what extent states can discriminate in order to maintain the integrity of their three-tier/control state/regulatory systems.


MAN OBAMA NOMINATED FOR UK AMBASSADOR HAD STRONG TIES TO A-B

The Obama administration has nominated an attorney with strong former ties to Anheuser-Busch as ambassador to the UK. Louis Susman was the attorney who represented Gussie Busch when August Busch III orchestrated a boardroom coup. Perhaps he's qualified to be a diplomat as he cut a deal that allowed Gussy to run the St. Louis Cardinals. "That could never have happened without Lou," said Adolphus Busch IV to the Wall Street Journal. The Journal notes that "Mr. Susman frequently defused tensions between the elder Mr. Busch and August A. Busch III," He was also executor of Gussie Busch's estate.


BEER BRIEFS:

IN A SURPRISE MOVE, KKR has sold half of the equity in South Korea's Oriental Brewery to a competitor in the original bidding with AB InBev, Affinity, for $400 million, even though KKR had paid $1.8 billion for it just a few weeks ago, reports the FT. "Having Affinity involved as a joint partner in this deal will make things a lot easier for KKR in terms of integrating Oriental and working with management," said one person familiar with the matter to the FT.

A FEDERAL BANKRUPTCY COURT has declared that the contractual relationships that automaker GM has with its dealerships shall be operated under state law, a victory for states' rights activists and an indication of the mood in Washington regarding protecting small business and franchise law. Under this agreement, GM could not take all of the dealers "on the same basis." A settlement that was reached with the attorneys general of 45 states will allow disputes of the franchise agreements to be handled by each state.

BEER BELLIES aren't necessarily caused by beer, according to a new study. UK's Daily Mail reports that scientists have proven a beer-belly is purely the result of genetics. An eight-year study of more than 20,000 beer drinkers found that although heavy drinkers put on weight due to the extra calories, it wasn't necessarily around the belly.

PIPING ALL HANDS. Three quick items: 1. Wanted to get your first read on July 4 pull-through. Are retail inventories high or low? How was chain pricing? 2. Now that we've had some time to reflect, wanted to get your feel for the news of ABI hypothetically looking at branch ownership and/or direct shipping. 3. How is trading down, fuel pricing, other factors affecting distributor profitability so far this Summer. Ping me in confidence at hs@beernet.com.

MANY THANKS to my colleague Megan for filling in for me last week while I took my family fishing for some R&R. But it's good to back a the platinum BBD keyboard.

Until tomorrow, Harry

"There is only one corner of the universe you can be certain of improving and that's your own self."
-Aldous Huxley (via a reader, which makes me wonder if he was trying to tell me something).

--------- Sell Day Calendar ----------
Today's Sell Day: 4
Sell days this month: 23
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Thurs
YTD sell days Over/Under: 0

Go back to listing Go to next article

Top Secret News Hotline:

Got beer news for BBD?

Submit Anonymously
twitter facebook