Latest in Mississippi: A-B and Mitchell Try to Toss Yuengling's Crossclaims

FILED AUGUST 29, 2017

Dear Client:

Counsel for Anheuser-Busch, Mitchell Distributing and Yuengling all gathered in the Circuit Court of Harrison County, Mississippi this past Thursday for a hearing on A-B's and Mitchell's motion to dismiss Yuengling's crossclaims.

As you may recall, this hearing stems from Rex Distributing's complaint against A-B, Mitchell, and Yuengling, which claims last year's match and snatch screwed them out of millions [see BBD 02-23-2017].

Much of Yuengling's response to Rex's complaint was directed towards the fellow defendants in the case: A-B and Mitchell. Yuengling penned a total of 12 crossclaims in their response - half of them were thrown at A-B and Mitchell, and the other half were hurled directly at A-B [see BBD 04-17-2017]. So this hearing last week was A-B and Mitchell's attempt to have all these crossclaims thrown out.

A-B: ANYTHING RELATED TO CONSENT DECREE NEEDS TO BE DROPPED. A-B's longtime outside counsel, Peter E. Moll, opened things up by taking aim at Yuengling's crossclaims involving alleged violations of the consent decree, handed down by the DOJ. Peter claimed that the U.S. District Court in D.C holds "exclusive jurisdiction" for matters regarding the consent decree, and added it's "undisputed black letter law" that "a non-party to the consent decree [Yuengling] cannot bring a private right of action."

YUENGLING: WE'RE NOT HERE TO ENFORCE THE CONSENT DECREE. Yuengling attorney Robert Mahoney replied back to these claims, arguing that none of the brewer's 12 crossclaims tries to enforce the consent decree.

"Certain allegations in the DOJ complaint against ABI and certain stipulations in the consent decree are used as allegations in our crossclaim to support our claims," Robert said. "But we're not seeking the same relief that the DOJ is seeking. We are seeking a private claim that we have against A-B and Mitchell for their antitrust violations for the tortious interference."

Robert added "there's absolutely no authority for the proposition that we can't assert separate common law and statutory causes of action just because A-B is the subject of a DOJ investigation and consent decree in D.C."

NEXT UP: AN ARGUMENT OVER THE IMPACT OF DELAYS. As you may recall, Yuengling argues in its crossclaims that its business was harmed after a sudden rejection from Mitchell, as it had to "hastily piece together agreements with four different MillerCoors wholesalers to what would have been Mitchell's single territory, resulting in inefficiencies, reduced distribution power," and a "two-month" delay into the territory.

Yuengling said the subsequent revelation that Rex would go to Mitchell as a result of the match and redirect also caused another delay as it forced them to terminate its agreement with Rex and appoint a new distributor: FEB Distributing.

THESE DELAYS WERE "INCONSEQUENTIAL," and they are not "something the antitrust laws were designed to protect," Peter claimed. "The inability of Yuengling in two instances to get its preferred distribution does not harm competition," said Peter. "Whether or not Yuengling preferred another distributor or had something different in mind is immaterial."

Peter went on to note that Yuengling beer is available throughout the entire state of Mississippi today, "so they haven't been foreclosed from entering the Mississippi market, and that's what we have to focus on." All in, these delays have not had an "adverse effect on competition in the relevant geographic market that they've alleged, which is the state of Mississippi."

But Robert argued that Mitchell's spurning of Yuengling did in fact cause a state-wide impact, because they were missing the last piece to the puzzle (Mitchell Distributing) that forms the A-B distribution network in Mississippi, so they had to fill that last hole with a different set of jigsaw pieces (four MillerCoors distributors), throwing the final result off.

YUENGLING: HERE'S WHY WE'RE HERE DISCUSSING THESE MOTIONS. Robert ultimately concluded that the reason they were all gathered there last week is so A-B and Mitchell could prevent any discovery in the case. Mitchell's alleged excuse of snubbing Yuengling over financial difficulties was "pretext," Robert said. He claims the rejection really occurred because A-B and Mitchell had come to an agreement to "hinder, prevent and restrain trade by Yuengling" in Mississippi.

"They don't want to see the terms of that agreement and their actions in furtherance of that agreement to see the light of day," Peter said. "That's why this motion has been made."

"But what we need, Your Honor, is some discovery in this case."

Judge Roger T. Clark did not issue a ruling on Thursday, saying he needed some time to go back over the transcript and "I will get y'all a ruling as soon as I can."

AMAZON CUTS PRICES AT WHOLE FOODS

On its first official day of owning Whole Foods, Amazon slashed prices on several staples, including eggs, apples, avocados, and bananas, according to Bloomberg. Amazon is making sure we know we're entering a new era of grocery shopping by marking every newly-priced item with a sign that reads "Whole Foods + Amazon," lists the new and old price, and indicates that there's "More to come..." Whole Foods stores have also started selling the Amazon Echo, a voice-activated smart speaker, and Echo Dot, a smaller version of the electronic assistant.

It is clear that Amazon means business. Bloomberg reports, "Cutting prices at the chain with such an entrenched reputation for high cost that its nickname is Whole Paycheck is a sign that Amazon is serious about taking on competitors such as Wal-Mart Stores Inc., Kroger Co. and Costco Wholesale Corp," all of whom currently tout lower prices than Whole Foods. Don't forget, Amazon also has to keep in mind Germany-based discount grocery chains Aldi and Lidl, which continue to expand into the U.S.

We can only speculate that this larger retail trend toward lower prices will have an effect on alcohol.

LATEST HARVEY: DELIVERY DELAYS, STORE CLOSURES ENDURE, LEVY FAILURE?

The aftermath of Harvey is ongoing in Texas, particularly in Houston, where waters rage and thousands are displaced from their homes. Several more inches of rain are forecasted, which may cause additional flooding.

And of course, many retailers and distributors are still in limbo during this tragic scene.

"None of the beer distributors are able to deliver," one large grocer told us yesterday. "We have about 70 stores opening back up at 9 a.m. this morning with more to follow as the day progresses."

RUNDOWN OF SUPERMARKET CLOSURES. Wal-Mart reportedly "closed 96 stores and distribution centers in the area on Monday, up from 40 on Saturday," per WSJ. Its emergency response center had distributed over 1,o00 truckloads of "emergency supplies to the region as of Monday," according to the report.

About 40 of HEB's 100 Houston-area stores were still closed yesterday "and many others were operating with limited hours," writes WSJ. HEB also deployed its disaster relief fleet of trucks, which distributes goods and hot meals to flood-inflicted areas. HEB's convoy includes fifteen vehicles, including two mobile kitchens, water and fuel tankers, portable generators, emergency grocery supplies and equipment.

Target has reportedly closed "more than 30 stores in the area" as well.

Fiesta Markets and Randall's similarly closed most of their Houston stores at the end of the weekend, but many planned to open on Monday in higher areas as flood waters recede.

Or will they? Some meteorologists were predicting Harvey would dip back into the Gulf, recharge, and hit Houston and Galveston again, (or the Louisiana/Miss coast). National Weather Service officials were predicting that the water could rise to 59 feet in Houston, three feet above 2016 records and what is described as an "800-year flood level." That amount of water would top the levees and carries a threat of levee failure, a la Katrina. What we do know for certain is that there has been unprecedented flooding in the city.

Judging from federal disaster declarations, the storm has so far affected about a quarter of the Texas population, or 6.8 million people in 18 counties. And then we have a low pressure system forming over the Carolinas. Everybody, hold fast.

MILLERCOORS SENDING CANNED WATER, TOO, AND OTHERS HELP

Continuing the roundup on the state of Houston: A-B isn't the only one sending water to Harvey victims, as BBD reported yesterday. (Anheuser-Busch is delivering three truckloads - over 155,000 cans - of emergency drinking water to help communities in the Gulf Coast area in response to Hurricane Harvey.)

MillerCoors has also been in regular contact with the Red Cross and have canned water ready to ship to them as they direct. "We recently just started canning water for disaster relief again [this summer] and we are ready to mobilize for the residents of Texas," spokesperson Marty Maloney told BBD.

Their Dallas-area craft brewer, Revolver, has trucks ready to mobilize to move supplies and help out. They'll help distribute 50,000 cans of drinking water from MillerCoors' Shenandoah brewery.

"We are also going to create a microsite with the Red Cross to allow our employees the chance to donate," said Marty. "We have many employees that have been impacted and we are still assessing the damage within our employee base and our wholesaler partners." MillerCoors will match all donations made through the microsite for a minimum of $25,000.

SAGE ADVICE. As a beer distributor who has endured several hurricanes (and likely a few more), Byron Yahnis of Myrtle Beach SC and surrounding counties writes, "Harry, you are correct beer distributors are resilient and will figure out a way to get things back up to full speed quickly. I know this is just the beginning of a year long journey to restore the area back to normal. As for a positive, beer sales will soar in the coming weeks and months as construction crews start building. May God Bless the people of the Texas coast, Houston and surrounding areas affected by Hurricane Harvey." Well said.

A GOOD IDEA. Distributor David Ramer at Standard Sales Co. also had a suggestion: "How about those of us that can deliver today (Monday) pulling together to donate $.10/cs. for every case delivered today - to a carefully vetted charity?" Like the Red Cross. Great idea David. Lemme know if you concur hs@beernet.com subject line = harvey

BEER BRIEFS:

TOP FIVE STATES ALL SAW DECLINES IN SHIPMENTS DURING JULY. Only 15 states grew shipments in July, and unfortunately none of those states were of any significant size. The top five beer markets all saw declines over the month: California, down 5%; Texas and Florida both down 6.6%; New York down 2.1%; and Illinois down 3.2%. With that said, it's easy to see why beer shipments were down 3.1% in July, per recent Beer Institute estimates. The drop in July was enough to knock the YTD trend down to -1%.

BREWPIC: We spotted several shoppers chuckling at this sign at an Austin Whole Foods. That's the Amazon Echo.
Amazon Echo, straight from the farm.

Until tomorrow,

Harry, Jenn, and Jordan

"Only the mediocre are always at their best.
- Jean Giraudoux

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