A-B Fights Back Against Former Employee

FILED APRIL 24, 2013

April 24, 2013

Dear Client:

Recall that in the wake of those class action suits against A-B alleging that the brewer "waters down" its beers, A-B filed suit against former employee James Clark claiming that he "misrepresented our confidential information" and violated a company confidentiality agreement which he had signed (see BBD 04-03-2013 ). Clark worked as director of operations support at A-B, and had worked at several breweries from 1998 until June when he resigned and became a lawyer. After A-B sued, Clark filed a motion to strike the lawsuit under California whistleblower laws and by saying that the confidential papers came from an anonymous source.

A-B begs to differ in a brief filed with the court yesterday, in which the brewer conducted computer forensics on Clark's computer as well as sworn declarations indicating that Clark illegally took the documents himself, allegedly, and therefore the whistleblower's protection law doesn't apply.

A-B says that Clark attended Lincoln Law School while employed at A-B and "developed a new 'business' plan - resign from the company, misuse and misappropriate confidential, proprietary or trade secret information, and communicate that information to others in an attempt to manufacture a class action payday."

Here's what happened according to A-B: A month before resigning from A-B, Clark allegedly accessed confidential trade secret documents, including beer specifications, from his work computer and printed out two copies and saved a copy to a thumb drive. Minutes later, he accessed the website www.topclassactions.com and downloaded a sample Califorina class action suit and printed a copy. The lawsuit he printed was filed by Robert Bramson of the firm Bramson, Plutzik, Mahler & Birkheauser, who happens to also now be a lawyer for the plaintiffs in the California class action suit. Clark also visited the website of the Mills Law Firm and the "Contact Us" page ten days before resigning from A-B.

Additionally, Clark called a former subordinate and asked him to send him the product specification documents, which he did. A few weeks later, The Mills Law Firm sent a letter to A-B demanding a replacement or refund to all California purchasers of A-B products in the last four years because the beers have "less alcohol by volume than is stated on" the labels. Then other similar letters came from other states.

After an investigation fingering Clark as the alleged pilfer of documents, A-B asked Clark to certify under oath that he hadn't taken any confidential documents. He wouldn't sign, but said he threw those papers out. A-B asked the Mills Law Firm for the confidential documents back. The law firm indeed returned the document that Clark's work colleague had sent him, which The Mills Law Firm said was from an anonymous whistleblower. Not true, says A-B. It was a "self-help theft of documents belonging to their former employer" and as such "courts have little difficulty rejecting the argument that the employees' crimes are insulated from liability due to their desire to expose alleged wrongdoing by their former employer." Also, the alleged crimes of A-B have "minimal merit."

"Although his name is nowhere on the lawsuits, he has now admitted that he is behind these unjustifiable class-actions that are being used to smear our name and enrich himself and the other lawyers," says A-B in a statement to BBD. "We hold ourselves to high standards of conduct and quality at our company, which Clark knew well and experienced fully as an employee. In our mandatory code of conduct training, he repeatedly verified that he knew of no inappropriate activity by the company, and made this verification during and after he graduated from law school. If he felt a problem existed, it was Clark's duty to report it at the time for investigating, but Clark did not report anything, because there is nothing to report. We would never compromise the quality or the taste of any of our beers for any reason."


Lot of fighting back by A-B today. Recall that the Ohio legislature unanimously passed a branch ban bill last week in both houses. The bill grandfathers A-B's Canton, OH branch in, and limits expansion to a brewer owning other branches. (see BBD 04-19-2013).

To say the least, A-B is not happy about it. In a scorcher of a letter to the House speaker and Senate president obtained by BBD through nefarious yet (I stress) legal means, AB InBev North American chief Luiz Edmond asks them to repeal the measure or for Gov. Kasich to veto it, and he asks for an answer "by the close of business today" (letter dated April 22).

"Last week, in the space of four hours, the Ohio General Assembly introduced and voted upon, totally without public notice or input, or the opportunity for my company and others to comment, legislation which reverses 30 years of established law in Ohio," writes Luiz. "It did this all without any showing whatsoever of any problem requiring legislative action, for the sole benefit of wholesalers who sought the change." Luiz maintains that the legislation would "wipe out contract language of great value to Anheuser-Busch and other brewers obtained in good faith over decades of successful business partnerships between our companies and the companies that wholesale our products. Essentially, Anheuser-Busch has obtained a contractual right to purchase a wholesale distributor, in the event the distributor voluntarily decides to sell, a right that is important in preserving our path to market for our products. The bill would directly and substantially impair that contract right.

"We believe this is a move by large wholesalers to eliminate a potential competitor as they seek to expand their businesses through acquisition. In others words, it is a direct intervention by the General Assembly in favor of one group of parties in competitive business situations...To make matters worse, the legislation was passed in complete violation of normal legislative procedure, and outside the boundaries of basic fairness and respect for a corporate employer in your state."

Luiz also contends that several Ohio legislators were inaccurately told that A-B has signed off on the legislation. He asks them to "press the reset button" and "restore the status quo." Luiz also fears that this legislation makes it appear nationally that a "well-funded lobby...has succeeded in perverting the legislative process in Ohio in a way that is anti-competitive and violates" the Ohio Constitution. Luiz warns that this will harm "Ohio's reputation as a business-friendly state" and the General Assembly's reputation at a time when the public "unfortunately is cynical anyway."

Luiz also issued a warning of sorts, noting that A-B owns a large brewery in Columbus employing 700 people and pays $32 million in Ohio income and excise taxes, and it gives to charity in the state. If legislators or the governor don't do anything, "this legislation will have a direct and immediate impact on our future investments in the state." Wow.

Recall that Ohio has been a thorn in A-B's side since its distributors there took on Yuengling and it grew to record share in a short amount of time. A-B likely would like to own more branches there to mitigate its effect or at least prevent it from happening again.

For its part, MillerCoors doesn't support the legislation either because they believe the grandfathering of A-B's branch in Canton gives it a competitive advantage, and MillerCoors wasn't included in the process as it normally is with wholesalers on key state legislation.

Recall that the DOJ, as part of the Modelo deal, has required that A-B must notify them if they acquire a distribution license of a company over $3 million in annual gross revenues. Will the DOJ limit A-B's ability to acquire branches, regardless of how the Ohio bill progresses?


A PepsiCo merger with big snack food company Mondelez could could motivate it to sell off its beverage business for as much as $60 billion, possible to ABI, Bernstein analyst Steve Powers told just-drinks. "The potential buyers are not a very long list, but people who are expected to have a possible interest are ABI, probably as the leading candidate," he said.

We should note that ABI execs have downplayed such a possibility in the past, and that ABI will be busy bringing Modelo into the fold and paying down that debt.


Things in Missouri are nearing a boiling point as suppliers, distributors and their attachees fight it out in the court, the legislature and the media. While most of the action in Missouri involves wine and spirits, it could equally be applied to beer.

HOW IT ALL BEGAN: At the epicenter of this issue is the 2011 lawsuit Missouri Beverage Company v. Shelton Brothers. Missouri Beverage (MoBev) sued Shelton, claiming that the importer unlawfully terminated their franchise agreement after Shelton sent a letter removing MoBev as its Missouri distributor. A lower district court sided with Shelton, and ultimately the Eighth Circuit court of appeals ruled in 2012 that "the general definition of 'franchise' applies to liquor supplier-wholesaler business relationships" in the state. In other words, Missouri doesn't have an alcohol-specific franchise law, so it gets lumped in the general franchise law language, which the appeals court ruled did not protect MoBev. Writes Judge Wollman (who ironically is the same judge overseeing the Southern Wine & Spirits residency requirement appeal): "Shelton and MoBev's relationship was not that of franchisor-franchisee under Missouri law."

While all this was going on, Southern Wine & Spirits sued the state to overthrow Missouri's residency requirement. With no franchise law, Southern stands to gain suppliers currently with Major and Glazer's. However, you'll recall that a district court ruled against Southern, and currently they are going through the appeals process.

CORRECTIVE LEGISLATION: So what does the MoBev v. Shelton Bros decision mean? Missouri doesn't really have a franchise law protecting wholesalers as it was once understood. Major Brands' and Glazer's reaction in 2012 was to push legislation that would reestablish the original definition of franchise, thus making it much harder for its suppliers to pull their business.

Last year SB 837 sought to accomplish this goal, but was ultimately vetoed by Governor Jay Nixon in July. In his veto letter, the governor said one of his primary concerns was that the franchise law would threaten the future growth of Missouri wineries and cripple the market for Missouri-made soy-based beer. The other concern he expressed is the disturbance in the balance of powers between suppliers and distributors when it comes to negotiating distribution contracts.

"Senate Committee Substitute for Senate Bill No. 837 goes much further than a mere declaration or clarification of legislative intent," wrote the governor. "The bill changes the substantive definition of a franchise -- a change that appears inconsistent with the legislative intent of the existing law as indicated by the clear meaning of its text."

But if at first you don't succeed, try, try again. So Major Brands is again pushing corrective legislation that has some variations from the 2012 bill. Interestingly, Glazer's is no longer backing the legislation, and is instead fighting it.

The corrective legislation is in the form of twin bills , which are nearly identical to SB 837, that are currently sitting in their respective chambers. HB 759 passed a vote from the General Laws Committee last week, but has not yet left the committee. SB 365 was also passed in the Commerce, Consumer Protection, Energy and the Environment Committee and remains there.

The bills' aim is this: "to [modify] the definition of franchise under Missouri franchise law, specifically for agreements between alcohol wholesalers and suppliers so that a franchise may exist even without a license to use a trade name, trademark, or service mark and regardless if there is a community of interest in the marketing of the products." But in this year's bills, the governor's concerns about Missouri wineries has been addressed with a franchise exception for wineries selling 10,000 cases or less. Winery groups statewide are reportedly on board with the bills.

Meanwhile, DISCUS has come out against the legislation. "Almost the same bill was vetoed last year by the governor, and now it's being brought forward by basically one wholesaler," says Dale Szyndrowski, vp of the council's Central region office of government relations. "Major Brands is trying to lock-in our suppliers on perpetuity."

THE FALLOUT: As you well know, this sequence of events has led to several lawsuits pitting suppliers against distributors. Here's a quick recap of WSD's past coverage. In January, Pernod Ricard USA filed a lawsuit attempting to terminate agreements with both its distributors (Major Brands and Glazer's) for refusing to compete for its entire business. In April, Pernod made an announcement that it has chosen Major Brands to be its exclusive distributors in the state. However, the lawsuit has not been terminated and currently Pernod does not have plans to do so.

In March -- within one day of each other -- Bacardi USA and Diageo Americas filed lawsuits to terminate their respective distribution contracts with Major Brands. Both of these companies claim the contracts should fall under the laws of different states, more specifically Florida for Bacardi and Connecticut for Diageo. Unsurprisingly, neither one have strict franchise laws.

The most recent lawsuit is from Missouri distributor Garco Wine Company, which has filed a lawsuit against Constellation Brands alleging that Constellation gave a notice of termination on March 25 without good cause. Recall Constellation asked its distributors (Major, Glazer's and Garco) in the state to compete for its brands' exclusive business. "Garco believes collusion may be occurring within and amongst suppliers of wine and spirits to restrict competition in Missouri," said the company.

LUXCO GETS INVOLVED: St. Louis-based spirits company Luxco also got involved last month when Major Brands filed a lawsuit against it for terminating its distribution contract in attempt to move its brands to Glazer's. Note, Luxco represents 1% of Major Brand's spirits business and overall business.

MAJOR BRANDS SPEAKS: This is where it gets really interesting. Sue McCullom, ceo of Major Brands, said she thinks Glazer's is behind the flurry of suppliers trying to pull out of their contract. "We felt that Luxco, like others, was prompted by Glazer's to terminate Major Brands wrongfully as Luxco stated no cause whatsoever for [termination]," she said.

If the aforementioned lawsuits against Major Brands succeed, it will be a huge blow to the company. Sue says 56% of Major Brands' spirits and 42% of the overall business is at risk. "How it works is this: if 40% of the bottles we put on the truck [would be gone], do we need as many trucks? Do we need as many people?" she told The Missouri Times.

Sue added that Missouri's franchise laws have been just fine for the last 40 years. "It's unprecedented in the industry," she said. "It's the liquor wars. They saw they could come in and control the Missouri market, and they took the opportunity."

Sue also testified during a hearing for SB 837 and HB 759s, where she dismissed any rumors that she was looking to sell Major Brands. "Of course I'm not," she said. "My company is not for sale. I will come down here every day to dispel that rumor . There's only one person who can decide if this company is for sale, and that's me. The reason the opposition keeps saying that is because they want to throw up a smoke screen."

Until tomorrow, Harry

"Nobody believes the official spokesman... but everybody trusts an unidentified source."
-Ron Nesen

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