On March 6 2013, Diageo formally notified Major Brands’ in writing that its right to distribute Diageo’s products (23% of Major’s revenues, or $100m+) would be terminated from June 30 2013.
As a result, Major Brands sought declaratory relief and damages in the Missouri Circuit Court, 22nd Circuit, St. Louis, alleging that Diageo had illegally sought to exit the distribution deal and switch to its rival Glazer’s as primary if not exclusive distributor.
Last Thursday, Circuit Judge Robert Dierker rejected Major’s request for injunctive relief against the Johnnie Walker, Crown Royal, Smirnoff, Captain Morgan brand owner, which would have stopped it transferring its business to Glazer’s in Missouri, as planned, on July 1.
‘Severe and possibly catastrophic’ loss: Major Brands CEO
But Dierker agreed that Diageo had sought to exit the deal without good cause – it did not supply one in March as required under the terms of a franchise; he said its contract with Major Brands constituted one, via the latter’s permission to use brand names, trademarks over many years.
CEO, Major Brands, Sue McCollum, told BeverageDaily.com last night: “Our performance was not the issue, and the judge saw that. Would we have liked the injunction? Yes. But we’re satisfied the judge understood what was going on in Missouri.”
She added: “We understood this was legal question, in terms of getting the injunction [to stop Diageo exiting the deal] meeting the test of ‘irreparable harm’. We knew that was a difficult test for a business, for damages to be paid, a high bar to meet. So we were not surprised by the ruling.
“We anticipate that because of the nature of the termination, which was unlawful,” McCollum said. “And because Glazer’s indemnified Diageo, we anticipate as the judge did that we will be entitled to significant damages because the judge quantified the loss as severe and possibly catastrophic.”
Diageo ‘pleased’ with court decision
There was no purpose in allowing an “uneasy alliance” to continue for an indefinite period, Dierker explained, which would “saddle the court with an on-going supervisory role”.
“The Court has no doubt that the consequences to Major Brands of the termination of its Diageo franchise will be severe, and possibly even catastrophic,” Dierker wrote.
“As the Court sees it, however, the losses are quantifiable and can be compensated in damages, even to the point of the recovery of the fair market value of the Major Brands enterprise itself if it cannot continue as a going concern.”
In a statement sent to BeverageDaily.com Diageo said: “Diageo is pleased that with this decision of the court, we can now move all our spirit and wine brands to Glazer's in Missouri.”
But McCollum said in a further written statement: “The judge found Diageo’s lead witness, a senior executive, lacked credibility. Given the judge’s findings, we are confident Major Brands will be able to recover from a Missouri jury the ‘severe damages noted by the court,” she added.
‘Love-hate relationship’ before March 2013
Prior to the March 2013 termination notice, Major Brands and Diageo enjoyed “what may be described as a ‘love-hate’ relationship,” Dierker wrote in his judgment.
“At times Diageo minions warmly commended Major Brands for superior performance in marketing Diageo products, at other times Diageo executives complained vigorously about failure to meet sales goals,” he said.
Meanwhile, Major Brands itself at times “exhibited frustration and concern” about its relationship with Diageo, the judge said, and “even contemplated life without Diageo”.
Conversely, at other times, Major Brands’ executives took pains to assuage Diageo complaints and took some steps to increase services promoting Diageo products, he added.
“On the whole, the facts and figures in the record indicate that Major Brands often failed to meet goals set by Diageo, but that Diageo never seriously entertained termination of Major Brands’ distributorship until after two significant events,” Dierker wrote.
One of these involved what the judge said was an “offer from Glazer’s of what may be called a very sweet deal to take over Diageo’s Missouri distribution”.