Jim Beam Clears Its Name in Contract Dispute

CHICAGO (CN) – Jim Beam won a favorable ruling Monday in a case brought by fellow liquor producer Luxco, which accused the whiskey maker of inflating its sales numbers for non-flagship brands during an acquisition deal.

In 2014, Luxco Inc., maker of Everclear, purchased several liquor brands from Jim Beam Brands Co. for $70 million, including Wolfschmidt vodka, Lord Calvert Canadian whisky, Calvert Extra whisky, Calvert gin, the Bellows line of whiskey, gin, rum and vodka, Canada House Canadian whisky, and Tempo Triple Sec.

Jim Beam represented that these brands sold about 1.8 million cases last year, approximately $30 million worth of liquor, the St. Louis Post-Dispatch reported.

Just days before the deal was scheduled to close, Luxco queried Jim Beam about whether it had provided accurate information regarding sales of these brands. The whiskey maker affirmed that it had.

Shortly thereafter, Luxco sued Jim Beam for breach of contract, alleging that many of the acquired brand cases sold were tied to sales of other Jim Beam flagship products, such as Jim Beam and Makers Mark bourbons. But for these marketing programs, the true sales numbers of the acquired brands would have been significantly lower, Luxco claims.

The parties tried the case in a three-day bench trial before U.S. District Judge Amy St. Eve in November 2016.

On Monday, St. Eve announced her ruling in Jim Beam’s favor, more than two years after she initially declined to dismiss the case.

“Beam set forth credible evidence conclusively demonstrating that it accounted for the incentive and marketing programs and that these programs did not artificially inflate the net sales or shipped cases numbers,” the judge said.

Luxco’s allegation that Jim Beam did not disclose the excess inventory of Wolfschmidt vodka in Washington state is belied by the shipment information sent to Luxco detailing that inventory, according to the 30-page opinion.

St. Eve said Jim Beam sent exactly the same information to Luxco as it provided in formal reports to the U.S. Securities and Exchange Commission.

John Lee, Jim Beam’s former vice president of strategy and corporate development, testified that if a distributor funded “free goods” through local marketing funds, those funds would not be reflected on Jim Beam’s net sales numbers or anywhere else on the company’s profit and loss statements.

Luxco actually owes Jim Beam a penalty of $393,000, Judge St. Eve found, under the parties’ contract for failing to purchase minimum volume targets of the acquired brands.

 

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