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Luxco, Inc. v. Jim Beam Brands Co.

United States District Court, N.D. Illinois, Eastern Division

September 6, 2016

LUXCO, INC., Plaintiff/Counter-Defendant,
v.
JIM BEAM BRANDS CO., Defendant/Counter-Plaintiff.

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE, District Court Judge

         On July 7, 2016, Defendant/Counter-Plaintiff Jim Beam Brands, Co. (“Beam”) moved to strike Plaintiff/Counter-Defendant Luxco, Inc.'s (“Luxco”) damages expert David Bratcher pursuant to the Federal Rules of Evidence and Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Prior to Beam filing the present Daubert motion, the Court granted in part and denied in part Beam's motion for summary judgment on June 6, 2016, and, on June 9, 2016, the Court set the bench trial date for November 28, 2016. The Court presumes familiarity with its June 6, 2016 summary judgment ruling. For the following reasons, the Court, in its discretion, grants in part and denies in part Beam's motion.

         BACKGROUND

         I. Factual Background

         A. Introduction

         Beam is an Illinois-based producer and bottler of alcoholic beverages. Beam sells its products to nationwide network of independent distributors, who contract with hundreds of retailers throughout the country. Luxco, which is based in St. Louis, Missouri, is also one of the nation's leading beverage alcohol companies. In March 2012, Beam and Luxco began discussing Beam's potential sale to Luxco of the exclusive right to sell thirteen of its brands of alcoholic beverages, including Bellows Blended, Bellows Bourbon, Bellows Gin, Bellows Light Rum, Bellows Scotch, Bellows Vodka, Calvert Extra, Calvert Gin, Canada House Canadian, Dark Eyes Vodka, Lord Calvert Canadian, Tempo Triple Sec, and Wolfschmidt Vodka (the “Acquired Brands”). On January 18, 2013, Luxco and Beam executed the relevant Asset Purchase Agreement (“APA”). On January 31, 2013, the parties closed on the transaction.

         B. Price Supports

         During the initial due diligence period, Luxco's Chief Executive Officer Donn Lux emailed a list of requests to Beam's Vice President of North American Strategy, John Lee, and Beam's Senior Director for North American Strategy and Revenue Management, Brendan Lynch, requesting information about the “Annual Marketing Spend by Brand” and a “List of programs, pricing promotions, free goods and entity grants by state (distributor) costs by year.” Beam uses entity grants and local marketing funds (“LMF”) as incentive programs to support marketing and distribution of its brands. Beam and some of its distributors, for example, pay LMF funds for local advertising, merchandising materials, and price support to retailers. At summary judgment, Luxco presented evidence that it was not until after the execution of the parties' APA that it discovered Beam was financing its distributors to use the Acquired Brands as free goods in order to induce sales of Beam's other brands.

         Likewise, before the execution of the APA, Beam provided credits to distributors to maintain sales of Wolfschmidt vodka in Florida and Arizona in 2012. In particular, Beam agreed to provide its distributors with credits against Beam's annual sales targets in those two states. At summary judgment, Luxco presented evidence that without the Wolfschmidt credits, sales of Wolfschmidt vodka would have significantly declined during 2012.

         C. Negotiation of the Terms of the Asset Purchase Agreement

         On November 1, 2012, Luxco and Beam met at Beam's Illinois office where the parties outlined the draft of the APA. Shortly thereafter, on November 12, 2012, as part of a letter of intent, Beam provided Luxco with a Brand Detail Sheet that reported by brand the total shipment cases, net sales, gross profit, brand investment, and brand contribution for 2009 through 2011, as well as the trailing twelve month period ending October 31, 2012 (“TTM October 2012”). On November 18, 2012, Luxco e-mailed a Term Sheet, Due Diligence & Closing Checklist, and the Brand Detail Sheet provided by Beam six days earlier, which recited the tentative terms of the deal. Luxco's November 18, 2012 Due Diligence and Closing Checklist included a request for copies of Beam's Distributor Agreements, which Beam did not turnover. Also, Luxco requested that Beam identify its “retail account incentives/programs by brand by retailer and distributor, ” to which Beam responded “No incentives or BI [Brand Incentive] dollars go toward the [Acquired Brands].”

         D. Asset Purchase Agreement

         Luxco and Beam executed the relevant APA on January 18, 2013, pursuant to which Luxco would acquire from Beam the exclusive right to sell the Acquired Brands. As part of the APA negotiations, Luxco bargained for and purchased representations and warranties from Beam regarding the Acquired Brands. Relevant to this lawsuit, Luxco bargained for and purchased the representations and warranty in Section 3.14 of the APA, which states:

Brand Detail Sheet.

The Brand Detail Sheet provided by the Seller to the Purchaser attached as

         Schedule 3.14 is true, complete and accurate in all material respects. Schedule 3.14 entitled “Brand Detail Sheet” is a spreadsheet that lists the shipped cases and net sales for the years 2009 through 2011 and TTM October 2012 for all of the Acquired Brands. It is undisputed that the parties relied upon the “Brand Detail Sheet” during their contract negotiations.

         E. Remaining Claims

         Luxco's damages expert, David Bratcher, offers expert opinions regarding Count I of the Luxco's First Amended Complaint. In Count I, Luxco alleges that Beam breached the express warranty in Section 3.14 because Schedule 3.14 provides inaccurate and incomplete shipment and net sales figures as a result of Beam's use of LMF price supports for free goods programs, brand discounts, and other support programs that propped up the sales figures and shipped case numbers. Bratcher also opines as ...


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