Today on As The Tiers Turn there have been a few interesting updates in the "bootlegging racket" case between New York's Empire Merchants and Breakthru Beverage as they try to get in a few more blows before the judge decides whether to dismiss the case or not. Most notably, Empire alleges Breakthru subsidiary Reliable Churchill provided retailers instructions on how best to smuggle liquor without getting caught, and Breakthru alleges Empire has been attempting to cut a deal with RNDC on the side.
A QUICK REFRESHER. Late last year Empire Merchants filed federal fraud charges against a long list of defendants including: Empire co-owner and Breakthru co-chairman Charlie Merinoff, Breakthru chief Greg Baird, Reliable Churchill, and several Maryland retailers. Empire says the scheme, smuggling alcohol from Maryland to New York, was devised to avoid paying taxes and steal Empire's sales in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) [see WSD 09-20-2016].
When last we left off, some of the initial retail defendants had flipped sides, and Breakthru had filed a motion to dismiss the Empire complaint that essentially claimed Reliable was just doing its job and filling orders [see WSD 12-14-2016 and WSD 1-23-2017].
There have been several minor filings from various parties involved since January, but we'll just touch on some of the key details today.
EMPIRE: RELIABLE ENTRENCHED IN SCHEME. In response to Breakthru's assertions that it was just doing its job and filling orders, Empire alleges in a subsequent memorandum on February 22 that Reliable was knowingly involved in the scheme and even "instructed [the Maryland retailers] how to remove 'routing stickers' identifying the Maryland origin of the alcohol with 'heat guns' and blowtorches." Moreover, Reliable allegedly told them "if they bought in bulk, then it would provide label-free pallets to facilitate the scheme."
And while not paying New York taxes "helped further the scheme" Empire believes tax dodging was not the object of the operation. No, Empire alleges the scheme was intended to "directly injure" Empire, because no other party "can possibly seek to recoup Empire's lost sales for liquor brands that it alone could lawfully sell in New York."
Breakthru's defense has also consistently argued Empire doesn't have an adequate case for a RICO claim based on: (1) lack of standing; (2) the statute of limitations; and (3) the adequacy of the pleadings RICO enterprise and pattern allegations. But Empire says these claims are "meritless, as they are predicated on misstatements of the law and mischaracterizations of the factual allegations against them."
As such, Empire has requested the court rule against Breakthru's motion to dismiss.
BREAKTHRU ON EMPIRE'S MOTIVATION. Breakthru and Reliable subsequently filed another memorandum last week in support of its motion to dismiss. Breakthru claims Empire is "now panicking over its doomed standalone corporate strategy, has turned to desperate litigation tactics to try to enhance its bargaining position in what it realizes is an inevitable sale to, or merger into, a larger organization" with Breakthru and RNDC being the likely two options."
Furthermore, Breakthru believes Empire has not taken RNDC to court because it wants to keep the two larger distributors "at odds," while "soliciting a business combination with RNDC." Breakthru alleges Empire owners Nino Magliocco and Steven Drucker requested a meeting with RNDC president Tom Cole on December 22, 2016 to discuss a tie-up.
In addition to reiterating that it does not believe Empire has a sufficient RICO claim, Breakthru also argues Empire is not the sole authorized distributor of certain brands in all of New York because Empire Merchants' territory is only in New York City metropolitan area. They claim Empire Merchants "knowingly mischaracterizes its contractual right to buy certain brands from suppliers as making it the sole legal source of supply to retailers. As Empire Merchants admits, there are multiple legal avenues by which alcohol can be legally imported into New York including to New York retailers."
Same as before, Breakthru and Reliable want the claims dismissed.
WHAT'S NEXT? This is the last filing related to the motion to dismiss by Reliable and from here, the judge will decide the motion or call for oral arguments. More details to come once we dig through the hundreds of new pages in this case.
CUERVO PROFITS DOWN, REVENUE UP IN Q4. In one of our first peeks into the public business of Mexico's Jose Cuervo, the company has revealed a 48.5% profit decline during its most recent quarter because of the spike in agave prices. Its fourth quarter profits hit $30.5 million, down from $61 million. Though revenues hit $368 million in the fourth quarter, a 52.4% increase, according to Reuters.
DON Q DEBUTS AGED EXTENSION. Destileria Serralles has launched Don Q's Oak Barrel Spiced Rum. The new offering is a blend of Puerto Rican rums that have been aged for a minimum of three years and up to six years for this expression.No artificial flavors or colors added. "We took our time in crafting our Don Q Oak Barrel Spiced Rum," explained Roberto. "We wanted to make sure we created an elevated experience for our customers; one that would reveal how barrel ageing and pure ingredients can take spiced rum from an ordinary mixer to an exceptional spirit that is ideal for crafting unique cocktails as well as for drinking neat, on the rocks or with a splash." Don Q Oak Barrel Spiced Rum is available at select liquor stores throughout the country and priced at approximately $30 a 750 ml.
CORRECTION: Earlier this week we misspelled the name of Santa Margherita USA's Torresella brand. Apologies for any confusion.
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