Smart & Assocs., LLC v. Indep. Liquor (NZ) Ltd.

• Decision Date: 29 December 2016
• Docket Number: Civil Action No. 3:10–cv–614–DJH–DW
• Citation: 226 F.Supp.3d 828
• Parties: SMART & ASSOCIATES, LLC d/b/a Smart Beverage, Plaintiff, v. INDEPENDENT LIQUOR (NZ) LTD., et al., Defendants.
• Court: U.S. District Court — Western District of Kentucky

226 F.Supp.3d 828

SMART & ASSOCIATES, LLC d/b/a Smart Beverage, Plaintiff,

v.INDEPENDENT LIQUOR (NZ) LTD., et al., Defendants.

Civil Action No. 3:10–cv–614–DJH–DW

United States District Court, W.D. Kentucky, Louisville Division.

Signed December 29, 2016

Filed December 30, 2016

Gregory J. Bubalo, Kenneth L. Sales, Leslie M. Cronen, Bubalo Goode Sales & Bliss, PLC, Louisville, KY, for Plaintiff.

Brian Scott Jones, Reminger Co., LPA, Danielle Lewis, Middleton Reutlinger, Donald L. Miller, II, Quintairos, Prieto, Wood & Boyer, PA, Louisville, KY, Jeffrey A. Baruh, Adelson Hess & Kelly, Campbell, CA, for Defendants.

MEMORANDUM OPINION AND ORDER

David J. Hale, Judge, United States District Court

This lawsuit involves a business dispute between American and New Zealand companies involved in the production, distribution, and sale of ready-to-drink alcoholic beverages known as "twistee shots." Plaintiff Smart Beverage Group was the exclusive North American importer and distributor of twistee shots for over three years. Defendants include the producer of the twistee-shot brand, Independent Liquor (NZ); its holding company, Flavored Beverages Holding Group; and the current exclusive American importer of twistee shots, Independent Distillers USA, a wholly owned subsidiary of Independent Liquor.

The parties' dispute began when Independent Liquor terminated its business relationship with Smart Beverage in December 2009. Smart Beverage claims that prior to termination, Defendants breached express and implied warranties, as well as the distribution agreement, when Independent Liquor provided Smart Beverage with twistee shots that were either defective, out of rotation, or "short-coded."¹ Smart Beverage also claims that Defendants breached two confidentiality agreements entered into after Independent Liquor represented that it was interested in pursuing a joint venture with Smart Beverage and therefore needed its proprietary business information. Smart Beverage claims that Defendants took its proprietary, confidential business information and used it to establish Independent Distillers USA to take over the role of exclusive importer from Smart Beverage, in violation of Kentucky's Uniform Trade Secrets Act and the express provisions of both confidentiality agreements.

Defendants have filed a motion for summary judgment seeking dismissal of these claims.² Along with their motion for summary judgment, Defendants have filed objections to certain evidence relied on by Smart Beverage in its opposition to the summary judgment motion.³ Both the summary judgment motion and the objections are now fully briefed for consideration by the Court.⁴

This case involves a complicated set of facts revolving around several different entities, their past business transactions, and their attempted joint venture. The Court will begin by discussing the facts relevant to the plaintiff's claims, including the business relationship between Smart Beverage and Independent Liquor, the various product-defect issues that form the basis of the breach-of-warranty and breach-of-contract claims, and the sharing of confidential business information that forms the basis of the misappropriation claims and breach-of-contract claims. The section immediately following will address Defendants' evidentiary objections. Finally, the Court will assess each claim addressed by Defendants' motion for summary judgment.

I. BACKGROUND

A. Business Relationship Between Smart Beverage and Independent Liquor

For three years beginning in 2003, Michael C. Smart worked for Independent Distillers North America, then the United States subsidiary of Independent Liquor, as its vice president of sales. He reported to General Manager Michael Howard.⁵ During this time, Independent Liquor produced "twistee shots," which are ready-to-drink, flavored alcoholic beverages in single-serving shot cups that contain vanilla cream alcohol on one side and flavored vodka on the other side. Twistee shots were sold in four-packs and eight-packs with each package containing a "Best Before" date stamp.

In November 2005, the CEO of Independent Liquor died unexpectedly, prompting Independent Liquor to sell its U.S. subsidiary. Smart offered to buy the remaining unsold inventory of twistees and "rattlesnakes" (another ready-to-drink, alcoholic beverage) if Independent Liquor would make him its exclusive importer to North America for the next three years.⁶ Independent Liquor agreed to this proposal, and the parties entered into a distribution agreement that appointed Smart Beverage as the exclusive U.S. importer and "master distributor" of twistees and rattlesnakes for three years.⁷ Smart Beverage entered into a separate contract with nonparty MHW Ltd. to act as its national distributor to receive product shipments from Independent Liquor, maintain inventory, provide warehouse services, and take and fill orders from Smart Beverage customers.

Subsequently, Flavored Beverages Holding Group became the parent company of Independent Liquor. About this time, the current CEO of Independent Liquor raised the possibility of a joint venture between Smart Beverage and Independent Liquor with the latter purchasing a fifty percent ownership in Smart Beverage.⁸ On March 20, 2008, Smart Beverage and Independent Liquor executed a confidentiality agreement to protect the exchange of business information.⁹ The agreement afforded Independent Liquor access to certain business information of Smart Beverage for the purpose of evaluating a potential joint venture with Smart Beverage or acquiring ownership of Smart Beverage.¹⁰ The confidentiality agreement defined this business information to include "all information, ideas and material, in tangible and intangible form, formerly, now or hereinafter created, whether by or for the business, which is not generally known to the public and which relates to the past, present or future business, financial condition or standing, customers, suppliers, distributors, plans, hardware, software, or technology of the business...."¹¹ Independent Liquor agreed not to use or disclose any confidential business information it acquired without written consent or except as permitted under the written agreement.¹² The joint venture plans would ultimately be abandoned, and the sharing of confidential business information forms the basis of some of the plaintiff's claims discussed below.

Prior to execution of the first confidentiality agreement, Smart gave a presentation in New Zealand to the new management of Independent Liquor. In his presentation, Smart revealed Smart Beverage's support network and ownership; its suppliers and products; their terms of shipment; the purchase price that Smart Beverage paid for other ready-to-drink brands; the retail target price point for twistee shots; a pricing analysis and profit statement for each of the three tiers in the distribution chain; the national average retail pricing for twistee shots and competing ready-to-drink beverages; Smart Beverage's 2007 and 2008 sales results by distributor, including the sales volume and dollar revenue for each distributor; its point-of-sale merchandising displays for its product; a proposal for a new twistee 750 ml product; its street sales team program and annual cost structure; its profit and loss statement for calendar year 2008; and profit and loss forecast for the years 2009 through 2012.¹³

After executing the confidentiality agreement, Smart Beverage provided Independent Liquor with additional business information, including prices and incentives offered to Smart Beverage's wholesale distributors on both twistee shots and competing products that Smart Beverage imported. Smart Beverage also supplied Independent Liquor with its sales history.¹⁴ In July 2008, Robin Campbell and Peter McHugh, of Independent Liquor, met with Smart to discuss the possible joint venture.¹⁵ Smart Beverage subsequently provided financial records to Independent Liquor's accountants for an audit.¹⁶ These records included items such as cash on hand, accounts payable, operating expenses and lines of credit for Smart Beverage. In September 2008, Campbell, Independent Liquor's international business director, requested still more business information as part of its due diligence.¹⁷ In response, Smart Beverage provided information on its pricing structure, promotions, payment terms for wholesalers, overhead, and budget details.¹⁸ Smart Beverage also identified its brokers and their fees per case; its distributors; its pricing/discounts; its sales promotion budgets; and the fee structure for MHW, Smart Beverage's national distributor and warehouse operator.¹⁹

In fall 2008, McHugh and Smart exchanged drafts of a proposed employment agreement prepared by McHugh, which Smart understood to set out the terms of his continued employment upon the finalization of the companies' joint venture.²⁰ However, that December, Smart learned that Independent Liquor had decided to postpone the joint venture for a year.²¹ Soon thereafter, Independent Liquor e-mailed Smart to confirm a one-year extension of the distribution agreement, with the assurance that the joint venture proposal would be reconsidered at the end of a year.²²

B. Issues Concerning Defective and Out-of-Rotation Twistee Shots

According to Smart, in spring 2009, Smart Beverage was notified by its wholesalers that they had received defective twistee shots with coagulated cream.²³ Smart maintains that he notified Independent Liquor of the coagulation problem within twenty-four hours of the notice.²⁴ Leanne Byers, the export/import manager for Independent Liquor, arranged to have the suspect twistee shots from the September 2008 production runs tested.²⁵ Test results confirmed the coagulation problem.²⁶ Ultimately, it was determined that a total of 8,587 cases of defective twistee shots had been shipped to Smart Beverage.²⁷ Smart Beverage requested that Independent Liquor replace all 8,587 cases.²⁸ Independent Liquor shipped to...