Hendershot v. S. Glazer's Wine & Spirits of Okla., LLLP
| Decision Date | 09 August 2021 |
| Docket Number | 20-CV-0652-CVE-CDL |
| Court | U.S. District Court — Northern District of Oklahoma |
| Parties | BRYAN HENDERSHOT, an individual f/d/b/a BOARDWALK DISTRIBUTION COMPANY, Plaintiff, v. SOUTHERN GLAZER'S WINE AND SPIRITS OF OKLAHOMA, LLLP d/b/a JARBOE SALES COMPANY; CENTRAL LIQUOR COMPANY, L.P. d/b/a RNDC OKLAHOMA; BEST BRANDS OF DELAWARE, L.L.C. d/b/a REPUBLIC NATIONAL DISTRIBUTING COMPANY; and BRIAN LIDJI, an individual d/b/a SOUTHERN GLAZER'S WINE &SPIRITS OF OKLAHOMA, Defendants. |
Before the Court is defendants' joint motion to dismiss (Dkt. # 47) plaintiff Bryan Hendershot's amended complaint (Dkt # 41) pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiff has filed a response (Dkt. # 53), and defendants filed a reply (Dkt. # 54).
Plaintiff is the former owner and operator of Boardwalk Distribution Company (“Boardwalk”), a sole proprietorship located in Tulsa, Oklahoma, that distributed wine, spirits and beer to retailers in Oklahoma. Dkt. # 41, at 1. Plaintiff sold the assets of Boardwalk in mid-2020, but remained obligated to pay Boardwalk's debts. Id. Boardwalk has since ceased operations. Id. In his amended complaint (Dkt. # 41), plaintiff alleges that defendants, horizontal direct competitors of Boardwalk conspired successfully to effectuate a group boycott of Boardwalk. Id. As a result, plaintiff states he suffered at least a $22 million loss. Id. at 2. Plaintiff asserts the following in support of that claim:
This case arises from a 2018 amendment to the Oklahoma Constitution: amendment 28A (“28A”). Prior to the passage of 28A, the sale of wine and liquor in Oklahoma operated on a three-tier system involving brands (which produced the wine or liquor), distributors (which purchased a brand's product at wholesale), and retailers (which sold the product to the public). Both in-state and out-of-state brands were permitted to sell their products in the state of Oklahoma to licensed distributors. Licensed distributors were required to be residents of Oklahoma. Oklahoma law required brands to sell their products to all Oklahoma distributors at the same price. Id. at 5. Distributors then sold and distributed those products to retailers. Id. With limited exceptions, retailers were the only entities allowed to sell alcohol to the public. Id.
Distributors that did not qualify as residents of Oklahoma, but that were seeking to sell alcohol in the state (e.g., national distributors), required a nonresident seller (NRS) license. Okla. Stat. tit. 37A, § 2-135 (2020); Okla. Stat. tit. 37, § 524 (2015) (repealed). Such a license, “authorize[d] the holder thereof to solicit and take orders for wine and spirits from the holders of licenses authorized to import the same into this state, and to ship or deliver, or cause to be shipped or delivered, wine and spirits into Oklahoma pursuant to such sales.” Okla. Stat. tit. 37A, § 2-135 (2020). Essentially, a nonresident seller acted as a broker for manufacturers by shipping wine or spirits into Oklahoma to be sold by a licensed Oklahoma distributor.
As of January 1, 2014, there were two dominant distributors of wine and spirits in Oklahoma: Central Liquor Company LP (“Central”) and Jarboe Sales Company (“Jarboe”). Central and Jarboe both had relationships with national distributors in order to facilitate the sale of out-of-state brands to retailers within Oklahoma. Southern Glazer's Wine and Spirits, Inc. (“Southern Glazer's”) worked primarily with Jarboe, and Republic National Distributing Company, LLC (“Republic”) worked primarily with Central. Brian Lidjl d/b/a Southern Glazer's Wine & Spirits of Oklahoma was the non-resident seller (NRS) to Jarboe prior to October 1, 2018. Best Brands of Delaware, LLC, d/b/a Republic National Distributing Company was the NRS to Central.
In 2014, a third distributor emerged: Boardwalk. Dkt. # 41, at 5. Plaintiff attributes Boardwalk's ability to compete against the two major distributors to its increased services to retailers. Those services included making daily deliveries to any retailer in the state, and allowing retailers to place orders late in the day. Id. at 5-6. From 2014 to 2017, Boardwalk's sales revenues increased from $22.5 million to $97.6 million. Id. at 6. As Boardwalk realized an increase in sales, the market shares of both Central and Jarboe decreased.
Plaintiff alleges that an owner of Central, Brad Naifeh, acknowledged the increased competition Boardwalk created while having lunch with plaintiff prior to Naifeh's death in June 2018. At that lunch, plaintiff alleges that Naifeh handed him a note stating that if Boardwalk did not scale back delivery times to retailers, Central would lower its prices. Id. Plaintiff alleges that Boardwalk did not adjust its delivery practices after receiving that note, and that Central subsequently lowered its prices. Id. Plaintiff also alleges that, at a lunch in Oklahoma City in 2015, Naifeh told plaintiff that, after changes in the law, Boardwalk “would be reduced to selling beer in Northeast Oklahoma.” Id. at 16.
In 2015, Jarboe and Central formed a lobbying and public relations entity referred to as The Institute for Responsible Alcohol Policy (“IRAP”) to pursue legislative changes that would benefit Central, Jarboe, and their respective NRSs. Id. at 8-9. That same year, Oklahoma state senator Clark Jolly began to conduct meetings regarding revisions to Article 28 of the Oklahoma Constitution.[1]Id. at 8. Boardwalk was not invited to participate in those meetings. Id. at 8. Naifeh, the primary spokesperson for Central, attended those meetings. Id. In one meeting, on May 27, 2015, plaintiff alleges Naifeh stated he wanted Republic to be able to buy into Central, which, at the time, was prohibited by law. Id.
The result of those legislative discussions was a proposed amendment that eliminated the requirement that brands sell to all distributors who wished to buy product. Id. at 9-10. Plaintiff alleges that prior to passage of 28A this change was not discussed openly in the legislative halls or outside them. Id. at 9.[2] Plaintiff explains that this amendment allowed brands represented by Republic and Southern Glazer's, through their NRSs, to sell exclusively to their respective Oklahoma distributors. Id. at 11.
The proposed amendment also sought to change the ownership requirements for Oklahoma distributors. The proposed amendment would allow a corporation, limited liability company, or similar business entity, otherwise prohibited from obtaining a distributor license in Oklahoma, to purchase up to a 50% ownership interest of an Oklahoma distributor.
The amendment was placed on the November 8, 2016 ballot, and it was subsequently passed. As a result, the amendment became effective on October 1, 2018 (“effective date”).
Plaintiff alleges that, prior to the effective date, some person or entity (presumably defendants or their predecessors) obtained “letter[s] of designation” from brands, “whereby a [b]rand had to designate the entity it would sell to after the [effective date].” Id. at 13. Plaintiff alleges that “[c]onspirators, ” worked together to develop these letters “to avoid conflict among them over the nature of the [b]rand commitment, and to assist in the commitment.” Id. Plaintiff alleges that, during these maneuvers, defendants discouraged brands from selling to Boardwalk. Id. at 12-13.
Plaintiff further alleges that this pre-amendment activity allowed defendants to obtain commitments from brands to sell wine and spirits only to Central and Jarboe, respectively. Id. at 12. Plaintiff argues that “[t]he alignment of [b]rands with either Republic-Central or Southern-Jarboe occurred not through competition, but from pre-existing relationships, and from leverage, or tacit leverage, derived from the [n]ational [distributors.” Id. at 13. Plaintiff states that “[l]everage also arose because, if the [b]rand did not sell in Oklahoma to Republic-Central or Southern-Jarboe, the [b]rand knew it was exposed to its sales to or through [the corresponding national distributor] in other states being cut back or eliminated.” Id. at 14.
On or about the effective date, Southern Glazer's Wines & Spirits, Inc. finalized a purchase of 49% interest in Jarboe. The purchase resulted in a new entity: Southern Glazer's Wine & Spirits of Oklahoma, LLLP d/b/a Jarboe Sales Company (“Southern-Jarboe”). Also on that day, Republic National Distributing Company LLC finalized a purchase of a 49% interest in Central. The purchase resulted in a new entity: Central Liquor Company L.P. d/b/a RNDC Oklahoma (“Republic-Central”). Id. at 11. At that time, Brian Lidjl d/b/a Southern Glazer's Wine & Spirits of Oklahoma became the non-resident seller to Southern-Jarboe and Best Brands of Delaware, LLC, d/b/a Republic National Distributing Company became the nonresident seller to Republic-Central.
Plaintiff states that the focus of the amended complaint is the conspiracy formed “after the passage of 28A” among the defendants. Id. at 12. Plaintiff specifically states the conspiracy was “to maintain and to secure [b]rands for their companies to sell to the exclusion of Boardwalk and to thereby force Boardwalk from competition with them through a group boycott in the distributor markets for wine and spirits in Oklahoma in violation of the Sherman Act, 15 U.S.C. § 1, and to attempt to monopolize, and to monopolize the markets for wine and spirits in Oklahoma in violation of the Sherman Act, 15 U.S.C. § 2.” Id. at 12. According to plaintiff, “leverage power existed after passage of 28A, was known by the [c]onspirators to exist, and assured the development of the group boycott.” Id. Plaintiff alleges that ...
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