` FILED
`
`
`
`
`
`
`8:57 am, 7/6/20
`
` Margaret Botkins
` Clerk of Court
`
`LaMar F. Jost (WY #7-5520)
`Hugh Q. Gottschalk (Pro Hac Vice Application Pending)
`Webster C. Cash III (Pro Hac Vice Application Pending)
`Wheeler Trigg O'Donnell LLP
`370 Seventeenth Street, Suite 4500
`Denver, Colorado 80202
`Telephone: 303.244.1800
`Facsimile: 303.244.1879
`Email: jost@wtotrial.com
`gottschalk@wtotrial.com
`cash@wtotrial.com
`
`Attorneys for Plaintiffs Admiral Beverage Corporation, Wyoming Beverages, Inc., Blue Rock
`Products Co., Fremont Beverages, Inc., General Beverages, Inc., Harrington Bottling Company,
`Mike D. Dimich Sons, Inc., Missoula Bottling Company, Inc., Park Bottling Company, Western
`Wyoming Beverages, Inc., Larsen Beverage Co., Inc., Old Faithful Beverage Company of Idaho
`Falls, Inc., and Birrell Bottling Company, Inc.
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF WYOMING
`
`Case Number:
`
`20-cv-00122 -ABJ
`
`Admiral Beverage Corporation; Wyoming
`Beverages, Inc.; Blue Rock Products Co.;
`Fremont Beverages, Inc.; General
`Beverages, Inc.; Harrington Bottling
`Company; Mike D. Dimich Sons, Inc.;
`Missoula Bottling Company, Inc.; Park
`Bottling Company; Western Wyoming
`Beverages, Inc.; Larsen Beverage Co.,
`Inc.; Old Faithful Beverage Company of
`Idaho Falls, Inc.; and Birrell Bottling
`Company, Inc.
`
`v.
`
`PepsiCo, Inc.,
`
`Plaintiffs,
`
`Defendant.
`
`PLAINTIFFS’ COMPLAINT AND JURY DEMAND
`
`Plaintiffs Admiral Beverage Corporation, Wyoming Beverages, Inc., Blue Rock Products
`
`Co., Fremont Beverages, Inc., General Beverages, Inc., Harrington Bottling Company, Mike D.
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 2 of 27
`
`Dimich Sons, Inc., Missoula Bottling Company, Inc., Park Bottling Company, Western
`
`Wyoming Beverages, Inc., Larsen Beverage Co., Inc., Old Faithful Beverage Company of Idaho
`
`Falls, Inc., and Birrell Bottling Company, Inc. (Plaintiffs, collectively, and doing business
`
`together as, “Admiral Beverage” or “Admiral”), bring this Complaint and Jury Demand against
`
`Defendant PepsiCo, Inc. (“PepsiCo”), and state and allege as follows:
`
`INTRODUCTION
`
`1.
`
` This is an action against PepsiCo for breach of the duty of good faith and fair
`
`dealing following PepsiCo’s improper attempts to force Admiral Beverage to forfeit its core
`
`contractual rights.
`
`2.
`
`For more than 70 years, PepsiCo and Admiral Beverage have been parties to
`
`hundreds of perpetual Exclusive Bottling Appointments and Exclusive Distribution Agreements
`
`(collectively, “EBAs”) that grant Admiral Beverage the exclusive right to manufacture, sell, and
`
`distribute multiple liquid refreshment beverages owned or licensed by PepsiCo (“Brands”)
`
`within Admiral Beverage’s designated geographic territories. The EBAs also grant licensed
`
`Pepsi-Cola bottlers like Admiral Beverage the sole discretion to dictate prices for the Brands sold
`
`in their exclusive territories.
`
`3.
`
`Of paramount importance to Admiral Beverage and all Pepsi-Cola bottlers is the
`
`preservation of their exclusivity rights under the EBAs—rights that PepsiCo has historically
`
`recognized as the core of its overall business structure. For decades, PepsiCo reaffirmed its
`
`contractual obligation under the EBAs to honor the Pepsi-Cola bottlers’ exclusivity rights, and
`
`the Tenth Circuit has expressly held that the EBAs require PepsiCo to “protect” the Pepsi-Cola
`
`bottlers’ “exclusive territorial rights.” Pepsi–Cola Bottling Co. of Pittsburg, Inc. v. PepsiCo, Inc.
`
`et al., 431 F.3d 1241 (10th Cir. 2005).
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 3 of 27
`
`4.
`
`This action arises from PepsiCo’s attempts to escape its obligations under the
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`EBAs by exerting improper economic pressure on Admiral Beverage to coerce it into
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`relinquishing its long-held exclusivity rights.
`
`5.
`
`In the last five years, the sale of PepsiCo branded soft drink products in North
`
`America has declined significantly. PepsiCo’s core soda Brands—Pepsi-Cola, Diet Pepsi,
`
`Mountain Dew, and Diet Mountain Dew—have all lost market share to competing products sold
`
`by arch-rival Coca-Cola, resulting in an expansion of Coca-Cola’s market dominance over
`
`PepsiCo.
`
`6.
`
`Overtaken by Coca-Cola in the market for carbonated soft drink beverages,
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`PepsiCo has scrambled to cut costs and boost profits amid sluggish soda sales and dissatisfied
`
`shareholders.
`
`7.
`
`Under mounting pressure to recapture market share, PepsiCo now seeks to
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`undermine and eliminate Admiral Beverage and the Pepsi-Cola bottlers’ clear exclusivity rights
`
`under the EBAs as part of a coordinated strategy to establish uniform national pricing and to take
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`control of the route-to-market system. In furtherance of that strategy, PepsiCo has recently
`
`resorted to improperly forcing Admiral Beverage and the Pepsi-Cola bottlers into ceding their
`
`exclusivity rights under the EBAs.
`
`8.
`
`In April 2020, PepsiCo demanded that the Pepsi-Cola bottlers sign a proposed E-
`
`Commerce Master Alliance Agreement (“E-Commerce Agreement”) that would gut the EBAs
`
`and permit PepsiCo to sell its Brands to online retailers (such as Amazon.com) who, in turn,
`
`would be authorized to sell the Brands directly to online consumers located in the bottlers’
`
`exclusive territories. The proposed E-Commerce Agreement also eliminates the Pepsi-Cola
`
`bottlers’ power to set prices for online sales made in their exclusive territories. PepsiCo has itself
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 4 of 27
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`acknowledged that the terms of the E-Commerce Agreement are contrary to and not permitted
`
`under the EBAs.
`
`9.
`
`When Admiral Beverage refused to sign the proposed E-Commerce Agreement as
`
`drafted, PepsiCo retaliated against Admiral Beverage by purporting to improperly terminate
`
`Admiral Beverage’s exclusive distribution agreement for Rockstar Energy (“Rockstar”) drinks,
`
`effective August 10, 2020. PepsiCo’s termination comes on the heels of Admiral delivering a
`
`27% sales increase of Rockstar in June 2020.
`
`10.
`
`PepsiCo’s retaliation occurred after PepsiCo made repeated assurances to Admiral
`
`Beverage that it would honor Admiral Beverage’s existing Rockstar distribution agreement
`
`through 2023 and after PepsiCo had already notified all of Admiral Beverage’s customers that
`
`Admiral would continue to serve as the exclusive distributor of Rockstar products in its
`
`territories.
`
`11.
`
`Admiral Beverage sells in excess of a million cases of Rockstar Energy products
`
`annually, and PepsiCo’s purported termination of Admiral Beverage’s Rockstar agreement is an
`
`effort to extort Admiral into signing the E-Commerce Agreement. It is a breach of PepsiCo’s
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`duty of good faith and fair dealing to coerce Admiral Beverage into surrendering its core
`
`exclusivity rights under the EBAs or to otherwise take any action that injures or threatens
`
`Admiral Beverage’s perpetual and exclusive right to manufacture, sell, and distribute the Brands
`
`in its exclusive territories.
`
`12.
`
`Economic coercion is not the proper mechanism for PepsiCo to revamp its
`
`distribution system. To the extent PepsiCo seeks to overhaul its route-to-market system, then it
`
`should follow Coca-Cola’s example and either refranchise its North American bottling
`
`operations or offer to purchase the Pepsi-Cola bottlers’ exclusivity rights for fair-market value.
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 5 of 27
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`But PepsiCo cannot extort material modifications of Admiral Beverage’s core exclusivity rights
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`under the EBAs, as it is attempting to do.
`
`13.
`
`Accordingly, Admiral Beverage brings this action for injunctive relief and
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`damages to redress PepsiCo’s harmful breaches of its obligation of good faith and fair dealing
`
`under the EBAs.
`
`14.
`
`Separately, Admiral Beverage seeks preliminary injunctive relief from this Court
`
`to maintain the status quo and to enjoin PepsiCo from terminating Admiral Beverage’s exclusive
`
`distributor agreement for Rockstar Energy drinks pending arbitration.1
`
`15.
`
`Admiral Beverage has served as the exclusive distributor of Rockstar Energy
`
`drinks in its exclusive territories for two decades. In purporting to destroy Admiral Beverage’s
`
`longtime Rockstar business, PepsiCo will irreparably damage Admiral Beverage’s competitive
`
`standing in the market, its goodwill with its longtime customers, and its ability to increase sales
`
`for its flagship soft drink Brands, such as Pepsi-Cola and Mountain Dew. Further, Rockstar and
`
`PepsiCo made express promises to Admiral Beverage that it would honor Admiral Beverage’s
`
`existing Rockstar distribution through 2023 and, based on those promises, PepsiCo notified all of
`
`Admiral Beverage’s customers that Admiral Beverage would continue to serve as their exclusive
`
`distributor for Rockstar energy drinks.
`
`16.
`
`For many years, Admiral Beverage has combined the power of the Rockstar brand
`
`with the power of PepsiCo’s world-famous soda Brands to successfully compete with Coca-Cola
`
`in its exclusive territories. Depriving Admiral Beverage of its contractual right to continue to
`
`
`1 Although any disputes arising out of the Admiral Beverage’s exclusive distribution
`agreement for Rockstar Energy drinks are generally subject to arbitration, the Rockstar
`agreement includes an express provision stating that the parties are permitted to seek “from a
`court a temporary restraining order or other temporary or preliminary relief pending final
`resolution” of an arbitration. (See Ex.1, Rockstar distribution agreement, ¶ 11.)
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 6 of 27
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`distribute the unique Rockstar Energy drink brand will cause harm to Admiral Beverage that
`
`cannot be adequately compensated with money damages.
`
`PARTIES
`
`17.
`
`Plaintiff Admiral Beverage Corporation is a Wyoming corporation with its
`
`principal place of business in Worland, Wyoming. Admiral Beverage Corporation was formed
`
`by and is currently owned by nine independent Pepsi-Cola bottlers. Admiral Beverage
`
`Corporation is also a licensed Pepsi-Cola bottler itself, which, together with its subsidiaries and
`
`shareholders, operate as the exclusively licensed manufacturers, sellers, and distributors of the
`
`Brands for a large segment of the Rocky Mountain region pursuant to a series of perpetual
`
`Exclusive Bottling Appointments and Exclusive Distribution Agreements with PepsiCo. Admiral
`
`Beverage Corporation is also party to an exclusive Rockstar distribution agreement under which
`
`Admiral Beverage Corporation and each of its subsidiaries and shareholders (the Plaintiffs in this
`
`action) sell and distribute Rockstar Energy drink products in their exclusive geographic
`
`territories, as set forth below.
`
`18.
`
`Plaintiff Wyoming Beverages, Inc. is a Wyoming corporation with its principal
`
`place of business in Cheyenne, Wyoming. Wyoming Beverages is a member and shareholder of
`
`Admiral Beverage Corporation. Pursuant to a series of perpetual Exclusive Bottling
`
`Appointments and Exclusive Distribution Agreements with PepsiCo, Wyoming Beverages is a
`
`licensed Pepsi-Cola bottler operating in exclusive territories in parts of Wyoming.
`
`19.
`
`Plaintiff Blue Rock Products Co. is a Montana corporation with its principal place
`
`of business in Sidney, Montana. Blue Rock is a member and shareholder of Admiral Beverage
`
`Corporation. Pursuant to a series of perpetual Exclusive Bottling Appointments and Exclusive
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 7 of 27
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`Distribution Agreements with PepsiCo, Blue Rock is a licensed Pepsi-Cola bottler operating in
`
`exclusive territories in parts of Montana.
`
`20.
`
`Plaintiff Fremont Beverages, Inc. is a Wyoming corporation with its principal
`
`place of business in Worland, Wyoming. Fremont Beverages is a member and shareholder of
`
`Admiral Beverage Corporation. Pursuant to a series of perpetual Exclusive Bottling
`
`Appointments and Exclusive Distribution Agreements with PepsiCo, Fremont Beverages is a
`
`licensed Pepsi-Cola bottler operating in exclusive territories in parts of Wyoming.
`
`21.
`
`Plaintiff General Beverages, Inc. is a Wyoming corporation with its principal
`
`place of business in Worland, Wyoming. General Beverages is a member and shareholder of
`
`Admiral Beverage Corporation. Pursuant to a series perpetual Exclusive Bottling Appointments
`
`and Exclusive Distribution Agreements with PepsiCo, General Beverages is a licensed Pepsi-
`
`Cola bottler operating in exclusive territories in parts of Wyoming.
`
`22.
`
`Plaintiff Harrington Bottling Company is a Montana corporation with its principal
`
`place of business in Butte, Montana. Harrington Bottling is a member and shareholder of
`
`Admiral Beverage Corporation. Pursuant to a series of perpetual Exclusive Bottling
`
`Appointments and Exclusive Distribution Agreements with PepsiCo, Harrington Bottling is a
`
`licensed Pepsi-Cola bottler operating in exclusive territories in parts of Montana.
`
`23.
`
`Plaintiff Mike D. Dimich Sons, Inc. is a Montana corporation with its principal
`
`place of business in Billings, Montana. Mike D. Dimich Sons is a member and shareholder of
`
`Admiral Beverage Corporation. Pursuant to a series of perpetual Exclusive Bottling
`
`Appointments and Exclusive Distribution Agreements with PepsiCo, Mike D. Dimich Sons is a
`
`licensed Pepsi-Cola bottler operating in exclusive territories in parts of Montana.
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 8 of 27
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`24.
`
`Plaintiff Missoula Bottling Company, Inc. is a Montana corporation with its
`
`principal place of business in Missoula, Montana. Missoula Bottling is a member and
`
`shareholder of Admiral Beverage Corporation. Pursuant to a series of perpetual Exclusive
`
`Bottling Appointments and Exclusive Distribution Agreements with PepsiCo, Missoula Bottling
`
`is a licensed Pepsi-Cola bottler operating in exclusive territories in parts of Montana.
`
`25.
`
`Plaintiff Park Bottling Company is a Montana corporation with its principal place
`
`of business in Kalispell, Montana. Park Bottling Company is a member and shareholder of
`
`Admiral Beverage Corporation. Pursuant to a series of perpetual Exclusive Bottling
`
`Appointments and Exclusive Distribution Agreements with PepsiCo, Park Bottling Company is a
`
`licensed Pepsi-Cola bottler operating in exclusive territories in parts of Montana.
`
`26.
`
`Plaintiff Western Wyoming Beverages, Inc. is a Wyoming corporation with its
`
`principal place of business in Rock Springs, Wyoming. Western Wyoming Beverages is a
`
`member and shareholder of Admiral Beverage Corporation. Pursuant to one or more perpetual
`
`Exclusive Bottling Appointments and Exclusive Distribution Agreements with PepsiCo, Western
`
`Wyoming Beverages is a licensed PepsiCo bottler operating in exclusive territories in parts of
`
`Wyoming.
`
`27.
`
`Plaintiff Larsen Beverage Co., Inc. is a Utah corporation with its principal place
`
`of business in Ogden, Utah. Larsen Beverage is a subsidiary of Admiral Beverage Corporation.
`
`Pursuant to a perpetual Exclusive Bottling Appointments and Exclusive Distribution Agreements
`
`with PepsiCo, Larsen Beverage is a licensed Pepsi-Cola bottler operating in exclusive territories
`
`in parts of Utah.
`
`28.
`
`Plaintiff Old Faithful Beverage Company of Idaho Falls, Inc. (“Old Faithful”) is
`
`an Idaho corporation with its principal place of business in Idaho Falls, Idaho. Old Faithful is a
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 9 of 27
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`subsidiary of Admiral Beverage Corporation. Pursuant to a series of perpetual Exclusive Bottling
`
`Appointments and Exclusive Distribution Agreements with PepsiCo, Old Faithful is a licensed
`
`Pepsi-Cola bottler operating in exclusive territories in parts of Idaho.
`
`29.
`
`Plaintiff Birrell Bottling Company, Inc. is a Utah Corporation with its principal
`
`place of business in Springville, Utah. Birrell Bottling is a subsidiary of Admiral Beverage
`
`Corporation. Pursuant to a series of perpetual Exclusive Bottling Appointments and Exclusive
`
`Distribution Agreements with PepsiCo, Birrell Bottling is a licensed Pepsi-Cola bottler operating
`
`in exclusive territories in parts of Utah.
`
`30.
`
`Defendant PepsiCo, Inc. is a North Carolina corporation with its principal place of
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`business at 700 Anderson Hill Road, Purchase, New York.
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`JURISDICTION AND VENUE
`
`31.
`
`This Court has subject matter jurisdiction over this action under 28 U.S.C. § 1332
`
`because there is diversity of citizenship between all parties and the amount in controversy,
`
`exclusive of interest and costs, exceeds the sum of seventy-five thousand dollars, as Admiral
`
`Beverage’s damages arising from PepsiCo’s harmful actions in this action amount to millions of
`
`dollars.
`
`32.
`
`This Court has personal jurisdiction over PepsiCo because of its continuous and
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`systematic contacts with the State of Wyoming, including substantial and regular business
`
`operations in general and specific to this case throughout the District.
`
`33.
`
`Venue is proper under 28 U.S.C. § 1391(b)(2) because a substantial part of the
`
`events or omissions giving rise to Admiral Beverage’s claims occurred—and will continue to
`
`occur—in this District.
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 10 of 27
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`I.
`
`THE SOFT DRINK INDUSTRY
`
`GENERAL ALLEGATIONS
`
`A.
`
`34.
`
`PepsiCo and Licensed Pepsi-Cola Bottlers
`
`Carbonated soft drinks are a subset of liquid refreshment beverages which consist
`
`primarily of carbonated water, sweetener, a flavor base called “concentrate,” and other
`
`ingredients.
`
`35.
`
`The historic and continuing business purpose of PepsiCo is primarily as a
`
`concentrate producer.
`
`36.
`
`PepsiCo manufactures, markets, and sells beverage concentrates under various
`
`Brands including, Pepsi-Cola, Diet Pepsi, Mountain Dew, Diet Mountain Dew, Gatorade, Sierra
`
`Mist, Lipton Tea, Lifewtr, and Bubly.
`
`37.
`
`PepsiCo sells its branded concentrates to authorized and independent Pepsi-Cola
`
`bottlers operating under a series of Exclusive Bottling Appointments, and the bottlers in turn
`
`manufacture, sell, and distribute finished can and bottle Brands directly to retailers located in
`
`their exclusive territories.
`
`38.
`
`In addition to manufacturing and selling its branded concentrates, PepsiCo also
`
`markets and sells a variety of finished soft drink products, such as ready-to-drink Gatorade,
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`Starbucks Frappuccino coffee drinks, Aquafina and Rockstar Energy drink products.
`
`39.
`
`PepsiCo sells its finished soft drink products to authorized and independent Pepsi-
`
`Cola bottlers under a series of Exclusive Distribution Agreements, and the bottlers in turn sell the
`
`finished goods directly to retailers in their exclusive territories.
`
`B.
`
`40.
`
`The Grant of Exclusivity in the EBAs
`
`In the early days of the industry, the concentrate producers like PepsiCo lacked
`
`both the financial capacity and resources to establish and maintain vertically integrated bottling
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 11 of 27
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`production and distribution networks. The bottling and canning process was capital intensive and
`
`involved high-speed production lines.
`
`41.
`
`This process was further cost prohibitive because of the significant expense
`
`associated with delivering the finished carbonated soft drink products.
`
`42.
`
`Because of the substantial capital investment required to manufacture, sell, and
`
`distribute its Brands, PepsiCo included an exclusivity provision in their EBAs in order to
`
`persuade Pepsi-Cola bottlers to make enormous investments to make, sell and distribute finished
`
`soft drink products from concentrate.
`
`43.
`
`The grant of exclusivity, in turn, encouraged bottlers to invest and develop their
`
`territories to the fullest.
`
`44.
`
`The EBAs are perpetual license agreements that authorize bottlers to serve as the
`
`exclusive manufacturer, distributor, and seller of PepsiCo Brands within an exclusive geographic
`
`territory.
`
`45.
`
`The EBAs also give bottlers sole discretion to set the prices charged for the
`
`Brands sold in their exclusive territories.
`
`C.
`
`46.
`
`PepsiCo’s Promise to Protect the Bottlers’ Exclusivity Rights
`
`The exclusivity provision in the EBAs is the lifeblood of the Pepsi-Cola bottlers.
`
`47. Without PepsiCo’s full commitment to protecting the promise of exclusivity it
`
`granted to the Pepsi-Cola bottlers in the EBAs, the millions of dollars invested by the bottlers to
`
`manufacture soft drink products from concentrates and to meet and grow demand for the Brands
`
`in their exclusive territories would be meaningless.
`
`48.
`
`As a consequence, PepsiCo has affirmed its obligation to protect the bottlers’
`
`exclusivity rights on countless occasions over the years in both written correspondence and in
`
`sworn testimony.
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 12 of 27
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`49.
`
`For instance, as the Tenth Circuit explained in Pittsburg, “PepsiCo has
`
`historically viewed . . . its grants of exclusive territories to its independent bottlers, as the core of
`
`its overall business structure” and, in addition, that the promise of territorial exclusivity was the
`
`only way to “persuade” independent businessmen to make the large capital investment and
`
`become a PepsiCo bottler. See Pepsi-Cola Bottling Co. of Pittsburg, Inc., 431 F.3d at 1249.
`
`50.
`
`In addition, the Pittsburg court cited the testimony of former PepsiCo President
`
`Walter S. Mack:
`
`[W]e had to give them confidence in the early days that we were going to win our
`trademark suits and that they were taking on a beverage which they would have the
`exclusive right to from then on for the rest of their lives . . . . [We told the bottlers]
`that the parent company would protect their franchise, the terms and conditions of
`the franchise, and do everything we could to protect both the trademark and the
`name and their territory for them on an exclusive basis.
`
`Id.
`
`51.
`
`Further, on March 19, 1980, PepsiCo's then Vice-President for corporate affairs,
`
`Cartha D. DeLoach, testified before the House of Representatives and discussed the need for
`
`legislation to protect PepsiCo’s right to issue EBAs to its bottlers:
`
`We totally support our bottlers in their efforts to preserve the Exclusive
`Territories we granted them because we are deeply grateful for their past and
`continuing commitment to their parent company and because we need such
`fiercely competitive partners in our future.
`
`Id. at 1250.
`
`52.
`
`In addition, as noted in Pittsburg, the EBAs and the grant of exclusive territorial
`
`rights were given to the Pepsi-Cola bottlers “for the rest of their lives or in perpetuity.” See id.
`
`53.
`
`Based on PepsiCo’s explanation of the purpose of the EBAs and PepsiCo’s own
`
`interpretation of the exclusivity provision, the court in Pittsburg ultimately concluded that “the
`
`EBAs require[] PepsiCo to protect” the bottlers’ exclusive territories. Id. at 1260.
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 13 of 27
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`54.
`
`The court further held that the EBAs require PepsiCo “to protect the exclusive
`
`rights granted” to the Pepsi-Cola bottlers; that PepsiCo is obligated under the EBAs to “protect”
`
`the bottlers’ “right to territorial exclusivity”; and that PepsiCo is required “to refrain from
`
`conduct that creates an unreasonable risk” of harm to the Pepsi-Cola bottlers’ exclusive
`territories. Id. at 1259.
`
`II.
`
`ADMIRAL BEVERAGE
`
`55.
`
`Admiral Beverage and its subsidiaries and shareholders (Plaintiffs here) have
`
`been among PepsiCo’s preeminent Pepsi-Cola bottlers for 70 years.
`
`56.
`
`The first affiliate company was founded in 1947 in Worland, Wyoming. Since
`
`that time, Admiral Beverage and its subsidiaries and shareholders have become one of the largest
`
`and most successful Pepsi-Cola bottling operations in the United States.
`
`57.
`
`The entire Admiral Beverage organization currently employs over 2,000
`
`employees, sells and distributes approximately 65 different brands of liquid refreshment
`
`beverages in bottles and cans, and operates in excess of 35 facilities across the Rocky Mountain
`
`region.
`
`A.
`
`58.
`
`Admiral Beverage’s EBAs for PepsiCo’s Core Soft Drink Products
`
`Over the past 70 years, and with a few minor exceptions related to conflicting
`
`brands in Admiral Beverage’s portfolio, Admiral Beverage and PepsiCo have established a
`
`course of dealing whereby Admiral Beverage has received an EBA from PepsiCo for every
`
`single new bottled or canned Brand product that comes to market.
`
`59.
`
`Admiral Beverage has invested in plant infrastructure and its workforce in part in
`
`reliance on this course of dealing. Admiral Beverage has, at substantial cost, intentionally
`
`remained nimble in its bottling production, marketing, and distribution capabilities based on the
`
`
`
`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 14 of 27
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`expectation that it will receive EBAs for new Brands and will have to adapt its operations to be
`
`able to accept it.
`
`60.
`
`Owning EBAs for all or nearly all Brand bottled and canned beverage products is
`
`a competitive advantage for Admiral Beverage. Facing fierce competition from Coca-Cola and
`
`other beverage manufacturers in its exclusive territories, the ability to supply a full range
`
`PepsiCo branded beverage products allows Admiral Beverage to effectively compete for limited
`
`convenience store and other retail shelf space.
`
`61.
`
`The EBAs appoint Admiral Beverage as the exclusive bottlers and distributors of
`
`PepsiCo branded beverage products in Admiral Beverage’s territories. The fundamental
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`requirement of the EBAs is that PepsiCo must sell, and Admiral Beverage must buy, Admiral
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`Beverage’s requirements for concentrates and finished goods as necessary for Admiral Beverage
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`to meet the growing demand for the Brands in its exclusive territories.
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`62. Within certain broad parameters, the EBAs further give Admiral Beverage
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`exclusive control over the price and manner of its sales of the Brands in its territories. The
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`structure of the EBAs, including its perpetual term, makes Admiral Beverage the owner of its
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`territories for purposes of bottling and sales of the Brands.
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`B.
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`63.
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`Admiral Beverage’s EBA for Rockstar Energy Drinks
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`Another key component of Admiral Beverage’s business is the sale and
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`distribution of Rockstar-brand energy drinks pursuant to its Rockstar EBAs.
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`64.
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`Admiral Beverage acquired distribution rights to Rockstar Energy drinks in 1997.
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`For the last 23 years, Admiral Beverage has grown the Rockstar brand in its exclusive territories
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`to the point that it is, or is close to, the top market for Rockstar in the United States.
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`
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`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 15 of 27
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`65.
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`Admiral Beverage has created social media sites and organized community events
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`promoting Rockstar. As a result of its efforts and promotional activities, Admiral Beverage has
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`become the face of the Rockstar brand in its exclusive territories.
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`66.
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`Distributing Rockstar Energy drinks together with the core soft drink Brands and
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`other products in its portfolio gives Admiral Beverage a point of distinction to the retailers
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`located in its exclusive territories.
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`67.
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`The loss of Rockstar distribution rights would make Admiral Beverage less
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`competitive in the market with respect to the core soft drink products it distributes under its
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`EBAs.
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`III.
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`PEPSICO’S EFFORTS TO CONTROL THE ROUTE TO MARKET IN
`VIOLATION OF THE EBAS
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`68.
`
`In the 1980s and 1990s, PepsiCo’s principal competitor, the Coca-Cola Company
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`(“Coca-Cola”), became much more aggressive in the marketplace. Coca-Cola rapidly
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`consolidated its bottler network into a small number of large independent bottlers (“anchor
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`bottlers”), thus allowing it to better negotiate with large customers and national retail chains.
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`69.
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`Using this strategy, Coca-Cola obtained a huge share of the carbonated soft drink
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`market for bottle and can products and significantly widened its lead over PepsiCo in the
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`marketplace.
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`70.
`
`Determined to recapture market share from Coca-Cola, PepsiCo’s then chief-
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`strategist (and now former chief executive officer), Indra Nooyi, presented a plan to PepsiCo’s
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`board of directors advocating for PepsiCo to mimic Coca-Cola by consolidating its bottlers into
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`an “anchor bottler system.” Through this approach, PepsiCo would acquire and consolidate many
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`of its small bottlers into large “anchor” bottlers controlled directly by PepsiCo.
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`
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`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 16 of 27
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`71.
`
` In April 1998, senior PepsiCo officials developed a plan dubbed “Project
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`Bronco,” which established the “guiding principal” that PepsiCo would aggressively pursue
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`consolidation of its U.S. bottling network.
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`72.
`
`Notwithstanding the Pepsi-Cola’s bottlers’ large capital investments and
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`PepsiCo’s decades-long assurances that bottlers have perpetual and exclusive territorial rights,
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`ever since implementing “Project Bronco,” PepsiCo has steadfastly pursued a heavy handed and
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`harmful bottler consolidation strategy.
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`73.
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`To achieve its vision, PepsiCo began to buy out dysfunctional bottlers by
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`applying funding pressure rather than paying a fair-market premium to repurchase the bottlers’
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`lucrative exclusivity rights.
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`74.
`
`For those disinterested in selling their franchise rights, PepsiCo’s long-term
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`strategy necessarily sought to drive them out of business and pressure them to forfeit the same
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`major capital investments that made the PepsiCo Brands both a household name and a multi-
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`billion dollar enterprise.
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`75.
`
`By 2009, PepsiCo had acquired a number of small bottlers and all of the
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`outstanding shares of the two largest Pepsi-Cola bottlers in the United States—Pepsi Bottling
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`Group, Inc. and Pepsi Americas, Inc.
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`76.
`
`In an August 2009 press release lauding the acquisitions, PepsiCo “cited a number
`
`of specific benefits it expects to realize by consolidating its two largest bottlers”:
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`a. “Consolidation of 80 percent of the North American beverage volume will speed
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`the decision-making process and eliminate friction points.”
`
`
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`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 17 of 27
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`b. “Offering more compelling bundles across food and beverage and providing
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`enhanced customer service nationally, [will take] the “Power of One” to the next
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`level.
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`c. “Consolidation of manufacturing networks will provide cost benefits and also
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`optimize our investments in growth and innovation.”
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`d. “Greater flexibility in deploying multiple go-to-market systems to tailor
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`distribution by channel.”
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`e. “Elimination of redundant costs to leverage scale efficiencies.”
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`77.
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`However, PepsiCo’s consolidation strategy threatens the interests of independent
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`Pepsi-Cola bottlers like Admiral Beverage and jeopardizes their rights under the EBAs: the large
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`captive PepsiCo bottlers surround the independent bottlers’ territories and they sell the Brands at
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`artificially lower prices, undermining the independent bottlers’ private capital investments and
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`the goodwill and enterprise value they earned through generations of hard work.
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`78.
`
`Despite pursuing its consolidation strategy since the 1990s, in recent years,
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`PepsiCo continues to lose handedly to Coca-Cola in their longstanding competition for market
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`share in the carbonated soft drink space.
`
`79.
`
`For instance, in 2018, PepsiCo’s revenue from beverage sales in Norther America
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`fell $5.19 billion while Coca-Cola’s leading 17.8% of market share for its flagship cola product
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`remained unchanged.
`
`80.
`
`Following years of underperformance in the marketplace relative to Coca-Cola,
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`PepsiCo has pursued an extremely aggressive approach against those hold-out bottlers like
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`Admiral Beverage that have refused to cede their perpetual and exclusive territorial rights to
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`PepsiCo.
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`
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`Case 2:20-cv-00122-ABJ Document 1 Filed 07/06/20 Page 18 of 27
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`81.
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`But rather than deal with Admiral Beverage and other Pepsi-Cola as faithful
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`business partners, PepsiCo has instead implemented a coordinated strategy to eliminate their
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`exclusivity rights under the EBAs through a variety of unfair and coercive business tactics
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`designed to weaken their businesses and encroach upon their territories.
`
`82.
`
`These tactics including withholding EBAs, resour