Is the Southern-Glazers Wine Distributors Lawsuit Really A Surprise?
In a way, it’s shocking that a lawsuit and claims like this haven’t been filed before, given just Southern/Glazer’s target size. On the other hand, the claims of “unfair, unlawful, deceptive, and fraudulent business practices”, meticulously laid out in this class action suit against Southern/Glazers are shocking. Hell, if a quarter of them are borne out, it would be a shocking example of hubris, fraud, and corruption by the largest and most powerful entity in the American wine and spirits marketplace.
Anyone who has been in the wine industry long enough has heard complaints about many of the types of charges listed below. Some of the most lurid complaints about wholesalers I’ve personally been told over the years are nearly identical to this charge listed in the lawsuit: “Threatening to cut off supplies to customers who do not buy a sufficient quantity of liquor, or liquor of select varieties.” Among the most common charges that nearly everyone in the business has heard of, particularly if you work with restaurateurs or retailers, is this one—also taken from the lawsuit filed Wednesday against Southern/Glazers in the District Court of Northern California: “Threatening to cut off supplies to customers who do not buy a sufficient quantity of liquor, or liquor of select varieties.
And these aren’t even close to the most astounding of charges in the lawsuit.
Someone called me yesterday and asked if I’d read the lawsuit. I told them I had. They asked if I thought there was any validity to the charges laid out in the suit and what would be the consequences if they were proven true. Here’s what I can say about all that. I have no idea or insight into whether the charges laid out in this particular lawsuit against Southern/Glazers is true. How could I? I don’t know the main plaintiff. Can I imagine they are true given what I’ve seen and been told over the years? Well, the strength of my imagination is only as great as the depth of my knowledge and experience. My knowledge and experience of what big wholesalers are capable of is pretty extensive. Finally, if half of what is alleged in the complaint is true, someone’s gonna pay up LOTS. Additionally, we’ll find out exactly what million in campaign contributions over the years buys you.
Below are the actual allegations against Southern/Glazers as laid out in the lawsuit filing. I’ve made some formatting changes to make it easier to read. Where “Representative Plaintiff” or “Class Members” is noted, it is a reference to those who are bringing the complaint against Southern/Glazers.
Adding so-called authorized purchasers on Representative Plaintiff’s and class members’ Direct Warehouse Sales Authorization to Purchase Forms, without their knowledge or consent
Leading Representative Plaintiff and members of both classes to misreport their tax obligations to state and/or federal taxing authorities>
Compelling Representative Plaintiff and members of both classes to re-state their tax obligations for prior tax cycles to state and/or federal taxing authorities, and to incur time and expense in retaining legal and financial professionals therefor.
Selling liquor to bars/restaurants/clubs that do not possess liquor licenses using Representative Plaintiff’s and class members’ liquor license numbers and/or their Southern account numbers.
Singling out customers who pay C.O.D. and/or are known to maintain poor accounting practices (e.g., for “ghost shipping” practices).
Selling liquor to third-parties on Representative Plaintiff’s and class members’ accounts at lower prices than to legitimate/licensed purchasers.
Selling liquor to different parties at different prices, in violation of federal alcohol regulations and state and/or federal law.
Permitting its officers, managers, agents and/or other employees to purchase liquor on Representative Plaintiff’s and class members’ licenses/accounts, using cash and/or charging class members for the liquor, then storing (i.e., not delivering it) in order to meet quotas (and in violation of 4 CCR §76).
Permitting its officers, managers, agents and/or other employees to give away liquor, by pricing such at $.01.
Permitting its officers, managers, agents and/or other employees to give away liquor by printing sample labels for full regular-sized bottles.
Permitting its officers, managers, agents and/or other employees to purchase liquor using class members’ liquor license numbers and/or their Southern account numbers, temporarily store the liquor (in violation of 4 CCR §76), then returning the liquor later, in order to meet quotas, oftentimes without refunding the money.
Using so-called “A Forms” (which lack bar codes and invoice numbers and are, thus, nearly impossible to locate) to facilitate liquor transactions, in violation of 4 CCR §17.
Not providing annual invoices, unless requested, in order to conceal the practices cited herein
Permitting its officers, managers, agents and/or other employees to purchase liquor “off-invoice”.
Permitting its officers, managers, agents and/or other employees to sell “off-invoice” liquor to retailers without licenses, or to retailers who will then resell the liquor to other retailers, in violation of state and/or federal law.
Permitting its officers, managers, agents and/or other employees to sell “off-invoice” liquor to private individuals, in violation of state and/or federal law.
Threatening to cut off supplies to customers who do not buy a sufficient quantity of liquor, or liquor of select varieties.
Refusing to sell products to class members without them purchasing “tie-ins” (other types of liquor than those the customer wishes to purchase).
Giving kickbacks, free samples and other unlawful incentives to restaurants/retailers, in order to keep them from reporting the violations specified above.
Working and/or conspiring with third-parties to allow for the unfair/unlawful practices above and below.
Ignoring complaints from sales representatives and/or retailers about the unfair and unlawful business practices detailed herein.
I’ve always believed it impossible for state mandated middlemen to avoid corruption. The unjustified power and monopoly granted to wholesalers where their use is mandated would always be defended to the end by any means necessary. And I’ve believed that such a lucrative position would always lead not just to corruption, but also to crime. We’ll see.
It is my understanding that when prohibition ended and control went to the states, the states for the most part just used the people who were already running the black market to create the distributors, which is why the system is so corrupt and fits at least to me the definition of legalized racketeering. There is old money and control there and they will fight and do whatever they can to keep it, which is getting harder and harder for them to justify as we move forward into the 21st century and the continuing decline of brick and mortar retailing.
Jacob,
It’s legalized something. But whatever that something is, it’s not normal.
will be interesting to see how this progresses. my experience is that in the interest of earning bonuses and keeping or advancing ones career that lots of lines can be crossed. the question to be asked is whether there is complicity at higher levels and/or policies arranged to permit such violations. if it’s cultural, then its problematic. if it’s individuals acting alone, then that will usually be dealt with publicly, quickly and efficiently.
I must say, this sounds like a shakedown to me. I know of Tom Wark’s antipathy to the three tier system, and we have debated this before. I worked at Southern in Northern California for three years in the late 90’s. A lot has changed I am sure since then, including the merger with Glazer’s. It is a sales company and the big dog. Why would they sell unlicensed accounts it makes no sense. They are too exposed to an ABC audit, which I am sure they get on a regular basis. Samples for a penny come on. Free goods from the wineries and the distilerries might happen, and I am sure there is great pressure for the salespeople to perform, and they don’t want to lose a brand to Young’s? who have been able to find their toosh for 30 years. Sales people naturally favor their good customers and who paid their bills and brought in the “line” I did that before when I had a brokerage I started in the 70’s. I bet Southern are gonna crush these guys