Quash Seltzer, LLC v. PepsiCo, Inc.

QUASH SELTZER, LLC, Plaintiff, v. PEPSICO, INC., Defendant.

CASE NO. 21-CV-60191-RAR

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

May 17, 2021

ORDER GRANTING MOTION TO STAY

THIS CAUSE comes before the Court upon Defendant PepsiCo, Inc.'s Motion to Stay [ECF Nos. 12 and 17-1] ("Motion"), which seeks a stay of this action pending the outcome of an arbitration between Defendant and a company closely related to Plaintiff. Having reviewed the Motion, Plaintiff's Response [ECF Nos. 27, 29], Defendant's Reply [ECF Nos. 32, 33], the record, applicable law, and being otherwise fully advised, it is hereby

ORDERED AND ADJUDGED that Defendant's Motion is GRANTED as set forth herein.

BACKGROUND

At issue in this case is who owns the rights to distribute an alcoholic beverage named MIXX™ Hard Seltzer ("MIXX"). While Quash Seltzer, LLC ("Quash") is the named Plaintiff, this suit is but the latest chapter in a multifaceted dispute between PepsiCo, Inc. ("Pepsi") and Vital Pharmaceuticals ("VPX")—a company closely related to Plaintiff. See generally Vital Pharm. v. PepsiCo, Inc., No. 20-62415, 2021 WL 1022839, at *1-2 (S.D. Fla. Mar. 16, 2021) ("VPX Litigation") (describing the Pepsi-VPX feud in detail). Because the instant Motion asks the Court to stay this case pending a proceeding in that dispute, the Court must take a comprehensive look at the status of the parties' overall legal battle.

i. The Parties and Their Legal Relationships

In March 2020, well-known beverage conglomerate Pepsi entered into a distribution agreement with beverage manufacturer VPX whereby Pepsi agreed to become the exclusive distributor for certain VPX products. See First Am. Compl. [ECF No. 9] ¶ 3; Mot., Ex. A [ECF No. 17-2] ("Distribution Agreement" or "Agreement") § 1.1. As relevant here, the VPX products to be distributed by Pepsi include beverages packaged under the "Bang" trademark. Distribution Agreement at 5, 29. The scope of which products fall under "'Bang' trademarked beverages" lies at the center of this case.

Plaintiff Quash was chartered in August 2020 as part of plans for the marketing and sale of MIXX, which is the first beverage line that Quash has ever produced for distribution. Resp., Ex. A ("Bukovi Decl.") ¶ 5. Quash shares common ownership, executives, counsel, and administrative and operational personnel with VPX. Id. ¶ 6; First Am. Compl. ¶¶ 3, 16. According to Quash, it manufactures alcohol-based products, whereas VPX manufactures non-alcohol performance beverages and sports nutrition products, and the two companies have at all times observed all corporate formalities necessary to maintain separate and distinct existences. Bukovi Decl. ¶ 6. Quash is not a party to the Distribution Agreement nor any other agreement with Pepsi. Id. ¶ 8.

Quash does not dispute (nor could it, based on a simple glance at a MIXX can) that MIXX is packaged under the "Bang" trademark. Therefore, Pepsi believes that it possesses the rights to MIXX under the Distribution Agreement. See Mot. at 4. But Quash argues that the Distribution Agreement was not intended to encompass alcoholic beverages, and therefore Quash has the rightto manufacture and distribute MIXX free and clear of any of Pepsi's rights under the Distribution Agreement.

ii. The Pepsi-VPX Dispute

The last time Pepsi and VPX appear to have agreed on anything was when they signed the Distribution Agreement in March 2020. Soon after, VPX became dissatisfied with Pepsi's distribution performance and elected to terminate the contract without cause on October 23, 2020. First Am. Compl. ¶¶ 4-5. Pepsi then initiated arbitration proceedings before the American Arbitration Association ("AAA") against VPX on November 23, 2020, under the Distribution Agreement's binding arbitration clause. See generally PepsiCo, Inc. v. Vital Pharmaceuticals, Inc., American Arbitration Association No. 01-20-0015-8060; see also Mot. for Confirmation of Arb. Award, Ex. A at 2, VPX Litigation [ECF No. 14-1] ("Interim Arbitration Order"). While VPX took the position that the Distribution Agreement was terminated upon giving notice of termination, Pepsi countered that the Agreement's provisions mandated that it remain in full force and effect for three years after giving notice. Interim Arb. Order at 2, 12-14. Pepsi therefore sought emergency interim relief from the AAA, seeking to maintain the status quo pending arbitration and to remain the exclusive distributor of Bang-branded products until the Distribution Agreement is terminated. Id. at 2.

On November 25, 2020, after Pepsi filed its AAA arbitration demand and sought emergency relief, VPX filed suit in this Court—indeed, before the undersigned—arguing that Pepsi breached the Distribution Agreement and tortiously interfered with VPX's business relationships by holding itself out as the exclusive distributor of the products delineated in the Distribution Agreement. See generally Compl., VPX Litigation [ECF No. 1]. VPX sought to enjoin Pepsi from claiming to be the exclusive distributor of Bang-branded products.

On December 7, 2020, the Emergency Arbitrator issued the Interim Arbitration Order, finding that based on the unambiguous terms of the Distribution Agreement, Pepsi is "likely entitled to the relief that it seeks in this Arbitration, namely, a declaration that [Pepsi] remains [VPX's] exclusive distributor pursuant to the [Agreement] through October 24, 2023." Interim Arb. Order at 9. To maintain the status quo pending arbitration of the parties' dispute, the Emergency Arbitrator ordered VPX to abide by the terms of the Distribution Agreement and cease efforts to sell to customers for whom Pepsi has exclusive distribution rights. Id. at 21.

After this Court confirmed the Interim Arbitration Order, Vital Pharm. v. PepsiCo, Inc., No. 20-62415, 2020 WL 7625226, at *4-5 (S.D. Fla. Dec. 21, 2020), the Court granted Pepsi's Motion to Dismiss VPX's Complaint in the VPX Litigation, 2021 WL 1022839, at *3-6. The Court held that VPX was collaterally estopped from challenging the Emergency Arbitrator's construction of the Distribution Agreement or the appropriate status quo to be enforced pending arbitration. Id.

The arbitration proceedings between Pepsi and VPX have now been underway for some time. On February 8, 2021 (two weeks after this lawsuit was filed), Pepsi filed an amended arbitration demand that sought to bring the central issue in this case—whether Quash may introduce MIXX to the market—within the arbitration panel's review. See Decl. of Suria M. Bahadue [ECF No. 17-2], Ex. B ("Amended Arbitration Demand"). Specifically, Pepsi alleges in the Amended Arbitration Demand that VPX is violating its rights under the Distribution Agreement by "developing plans to launch a Bang-branded hard seltzer, Bang Mixx Hard Seltzer," which "bears the Bang-branded trademark." Id. ¶ 60. Pepsi seeks a declaration that it "remain the exclusive distributor of Bang-branded products, including any new Bang-branded products introduced by VPX, until October 24, 2023." Id.

In addition, on February 12, 2021, Pepsi filed a motion for sanctions against VPX for alleged violations of the Distribution Agreement, Interim Arbitration Order, and Confirmation Order—including VPX's purportedly wrongful distribution of MIXX. See generally Decl. of Suria M. Bahadue [ECF No. 17-2], Ex. C ("Sanctions Mot."). The Sanctions Motion alleges that VPX has signed agreements with distributors other than Pepsi to distribute MIXX, and also presents evidence that (i) MIXX displays the Bang trademark on cans and packaging; (ii) the product is widely touted as Bang on VPX's social media platforms; (iii) MIXX looks nearly identical to other Bang-branded products; and (iv) VPX's CEO has announced on Instagram that MIXX is a Bang product. Id. at 8-12, 15-17.

A preliminary hearing was held in the arbitration proceedings on March 23, 2021, where the arbitration panel, after analyzing the parties' written proposals, "discussed with the Parties what claims and issues will be addressed during the Phase 1 and the Phase 2 hearings." Def.'s Notice of Supp. Auth. [ECF No. 35-1] at 1. The following day, the panel issued a procedural order, confirming that "[t]he Phase 1 hearing will result in a final partial award addressing . . . [w]hether the Bang Mixx hard seltzer product is a Licensed Product under the Distribution Agreement." Id. at 2.

iii. The Present Lawsuit

On January 26, 2021, Quash initiated this lawsuit, which alleges that Pepsi, intending to harm Quash, "and in an effort to gain leverage in the pending legal disputes between PepsiCo and VPX regarding the BANG® energy drinks, [] has threatened Quash's prospective distribution partners into not doing business with or even exploring a relationship with Quash relating to distribution of MIXX." First Am. Compl. ¶ 7. Quash claims that Pepsi has been "wrongly advising Quash's prospective distribution partners that PepsiCo has the exclusive right to distributethe MIXX hard seltzer line of alcohol products, despite the fact that, among other things, it does not have any right to distribute those products." Id.

As mentioned above, Quash insists that the Distribution Agreement between Pepsi and VPX "does not cover, and was never intended to cover, the distribution of alcoholic or other intoxicating beverages." Id. ¶ 20. As evidence of this, Quash points to: (i) the fact that Pepsi does not distribute any alcoholic, intoxicating, or similarly-regulated beverages and is not licensed to do so in any jurisdiction; (ii) neither Quash nor MIXX existed at the time the Distribution Agreement was signed; and (iii) nearly seven months after the Distribution Agreement was signed, at which time Quash had been formed and the MIXX hard seltzer line had started development, Pepsi publicly stated it lacked a "partner" in the alcohol market. Id. ¶¶ 20-22.

Quash brings a claim for tortious interference with prospective business relationships and a claim for a declaratory judgment that...