Seismic Takes Antitrust Case Against DBI, Reyes to Federal Court, Alleges Attempt to Maintain California Beer Distribution Monopoly

After a state court largely rejected its claims earlier this year, Seismic Brewing Company has now filed a federal antitrust lawsuit against DBI Beverage, Reyes Holdings and Reyes subsidiary Harbor Distributing, alleging the beer distributor attempted to maintain a monopoly of California’s beer distribution market.

Seismic filed the case Tuesday in the U.S. District Court for the Northern District of California — one day after Reyes announced plans to acquire Columbia Distributing’s distribution business in Sonoma and Marin counties in Northern California.

A spokesperson for the Reyes Beer Division said the company will “vigorously defend” itself “against these baseless allegations.”

“After Seismic’s claims were rejected and dismissed with prejudice by a California state court, Seismic has repackaged the same inaccurate allegations and filed a complaint in federal court,” the spokesperson said in a statement. “While disappointing to see these tactics, we will again vigorously defend ourselves against these baseless allegations. As has always been the case, any business decisions or actions taken on behalf of our business are in full compliance with federal and state laws, with oversight provided by the appropriate regulatory authorities.”

Representatives from Seismic did not return requests for comment as of press time.

In February, a San Francisco Superior Court Judge primarily sided with DBI in its lawsuit with Seismic. DBI, which sold to Reyes in July 2019, and Seismic sued one another post sale. DBI tried to include Seismic’s distribution rights in the transaction, however, Seismic terminated its distribution deal, which led to DBI and Reyes attempting to recoup fair market value for the brand rights.

Seismic, which is being represented by BraunHagey & Borden – the firm that represented Stone Brewing Company in its $56 million trade infringement verdict against Molson Coors Beverage Company – accuses the defendants in the federal complaint of:

  • conspiracy to monopolize;
  • attempted monopolization and monopolization under Section 2 of the Sherman Act;
  • violating Section 7 of the Clayton Act;
  • and unfair business practices under California’s Business and Professional Code.

According to the complaint, after DBI’s sale to Reyes, Seismic learned that Reyes would no longer honor its existing agreements with DBI; Seismic’s agreement required the wholesaler to “use best efforts to develop and increase the sale of Seisimic’s beer.” In a proposed new agreement, Reyes said it “reserved the unqualified right to manage its business in all respects; provided, that Wholesaler agrees to exert commercially reasonable efforts to sell, promote, distribute and merchandise” Seismic’s products.

When Seismic decided to terminate its relationship with DBI, it appointed Markstein Beverage Co. as a successor. DBI requested Markstein to pay a 3X multiple of the gross profits on Seismic’s 2018 sales for the brewery’s rights.

“DBI thereafter delayed in transitioning Seismic’s beer to Markstein, which hurt Seismic’s sales in one or more of DBI’s exclusive distribution territories,” Seismic wrote.

Seismic alleges that Reyes, DBI, Harbor and co-conspirator Elyxir Distributing “entered into and engaged in continuing unlawful agreements for the purpose of further monopolizing the market for beer distribution in California, including but not limited to agreeing to retaliate against suppliers who refused to consent to the anticompetitive transfer of DBI and Elyxir’s market share to Reyes.” Reyes acquired Elyxir, which owned Seismic’s brand rights in the Monterey Bay area, in June 2020.

Seismic alleges that anticompetitive conduct by DBI and Reyes has “damaged competition and caused substantial injuries that the antitrust laws are intended to remedy.”

“As a result, Seismic has encountered massive bottlenecks, increased costs, and lost sales revenue trying to get its product to market in the territories formerly covered by DBI and co-conspirator Elyxir. Seismic has also incurred costs scrambling to replace the bespoke distribution agreements it had negotiated – often on less favorable terms than those it had negotiated at arm’s length prior to Reyes’ unlawful concentration of the market,” the complaint reads. “Moreover, this highly concentrated market no longer allows craft brewers to access a distributor, other than Reyes, that can offer a comparable scope to the territories DBI covered.”

As an example, Seismic points to the San Francisco market where it did not find a successor wholesaler “for months,” leading to “cratered” sales and the market becoming “Seismic’s worst-performing area.”

Seismic is demanding a jury trial, and that the court enter a judgment against Reyes and DBI that requires Reyes to divest of “unlawful acquisitions, including without limitation an order requiring Reyes to divest itself of DBI, Elyxir, and its other recent acquisitions which have unlawfully concentrated the beer distribution market.”

Seismic is also seeking injunctive relief, and an order that prevents the defendants from retaliating against Seismic, disparaging Seismic or disregarding the brewery’s contractual terms and conditions should Reyes acquire one of Seismic’s distributors in the future. Seismic has requested compensatory damages, treble damages, attorneys’ fees and interest.

Attorneys for Reyes and Harbor are expected to file to dismiss the case with prejudice in the coming months. A decision on that will likely come later this year.