Officials for Diageo have denied without comment claims set out in a lawsuit filed against it by the Puerto Rican liquor company that formerly produced Captain Morgan's rum. The lawsuit isn't about Diageo's decision to leave Puerto Rico and open a St. Croix distillery but the aftermath of that move, and indicates that feelings are still raw between the two companies.
Distilleria Serralles Inc. filed suit Wednesday in U.S. District Court in Puerto Rico claiming that Diageo reneged on key terms of a contract to purchase a million proof gallons of rum to ensure the supply of Captain Morgan's while the new distillery was getting up and running.
Diageo, the international liquor company that makes Captain Morgan's Spiced Rum and markets it and many other liquors worldwide, issued a statement Friday denying the claims in the Puerto Rican company's lawsuit without commenting on the specific charges.
DSI produced Captain Morgan's rum for 25 years under contract, but when Diageo purchased the label from Seagram's in 2001 the relationship began changing. In 2008 the company announced it was ending its association with DSI and would build a distillery on St. Croix. The new facility opened in November 2010.
The lawsuit claims Diageo entered into an agreement with DSI to purchase a million proof gallons of rum as a contingency in case the new distillery was unable to produce enough rum to meet demand. A key term of the agreement, according to the suit, was that Diageo would sell the rum in the United States only.
Rum sold in the U.S. is subject to the rum cover-over. DSI would receive $13.50 cents for every proof gallon of the rum sold in the U.S.
The suit states, "At no time did Diageo so much as hint that it might attempt to sell any of this additional rum outside the United States," and claims the Puerto Rico company gave Diageo a substantial discount on the belief that the cover-over funds would more than make up the difference.
That agreement was concluded Feb. 25, 2011.
The lawsuit says that Diageo had underestimated the amount of rum it would require in 2011 by 99,170 RPGs. DSI says it delivered that 99,170 gallons in 2011, thereby reducing to 900,830 proof gallons Diageo had contracted to buy.
Since that time, DSI claims, Diageo has not ordered the remaining rum to be delivered, and this February negotiated a compromise, in which it would get an even lower price for the rum. But the company still did not order delivery, DSI claims.
But from the DSI perspective, worse was yet to come.
According to the suit, Diageo has indicated that even if it does eventually order delivery of the rum, it intends to sell it in Europe. All the rum produced on St. Croix will be sold in the U.S. and Diageo and the U.S. Virgin Islands will reap the tax benefit.
DSI says this amounts to "a material breach," entitling it to damages. The lawsuit seeks either its actual damages or the amount Diageo profits from the alleged breach, whichever is greater.
The legal papers estimates this amounts to more than $5 million, and seeks a jury trial to determine the amount.
But with all that said, Diageo's response was terse.
"Diageo has honored all of its contractual obligations with Distelleria Serralles and properly exited from the supply contract in Puerto Rico," the corporation said in a statement forwarded by its spokesperson, Rachel Rosenblatt. “Any assertions to the contrary are baseless. Once all relevant facts are disclosed, it will be clear that this case is without merit and Diageo acted appropriately,” the statement said.