Labatt

 

A. Labatt’s North American strategy.

In 1979 Edward and Peter Bronfman, the “poor cousins” of the family that controlled the Seagram’s empire, gained a controlling interest in John Labatt, Ltd., a multinational corporation domiciled in Toronto, Canada.[1]  Under the Bronfmans, Labatt pursued a growth strategy that treated the United States and Canada as a single North American marketplace.[2]  For more than a decade, the Bronfmans drove Labatt to acquire companies poised to serve markets in both countries. 

Holiday Juice Ltd., a juice processor based in Windsor, Ontario, fit this transnational profile.  When Labatt acquired Holiday Juice in 1983, the firm was one of the leading beverage makers in Canada, but it also had a toehold in markets just across the border in Detroit and, farther away, in Chicago. 

In 1986-87 Labatt expanded Holiday Juice’s reach in the United States by acquiring three more juice processors, all of them U.S.-based—Boden Products, Inc. of Franklin Park, Illinois; Ever Fresh Juice Co. of Warren, Michigan; and Wagner Juice Co., of Chicago. Labatt upgraded the Boden Products’ plant into a state-of-the-art bottling facility; the upgrade cost $10 million ($19.3 million in 2009 dollars). Labatt sold the Wagner plant but kept the customer list.

From a branding perspective, the key acquisitions were Holiday Juice and Ever Fresh: the former owned the Canadian rights to the “Everfresh” trademark; the latter owned the “Everfresh” mark in the United States. 

Initially, each of the acquired companies was allowed to operate semi-autonomously.  In 1987-88 Labatt created a corporate staff with centralized authority over operations at the three remaining plants—Windsor, Warren, and Franklin Park.  The corporate staff was headquartered at the upgraded facility in Franklin Park.

1. The corporate structures dictated by the multi-national character of Labatt’s holdings.

For tax and regulatory reporting purposes, multinational corporations operating in Canada must keep track of their Canadian assets and income separately from their assets and income in the United States and elsewhere.[3]  Labatt created JLI, Inc., domiciled in California, to help Labatt comply with these reporting requirements.  JLI served as the holding company for the businesses Labatt acquired in the United States.

For tax-reporting purposes, JLI became the sole shareholder of the three U.S.-based juice companies that Labatt acquired in 1986-87—Boden Products, Ever Fresh, and Wagner. 

Labatt was the sole shareholder in Holiday Juice.

2. The fictional Everfresh Juice Co.

In 1988-89, Labatt consolidated its orange juice acquisitions into two corporations named Everfresh Inc., one domiciled in Ontario, Canada, and wholly-owned by Labatt; the other, domiciled in the State of Michigan and wholly-owned by JLI.[4]  The Canadian Everfresh Inc. became titular owner of the plant in Windsor, Ontario; the entity domiciled in Michigan became titular owner of processing plants in Franklin Park, Illinois, and Warren, Michigan. 

The two corporations operated seamlessly as a single enterprise—both had the same chief executive officer, and as of April 1988, when the Canadian Everfresh Inc. moved its headquarters to Franklin Park, Illinois, both occupied the same building at 3333 Mt. Prospect Road, in Franklin Park.  Both corporations also had the same marketing organization, the same research and development group, the same formulas, the same trademarks, and the same bottles and labels. [5]

To cement the public perception that the two corporations functioned as a single enterprise, both Everfresh entities conducted their operations under the same fictional name—Everfresh Juice Co.  This was the name that appeared on the labels of each corporation’s products.  Labatt described this fictional company as “the North American fruit and beverage subsidiary of John Labatt Ltd.” Undated Press Release in June 1990 Press Kit

B. Labatt’s long-term marketing strategy for Everfresh Juice Co. 

In the early 1980s Labatt developed a long-term strategy for capturing a substantial share of the juice and beverage markets in the United States and Canada (Labatt referred to these markets collectively as “the North American market.”)  The strategy’s first phase, described above, was the series of acquisitions that were molded into the Everfresh Juice Company.  The second phase was researching and developing new beverages with proprietary formulas.  The final phase was the introduction of these proprietary beverages to the North American market.

1. The long-term plan to extend the Everfresh brand with new products that met “consumer demand for more natural alternatives to their current beverages.” 

At the end of each fiscal year (March 31) Labatt prepared three-year Comprehensive Business Plans for each of its divisions.  For the Holiday Juice division, as it was still known in March 1987, the 1987 plan (covering F1988-90) identified consumer preference for “nutritious, healthy and safe juice/drink products” as one of the “major factors affecting F88 performance.”  The division’s “strategic reaction” to this “social trend” was to “establish North American brand name EVERFRESH” and to “develop new products to meet consumer demand for more natural alternatives to their current beverages.” Holiday Juice, Ltd. Comprehensive Business Plan F88-F90, pp.2, 9.

In 1988, a “major objective” of the plan for the newly-named Everfresh division (covering 1989-91) was “to build strong brand franchises in North America, with particular emphasis on [the] Everfresh [brand].” The strategies for achieving this objective included the development of “new products that are proprietary…and provide the trade and consumer with ‘strong reasons for being.’” Everfresh, Inc. Comprehensive Business Plan F89-F91, pp. 12, 38.

2. The health-oriented marketing strategy for “Everfresh Sparkling Water with Pure Fruit Juice.”  

The first new product to emerge from this long-term planning was Everfresh Sparkling Water with Pure Fruit Juice.  This beverage was a proprietary formulation consisting of “an all natural blend of 70 percent pure fruit juice and 30 percent mineral water.” Undated Press Release in June 1990 Press Kit.  The beverage had “no added sweeteners, preservatives, colors, caffeine, sodium, or other additives.”  Id.

Labatt planned to introduce Everfresh’s new beverage to Canadian markets in August 1989 and to US markets in June 1990.  It devised a marketing campaign featuring a health-oriented theme—“Balancing human needs with natural products.” See Cover Sheet for June 1990 Press Kit

C. The threats to Labatt’s marketing plans for Everfresh.

The adulteration claims that surfaced in January and February 1989—Bosch’s Whistleblower suit, Grove Fresh’s suits against Everfresh (89c1113) and the Flavor Fresh (89c1114, which implicated Holiday Juice)—threatened to undermine the credibility of the health-oriented marketing campaign that Labatt was planning for Everfresh.

Labatt blunted the adverse effects of those claims through a series of intentionally deceitful acts.  These are described Schemes to Deceive.

[1] The Bronfmans acquired control of Labatt through Brascan Ltd., a un it of Edper, the family’s investment trust.  The Bronfmans sold their stake in Labatt 14 years later.  See C. Farnsworth, “Bronfmans Pulling Out of Labatt,” New York Times (February 13, 1993)

[3] Segregating Canadian assets and income is necessary, for example, to comply with the Investment Canada Act, which requires notification whenever there is a change in control of a Canadian business.  See M. Masse, “The Investment Canada Act–The Forgotten Side of Foreign Acquisitions,” 2008 (accessed 5/21/08).  See generally A. Rotstein, “Economic Nationalism,” The Canadian Encyclopedia, Historica Foundation 2008 (accessed 5/20/08)

[4] The Everfresh entity domiciled in Michigan changed its registered name to Everfresh Inc. in April 1988. Labatt planned to change Holiday Juice’s registered name to Everfresh Inc., too, but as of April 1988, it couldn’t—there was another Canadian corporation with a prior claim to that name.  Labatt bought this other corporation in December 1988.  In January 1989—one month before Grove Fresh began the first round of litigation—Labatt “amalgamated” the grocery business into Holiday Juice and named the surviving corporation Everfresh Inc.

[5] See discussion in Grove Fresh's Brief in Support of its Motion to Overrule Certain Objections to the Definition of Everfresh, pp. 4-7, 11-14, in Grove Fresh v John Labatt. Ltd., No. 90 C 5009 (filed January 31, 1992).