A U.S. arbitrator has awarded Kraft Foods Inc. $2.76 billion in its breach of contract dispute with Starbucks Corp. over packaged coffee. Robins Kaplan Miller & Ciresi and Morgan Lewis & Bockius represented Kraft in the arbitration, prevailing against counsel for Starbucks at Kellogg, Huber, Hansen, Todd, Evans, & Figel.
Mondelez International Inc., which spun off Kraft Foods in 2012, said in a press release on Tuesday that that it will receive all proceeds from the judgment. The award consists of $2.23 billion in damages and $527 million in attorneys fees and prejudgment interest.
In 1998, Kraft struck a deal with Starbucks to become its exclusive distributor of packaged coffee sold in grocery stores. The distribution agreement expired in 2014, but Starbucks announced in 2010 that it would sever the agreement in the first quarter of 2011. Starbucks alleged that Kraft was doing "lasting damage to Starbucks' brand" by failing to provide market projections and by devising advertising programs without Starbucks' feedback. Starbucks offered to buy out Kraft's interest for $750 million. Kraft refused the offer, arguing that the amount was much less than the fair market value of the business.
The dispute first boiled over into the courts in late 2010, when Kraft sought a preliminary injunction barring Starbucks from exiting the distribution agreement. U.S. District Judge Cathy Seibel in Manhattan denied the request for injunctive relief, finding no reason Kraft couldn't be made whole through money damages. A Morgan Lewis team led by William Quinn Jr. and Kathleen Waters represented Kraft in the district court litigation, squaring off against Aaron Panner and Wan Kim of Kellogg Huber and Maria Barton of Latham & Watkins.
An arbitrator affiliated with JAMS Inc. held hearings in July 2012 to determine Starbucks's termination fee. Starbucks' expert witness had pegged Kraft's damages at just $62.9 million. Kraft sought $2.9 billion in damages, including interest, plus attorneys fees.
Michael Ciresi of Robins Kaplan served as lead counsel for Kraft in the JAMS arbitration. Kraft's legal team also included David Beehler of Robins Kaplan and Quinn and Waters at Morgan Lewis. Panner and Kim of Kellogg Huber represented Starbucks in the arbitration.
In a statement, Ciresi said "we are very pleased at this enormous outcome, validating Kraft's challenge to Starbucks' improper termination of their contract."
"We believe Kraft did not deliver on its responsibilities to our brand under the agreement, the performance of the business suffered as a result, and that we had a right to terminate the agreement without payment to Kraft," Starbucks CFO Troy Alstead said in a statement.