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Breakthru Fights Back Against Empire Lawsuit, Prepares Motion To Dismiss

October 28, 2016

In September, Empire Merchants shocked the drinks industry when it filed suit against co-owner Charlie Merinoff and Breakthru Beverage CEO Greg Baird, claiming that they defrauded the company through their involvement in an interstate smuggling scheme. Now, Breakthru is fighting back.

Breakthru, the country’s third-largest spirits and wine distributor, is preparing a motion to dismiss the lawsuit, which was filed by Empire in the U.S. District Court for the Eastern District of New York. In a letter notifying Judge Allyne Ross of its intent to file a dismissal motion, Breakthru attorney Sean O’Shea called Empire’s complaint “nothing more than a cynical attempt to gain unfair business advantage against Reliable (Breakthru’s Maryland operation) and its corporate parent, Breakthru Beverage Group LLC.”

In its complaint, the Brooklyn, New York-based Empire maintains that Merinoff participated in an illegal scheme to smuggle spirits products from Maryland to New York, where they were sold by local retailers. With excise taxes on liquor nearly five times higher in New York than Maryland, the complaint contends that Reliable—and retailers in both New York and Maryland—deprived New York of millions of dollars of tax revenue through this illicit activity, which allegedly started in 2009 and continued until recently.

However, in the letter, O’Shea (a partner at Boies, Schiller & Flexner LLP) says Empire has failed to establish that Merinoff, Baird or Reliable were engaged in any fraudulent or unlawful behavior. The attorney adds that “the only possible direct victim of the schemes alleged by the complaint could be the state of New York, which as allegedly defrauded of liquor excise taxes,” and also contends that the “four-year statute of limitations for private civil RICO claims has expired.”

O’Shea also takes a jab at the Magliocco family— which co-owns Empire with the Merinoff/Drucker family—over the smuggling issue. The letter includes a footnote alluding to “the acknowledged illegal conduct of Brescome Barton, a Connecticut wholesaler wholly owned by the Magliocco family holding company, Bulldog Ventures. During this same period alleged in the complaint, Brescome Barton smuggled liquor into New York, presumably at the expense of Empire.” The attorney cites a Hartford Courant story from 2012 headlined “Connecticut’s Largest Liquor Distributor Pays $850,000 Settlement To Resolve Litigation.”

Merinoff was CEO of Charmer Sunbelt Group during most of the time Empire’s complaint covers. Breakthru was formed in late 2015, when Charmer Sunbelt merged with Chicago-based Wirtz Beverage Group. Empire, which had been operating under the Charmer Sunbelt umbrella since its formation in 2007, wasn’t part of that blockbuster deal, instead remaining independent. At that time, Merinoff became co-chairman of Breakthru, along with Rocky Wirtz. Meanwhile, Baird headed Reliable from 1999 through 2009, and was then a top executive at Charmer Sunbelt (while sitting on Empire’s Board of Managers) before taking the CEO job at Breakthru.

SND spoke with several suppliers who have worked with Merinoff over the years at Charmer Sunbelt and/or Breakthru. All are skeptical about Empire’s charges. “If Empire really believed what they claim, why didn’t they go to the DOJ? Why not seek criminal charges, instead of a civil action?” says one supplier. “It just seems like a personal attack against Charlie to me.”

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