Litigation
Mar. 18, 2016
Cigarillo makers dispute relationship in antitrust suit
Attorneys for Trendsettah cigarillo makers said household name Swisher International Inc. used unfair business practices to stamp out its competition while Swisher described itself as a helpful manufacturer in their antitrust and breach-of-contract dispute in Santa Ana this week.
Daily Journal Staff Writer
Attorneys for cigarillo makers Trendsettah USA Inc. said Swisher International Inc. used unfair business practices to stamp out its competition while Swisher described itself as a helpful manufacturer in their antitrust and breach-of-contract dispute in Santa Ana this week.
The eight-day trial is Orange County-based Trendsettah's attempt to recover an alleged $30 million in lost profits from a failed cigarillo-manufacturing contract with Swisher, known for its Swisher Sweets.
The case before Judge James V. Selna of the Central District goes beyond a straight contract dispute, however, and includes claims that Swisher engaged in anticompetitive behavior and violated the Sherman Antitrust Act of 1890 while it was making Trendsettah's cigarillos from 2012 to 2015. Trendsettah USA, Inc. et al v. Swisher International, Inc. CV14-1664 (C.D. Cal., filed Oct. 14, 2014)
If the jury sides with Trendsettah and finds Swisher unfairly harmed Trendsettah to try to maintain a monopoly of the market for slender, sweetened, homogenous-leaf tobacco products, the damages could be tripled, making it a near $90 million case, attorneys for Trendsettah said.
"This case is about freedom of competition and fairness of competition," said Trendsettah attorney Randolph Gaw of San Francisco-based Gaw Poe LLP in his opening statement Tuesday. "This case is about whether a deal is a deal."
Florida-based Swisher argues that behind the puffery Trendsettah has professed for its products and company leaders, CEO Akrum Alrahib has a shaky business track record and consistently failed to forecast the amount of Trendsettah Splitarillos it needed Swisher to make. Swisher also argues that dozens of new cigarillo companies entered the national market over the years, which should prove there are not significant barriers.
"Swisher bent over backwards to take care of [Trendsettah], but in this case, no good deed goes unpunished," said Swisher attorney Michael C. Marsh of Akerman LLP,
The companies first entered into a private label agreement in January 2011, making Swisher the sole manufacturer of Splitarillos. With just four main manufacturers in the country, Trendsettah says it had to stick with Swisher or fail in the market. One point the jury must decide is what exactly constitutes the cigarillo market, and whether it spans the nation.
The cigarillo makers dispute the nature of their business relationship, though the document trail suggests things got bitter fast.
Even as Splitarillo sales soared, Trendsettah says it could not get orders filled. The lack of supply damaged its brand marketing and relationships with wholesalers, Trendsettah claims.
But Swisher said it tried to help Trendsettah and amended the agreements to improve the situation. "If Swisher wanted to stamp them out, we would've just said you don't have enough product," Marsh said.
By September 2013, Swisher told Trendsettah it planned to stop working together once their manufacturing contract expired in February 2014, saying Trendsettah had repeatedly mismanaged its inventory, which made it impossible to fill orders on time.
amanda_schallert@dailyjournal.com
Amanda Schallert
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