A North Texas family-owned franchisee of Red Bull North America has sued the California-based company after the energy drink maker abruptly ended their two-decade business relationship this spring.
The lawsuit, filed June 10 by KC Distributing, currently seeks around $31.5 million in damages against Red Bull, Red Bull Distributing Company and several company executives for fraudulently misleading KC into believing it would continue working with Red Bull long-term, causing KC to continue investing significant resources into its partnership.
The suit, which was filed on behalf of KC by Dallas law firm Friedman & Feiger, also alleges that Red Bull collected KC’s proprietary information and trade secrets while working together in order to set up a corporate-owned distributor to replace KC as Red Bull’s leading North Texas distributor.
Larry Friedman, KC’s lead lawyer, told The Texas Lawbook that Red Bull’s actions are part of a larger trend of the company shifting toward distribution duties in-house through “draconian” provisions the company has inserted into its franchise agreements. Friedman said he sued Red Bull about a decade ago on behalf of another franchisee, which is how he got on the current case.
“They have made the internal decision to do away with the franchisees they have induced to become ‘partners’ and take territories back so they can make more money,” Friedman said. “I don’t think it’s to any fault of KC. I think it’s just greed on the part of Red Bull.”
Messages left Tuesday with Red Bull seeking comment were not immediately returned, but an automated message from Red Bull acknowledged that it received The Lawbook’s inquiry.
Based in Aubrey, Texas, KC is a third-generation, family-owned distributor that brings food and beverage products to grocers, gas stations and convenience stores, mass-market retailers, supermarkets and club stores, the lawsuit says. The company began as Golden Distributing Co. and operated under that name until 1997, when it sold its Coors beer distributor rights to another independent distributor. The company’s name changed to KC Distributing, which matches the initials of its owner, Kelly Clymer.
Beginning in 1997, KC distributed Red Bull products to numerous counties in North Texas. According to the lawsuit, Clymer is the man behind Red Bull’s “van teams” marketing concept that utilizes Red Bull-decorated vehicles that distributors drive to retail accounts to deliver products. The concept was such a success that Red Bull made van teams the “standard” marketing strategy for its other distributors, the complaint says.
KC’s role — and investments — with Red Bull grew in 2017 when KC agreed to temporarily expand its distribution footprint to Dallas and Tarrant counties after Red Bull’s distributor for those areas departed. The expansion to Dallas and Fort Worth required KC to purchase more vans and hire more employees. KC — “to no avail” — asked Red Bull to take over the DFW territories permanently, but instead “Red Bull saw ‘MONEY,’ and a way to profit at the expense of KC,” the lawsuit says.
Red Bull created Red Bull Distribution Company (RBDC-North Texas/Northeast Texas) “after obtaining valuable knowledge, trade secrets and confidential and proprietary information from KC and other independent distributors,” the lawsuit says.
“Independent distributors are crucial in a fair, free and competitive marketplace,” KC says in its lawsuit. “Corporate-owned distributors have been frowned upon as an unlawful restraint of trade that generally restrict a competitive marketplace and results in price-gouging.”
Meanwhile, KC said it continued to invest in its partnership with Red Bull and continued to receive high praise from corporate for its sales generation. KC says it agreed to take on additional territory in Oklahoma at Red Bull’s request.
At an October 2019 breakfast meeting, Clyde informed Red Bull General Manager Nick VanderLinden (one of the individual defendants named in the lawsuit) that he would be increasing his investments and expenditures into their partnership, including more personnel, overhead and construction costs for a new warehouse. The lawsuit says VanderLinden “induced” Clyde to move forward with all of these investments, ensuring him that KC’s “future was bright with Red Bull.”
Although Red Bull has a right to voluntarily terminate its distribution agreements, KC said Red Bull “continuously modified” that clause every time it promised KC it was not under any threat of being terminated. Moreover, KC claims that Red Bull ratified their agreement that KC would not be terminated when Red Bull approved KC’s 2020 business plan in late 2019.
Despite Red Bull’s promises, the company sent KC a termination notice Feb. 13, two months after the company learned Clymer’s son had been diagnosed with cancer, the lawsuit says. The termination notice said Red Bull and KC’s distribution agreement would end May 1.
“Beyond comprehension and compassion … Red Bull discriminated against and penalized KC when Taylor [Clymer’s son] was diagnosed with cancer and undergoing chemotherapy,” the lawsuit says.
But when the COVID-19 pandemic escalated in Texas the following month, Red Bull asked KC to remain a partner until July 1. KC agreed, even setting a single-day record for sales in late May, the lawsuit says. But despite that, KC alleges Red Bull continued to do more damage — intimidating and bullying KC employees, intentionally hurting KC’s cash flow and profits through shorting product orders and other tactics, and by restraining KC from working with other beverage companies even though they don’t compete with Red Bull.
KC is seeking multiple legal claims against Red Bull in its lawsuit, including fraud, breach of contract, breach of fiduciary duty, unjust enrichment, tortious interference, unfair competition and more.
Other Friedman & Feiger lawyers representing KC in the lawsuit include Shauna Izadi, James Krause and Braulio Gonzalez.