Puerto Rico rum supplier sues Diageo, claiming breach of contract


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ST. CROIX - The Puerto Rico company that used to supply Diageo with rum for its Captain Morgan brand before Diageo moved production to St. Croix is suing Diageo North America, alleging breach of contract.

Destileria Serralles, Inc. filed the lawsuit in federal court in Puerto Rico on Wednesday, demanding a jury trial and more than $5 million in damages.

The lawsuit centers on an extra million gallons of rum that Destileria Serralles says Diageo agreed to purchase from it to offset any production shortfalls in its new distillery on St. Croix.

Destileria Serralles contends that Diageo has not yet paid for or taken delivery on the outstanding 900,830 gallons of rum it agreed to buy and has indicated that if it does ever take delivery of the rum, it intends to sell it in Europe.

Selling Virgin Islands or Puerto Rico-produced rum in the United States is lucrative for the territories as well as the rum manufacturer.

A special excise tax is collected from the manufacturer for rum sold in the United States, but the federal government returns a significant portion of that money back to the territory where the rum was produced. The territories in turn give part of the rebated money back to the manufacturers as an incentive.

Destileria Serralles contends in the lawsuit that selling the rum in the United States was a long-standing part of its agreement with Diageo and that Diageo has no right to sell the rum outside the United States. It contends it offered Diageo a lower price on the remaining 900,830 gallons because of the anticipated rum tax rebates.

Diageo's contract with the V.I. Government, signed in 2008, requires it to produce all its rum for sale in the United States on St. Croix, once its new distillery was constructed and the rum produced there was aged enough for sale.

The Daily News was unable to reach either party to the lawsuit on Thursday night.

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