Settlement requires Starbucks to pay nearly $3 billion

Massachusetts coffee drinkers may have heard that Starbucks has been ordered to pay Kraft Foods Group $2.76 billion as a result of arbitration hearings. The heart of the issue is a contract dispute over an agreement between the companies under which Kraft had sole rights to distribution, marketing and sales of roast and ground coffee made by Starbucks in grocery stores and other retail establishments. The contract reportedly netted Kraft $500 million in revenue during 2010. However Starbucks terminated the relationship with Kraft towards the end of that year.

According to a Starbucks spokesman, the company terminated the contract because Kraft was not fulfilling its obligations which caused Starbuck’s business performance to suffer. Kraft claimed that the coffee company improperly terminated the contract and owed it compensation. The arbitrators agreed with Kraft’s position in the matter and ordered the multi-billion dollar award.

Both businesses are pleased that the legal dispute is over, but for different reasons. Starbucks is simply glad that the matter has been put to rest, although a spokesman states the company strongly disagrees with the results of the arbitration. The former parent of Kraft is happy that the issue has been resolved and that it is now able to focus on its current businesses, and of course it is also satisfied with the payout requirement.

The companies may have agreed to settle in part to be able to get back to focusing on operational matters. Business law attorneys may be able to help businesses of all sizes determine their best and most expedient course of action for dealing with legal disputes, including insertion of mandatory arbitration provisions into contracts.

Source: Philadelphia Business Journal, “Starbucks to pay $2.76B in coffee dispute“, Jared Shelly, November 13, 2013