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Law360 (September 21, 2020, 10:36 PM EDT) —
The National Hot Rod Association hit Coca-Cola with a lawsuit in California federal court Monday accusing the beverage giant of exploiting COVID-19 to terminate a $34 million sponsorship agreement, saying the court should “prevent Coca-Cola’s unilateral exit from a valid and binding agreement, under cover of a global tragedy.”
According to the lawsuit, Coca-Cola and the Glendora, California-based NHRA — which bills itself as the world’s largest auto racing organization — have an 18-year relationship over sponsorship of drag racing events, including a current six-year agreement set to expire at the end of 2023.
After signaling in 2019 it wanted out of the deal early, Coca-Cola breached its contract in 2020 while wrongly using the slowdown in live NHRA events due to the coronavirus pandemic as a reason, along with the organization not consulting the beverage company before canceling events, the NHRA said.
“In September, 2019, long before the pandemic arrived, Coca-Cola announced that it wanted to end the agreement as soon as possible, but recognized that it had no basis to do so,” the NHRA said. “Incredibly, Coca-Cola now offers the pandemic as a pretext to achieve its desired business result and avoid its existing and future payment obligations.”
The lawsuit alleges breach of contract while seeking unspecified damages, a declaratory judgment that the sponsorship contract is valid, and a permanent injunction directing Coca-Cola to refrain from taking any action in furtherance of its “purported” termination of the agreement.
Part of the NHRA’s current deal with Coca-Cola calls for the association to hold at least 22 national events per year, or Coca-Cola is owed a pro-rata refund of the fees for that agreement year, the NHRA said.
When the pandemic started to close down major sporting events in March, the NHRA was among many organizations impacted, and its March 12-15 Amalie Motor Oil NHRA Nationals in Gainesville, Florida, was postponed. Three events in April and one in early May were also canceled, the NHRA said, although it has been able to hold some events since that time.
In May, Coca-Cola withheld a $2.86 million fee it owed as part of the sponsorship agreement, and in August sent the NHRA a letter notifying it that the company was canceling the agreement because the NHRA was in breach of the agreement.
Among the reasons Coca-Cola cited for pulling out of the agreement, the NHRA said, was that it “absurdly claims that NHRA’s consultation with ‘track representatives, health officials, and government authorities’ in its decision to cancel the 40th Annual Southern Nationals (due to COVID-19) is indicative of a ‘loss of authority to convey rights and benefits in the agreement.'”
The NHRA said the argument “reeks of bad faith. NHRA’s consultation with health experts and local officials to address public safety is not indicative of an abdication of authority.”
The NHRA said Coca-Cola also claims that because events were postponed or canceled, it has suffered a loss of sponsorship benefits, but the racing organization said in the lawsuit that its “inability to host a full slate of races in a given year is not a violation of the agreement. It simply permits Coca-Cola to seek a pro-rata refund at the end of the year to account for any races that did not occur.”
Counsel for the NHRA and representatives for Coca-Cola did not immediately respond to a request for comment Monday.
The National Hot Rod Association is represented by Brett N. Taylor and Paul Leary of Cozen O’Connor.
Counsel information for Coca-Cola was not immediately available Monday.
The case is the National Hot Rod Association v. the Coca-Cola Co., case number 2:20-cv-08614, in the U.S. District Court for the Central District of California.
–Editing by Bruce Goldman.
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