No-show costs Pepsi plenty

Pepsi-Cola's roots in North Carolina, and an apparent communication mix-up involving its New Bern law firm, are at the center of a bizarre legal drama that produced a $1.26 billion judgment against the beverage giant.

PepsiCo is seeking to overturn the ruling, arguing that it was unaware of the lawsuit that accused the company of stealing the idea of selling bottled water until a week after the verdict was handed down. It is asking a court in Wisconsin to dismiss the case, which it says is "dubious" and without merit, or at least give it the opportunity to defend itself.

PepsiCo also argues that it was improperly served the lawsuit in North Carolina, where it is incorporated, rather than in Purchase, N.Y., where it is headquartered. Its incorporation in the Tar Heel state stems from the invention of Pepsi-Cola in New Bern in 1898 by pharmacist Caleb Bradham.

PepsiCo spokesman Joe Jacuzzi acknowledges that the company failed to respond to the lawsuit because of "an internal process issue."

According to court filings, Stith & Stith, the company's New Bern law firm, didn't notify the company about the case, which was filed in Wisconsin, until months after it was "allegedly" served with the complaint. At that point, the PepsiCo legal department secretary who was notified about the case failed to tell anyone about it.

Stith & Stith lawyers didn't return calls seeking comment Friday. Jacuzzi said he didn't know the reason for the law firm's delay in notifying PepsiCo.

It's likely PepsiCo will get to make its case and won't have to pay the $1.26 billion, because judges tend to be lenient about enforcing default judgments, said Myron Mosko vitz, a law professor at Golden Gate University in San Francisco. Judges don't want to deprive anyone of their right to be heard in court, he said.

"I'd be surprised if they didn't set it aside," he said of the judgment. "But there's going to be some red faces in court."

A hearing is scheduled for Friday.

Charles Joyce, of Juneau, Wis., and James Voigt, of Cleveland, Wis., sued PepsiCo in April, asking for a jury trial and damages of more than $75,000. Their lawyer, David Van Dyke, said that the two had worked together and came up with the idea to bottle purified water in individual servings.

Joyce and Voigt's lawsuit accuses PepsiCo of misusing trade secrets. It also names two companies that make and distribute PepsiCo products as defendants: Wisconsin-based Wis-Pak and Carolina Canners of Cheraw, S.C.

The pair claim they entered written confidentiality agreements about a new beverage they were calling "U.P." with executives of the two distributors in 1981. The executives violated the agreements and gave the information to PepsiCo, which eventually rolled out a bottled water brand - Aquafina - about a dozen years later, Joyce and Voigt claim.

PepsiCo says it didn't know anything about the case until it was too late. Here's a timeline it provided Oct. 13 when it asked the court to abandon the judgment:

June 11: Stith & Stith , PepsiCo's law firm in New Bern, is "allegedly" served with the complaint, but PepsiCo gets no word.

Sept. 15: Stith & Stith forwards a letter about the case to Tom Tamoney in PepsiCo's legal department, but his secretary, Kathy Henry, "was so busy preparing for a board meeting she did not deliver it to anyone" or tell anyone about it or enter it into a log that tracks such things, according to PepsiCo's court filing.

Sept. 29: The plaintiffs ask for a default judgment -- a ruling that they won because PepsiCo failed to make a case against them -- and the court complies the following day.

Oct. 5: When Henry receives that notice, she enters it in her log, and that triggers her memory of receiving the earlier letter.

PepsiCo lawyers learned about the case the next day, the company said.

"The plaintiffs' claim -- that in 1981, they gave someone other than PepsiCo an idea for a 'soft drink' and that somehow, 15 years later, PepsiCo used that alleged information to develop the Aquafina Water products -- is completely dubious and without merit," Jacuzzi said.

Van Dyke, with the Chicago law firm Cassiday Schade, said he is drafting a response to PepsiCo's motion. He said he asked for $1.26 billion based on the revenue and profit PepsiCo has made from the Aquafina brand.

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