The guns are coming out for Black Rifle Coffee Company.
Founded in 2014 by co-CEO Evan Hafer, the Utah-based company is among the fastest growing coffee brands in the U.S. Known for its unapologetically pro-military branding and rapidly expanding RTD business, it has also been racking up multiple lawsuits from investors, business partners and former employees on its way to over $300 million in sales.
Among the complaints are two breach of contract cases. One lawsuit, filed by Tang Capital Partners last spring, accuses the coffee brand of blocking the exercise of warrants following its acquisition by a SPAC. Last month, a New York judge ruled that the case will move forward, denying Black Rifle’s motion to dismiss.
Another complaint, filed in February by Strategy & Execution Inc. (SEI), a management and brokerage firm overseeing Black Rifle’s retail expansion, accused the company of reneging on royalty agreements.
In addition to operating an on-premise cafe chain with up to 20 “outposts” around the country, Black Rifle sells dry coffee online and in retail and in 2020 it launched a canned iced coffee line. According to market data firm Circana, the brand’s RTD retail business now accounts for about a third of its revenue, growing dollar sales 106.3% to over $119.9 million in the 52-week period ending February 26, making it the fourth largest brand in the segment behind only Starbucks, Monster and The Coca-Cola Company.
SEI Claims Unpaid Royalties
After being enlisted by Black Rifle to help build the brand’s retail presence, SEI has alleged that the company reneged on contractually obligated royalty payments. Black Rifle, meanwhile, says SEI is attempting to “rewrite” their contract after the brand refused to renew their agreement for next year.
The complaint, filed by SEI in February, claims that after Black Rifle gave advance notice that it did not intend to renew its contract with SEI, the coffee brand said it would refuse to pay royalties on retail sales after the partnership expired – despite SEI’s claim that it was contractually required to do so for products manufactured at facilities that SEI helped procure. Nor, the filing suggests, did Black Rifle pay “hundreds of thousands of dollars” in outstanding royalties and expenses it owed the firm.
Despite the refusal to pay post-term royalties, SEI claims that Black Rifle has made no attempts to terminate the contract for cause.
“In simple terms, Plaintiff [SEI] has become a victim of its own success,” the complaint states. “Once Plaintiff’s royalties, for example, became a multi-million-dollar financial obligation for Defendant [Black Rifle], Defendant began taking steps to distance itself from Plaintiff and its financial obligations under the parties’ Consulting Agreement.”
According to the complaint, Black Rifle and SEI initially entered into a four-year consulting contract on January 1, 2020. The agreement included a $30,000 monthly fee as well as $0.02 per can on the RTD beverage line, as well as a 3% commission for sales of dry products like coffee beans, pods and merchandise. The deal also gave SEI a monthly expense budget of $3,500.
But the dispute goes beyond just royalties: SEI is also seeking a declaratory judgment affirming it holds the intellectual property rights to the formulations of Black Rifle’s RTD coffee line.
In a motion for a partial dismissal of the case, filed by Black Rifle on April 4, the company argued the contract is unambiguous in its language that royalties will only be paid “during the initial term” of the partnership. The response claims that SEI filed the suit in response to being informed the “lucrative” contract would not be renewed and alleged the firm is “attempting to rewrite the parties’ Consulting Agreement and receive a financial windfall on its way out the door.”
Black Rifle also argued that SEI is asking for royalties on products produced by facilities that they did not introduce to the brand, which are not covered by the contract.
“Mere disagreement about the meaning of the contract does not render it ambiguous,” the response stated.
Following SEI’s response to that motion, Black Rifle filed a second motion on Friday in support of its dismissal request, noting that in one instance SEI’s attorneys said Black Rifle’s position on post-termination royalties “is admittedly reasonable.” A judge has not yet ruled on the motion.
SEI did not return a request for comment.
Judge Allows Shareholder Lawsuit to Proceed
Meanwhile, in New York, a federal judge is allowing a shareholder lawsuit against Black Rifle to go forward.
In a complaint filed in April 2022 in the United States District Court Southern District of New York, Tang Capital Partners LP alleges that Black Rifle had violated a warrant agreement related to its SPAC acquisition by SilverBox Engaged Merger Corp I in late 2021. The complaint alleges that, after Black Rifle became a public company in February 2022, the brand blocked Tang Capital from exercising a warrant guaranteeing its ability to purchase shares at a set price of $11.50 per share.
Black Rifle’s stock price rose as high as $34 in the weeks after trading began, but at the time of the filing had fallen to $15 per share. Tang Capital claims that Black Rifle’s actions caused it to lose millions of dollars as a result. The firm said it spent over $3.76 million to purchase over a million warrant agreements in March and April 2022. However, when Tang Capital attempted to exercise the warrants on March 11, it claims, Black Rifle denied the request on grounds that the form it used to register its shares “did not register an ongoing offering covering the exercise of the warrant.”
According to Law360, Black Rifle filed a motion to dismiss in July 2022 and argued that Tang Capital’s attempts to exercise the warrant rights were “premature” and that the warrants only became exercisable after a second registration in May 2022.
Although the case will move forward, the judge did grant Black Rifle’s request to dismiss Tang Capital’s request for a declaratory judgment as the request “will be decided in the course of resolving Tang’s breach of contract claim,” Law360 noted.
The case is currently in the discovery process.
Tang Capital’s suit isn’t the only warrants-related case against Black Rifle, however. Last year, firm 1791 Management also alleged Black Rifle had blocked the exercise of warrants following the closing of its SPAC merger, in a complaint filed in the Superior Court of the State of California County of Orange.
Beyond allegations of securities fraud, 1791 Management has also made several public statements against Black Rifle on political grounds, claiming in a September 2022 press release that while it “presents a brand to the public that supports conservative values, the company is being run by people who support causes of the left.” The alleged left-wing causes were not specified in the release. The firm has also accused Black Rifle of “arrogance” and “greed” in a report and has called the brand “#ObamaRifleCoffee” in a social media post and on its website.
Former Employee Alleges Wrongful Termination
Black Rifle is also facing another lawsuit from a former executive, Kim Ellis, who in a June 2022 complaint accused the company of discriminating against her on the basis of sex, race, age and disability.
In the complaint, Ellis – who is Black and was 56 at the time of the filing – said she was fired from Black Rifle in 2022 after filing an HR complaint against Chief Retail Officer Heath Nielsen.
According to the suit, Ellis joined Black Rifle in August 2021 as SVP, Real Estate and Development. In October that year Ellis was diagnosed with breast cancer. While she continued to work during chemotherapy treatment, only missing time for surgery, Ellis alleged that Nielsen – a white male in his mid-30s – was hired to a role in March 2022 “that would have been her promotion but for cancer, age, sex and race.”
The filing accuses Nielsen of hostile and discriminatory behavior against Ellis and “at least two high-level African American employees.” Ellis was fired from Black Rifle 10 days after reporting Nielsen’s behavior to the HR department.
The case is currently in the discovery process.
Black Rifle declined to comment for this story.