In the wake of its transition to a public company in 2022, Black Rifle Coffee Company became like a magnet for lawsuits, with at least seven cases involving the company filed between 2022 and 2024.
We covered several of the more notable cases two years ago, including a dispute with consulting company Strategy and Execution Inc. (SEI) over unpaid royalties, an allegation that Black Rifle had violated its warrant agreement when going public, and a discrimination case filed by a former executive at the company.
Three years on, the veteran-owned coffee and energy drink manufacturer appears to have put most of its legal challenges to bed, although at least two cases are still open, including an appeal in its dispute with SEI. Several other lawsuits have also since come and gone.
As well, yesterday the company announced it was issuing 28 million shares of common stock at a price of $1.25 per share, an offering expected to raise $35 million for the company.
So, we’ve returned to the docket to offer an updated guide to Black Rifle’s numerous lawsuits.
Black Rifle has not returned a request for comment from BevNET.
SEI Appeals for Royalties Despite Settlement
SEI still believes it is entitled to “tens of millions” in royalties from future Black Rifle Coffee sales.
Despite previously reaching an agreement to pay $417,500 to its former business management partner SEI, Black Rifle Coffee Company is back in court with the company after SEI filed an appeal in the case to review the agreement this past Spring.
The case originated in early 2023, when SEI sued Black Rifle, alleging the brand tried to renege on its contractually obligated royalty payments after hiring SEI to help establish the coffee makers’ presence in the U.S. retail market.
Black Rifle originally agreed to pay SEI $30,000 per month and a lifelong 2 cents royalty from every product sold within the RTD portfolio that SEI focused on.
However, SEI claimed that Black Rifle failed to pay royalties for products manufactured by partners that SEI didn’t introduce them to, despite the terms of the agreement, and said that when challenged the brand moved to end the relationship altogether. They also have asserted a claim to “post-termination” royalties in perpetuity from the company.
Black Rifle initially shot back that SEI was attempting to “rewrite” the contract after they declined to renew the deal for another year. While the court partially sided with Black Rifle on the contract, the lawsuit appeared to come to an end last year when the coffee company agreed to pay $417,500 in a settlement agreement.
As part of that deal, SEI said it would return all intellectual property rights it had to Black Rifle’s RTD coffee beverages to the brand.
However, SEI is now asking a judge to again review its rights to future royalties from Black Rifle products. That may not be a shock – it noted in its February request for dismissal of the original case that it was exempting its “claims related to Post-Termination Royalties”.
On April 9, SEI officially filed an appeal, and Black Rifle responded by demanding SEI pay its attorneys fees.
“SEI’s complaint includes allegations related to both pre-termination and post- termination royalties…. But it is undisputed that the ‘main issue’ of this litigation was SEI’s allegation that it was entitled to post-termination royalites [sic]. This is because the potential amount in controversy under this theory, according to SEI, dwarfed the combined total of SEI’s other claims,” the response states.
Since then the fight has been back on with no apparent end in sight. As of this week, Black Rifle had filed for an extension to file a response, giving it until late August before the next filing is due.
Discrimination Case Was Terminated
In June 2022, former Black Rifle executive Kim Ellis sued the company, alleging she was fired earlier that year after filing an HR complaint against Chief Retail Officer Heath Nielsen. That case concluded in July 2023 through a mutual agreement between both parties.
It was not immediately clear if a settlement was paid, but according to a July 6 filing the lawsuit was dismissed “with prejudice” with all parties agreeing to pay their own costs and attorneys’ fees.
Ellis had joined Black Rifle in August 2021 as SVP, Retail Estate and Development. That fall, she was diagnosed with breast cancer and continued to work throughout chemotherapy treatment, stating in the original complaint that she only missed time for surgery.
Ellis, who is Black and was 56 at the time the complaint was filed, alleged that her boss, Nielsen – who is white and was in his mid-30s at the time – discriminated against her, passing her up for promotions that she would have earned if not for her “cancer, age, sex and race.”
The case had been in the discovery process prior to the time it ended, and no docket updates were made between February 2023 and June 2023 when an order to terminate was registered.
Warrant Lawsuit Sparks Back Up?
Among the few remaining open lawsuits against Black Rifle is a shareholder case initially filed in June 2023, over a year after the company went public through a SPAC transaction.
Plaintiffs John Brian Clark, JBC Structured Products LLC and Marathon Capital LLC alleged that they suffered a major financial loss due to Black Rifle’s mismanagement of the warrant process during its transition to a public company through a merger with blank check company SilverBox Engaged Merger Corp. I.
SilverBox initiated a warrant agreement in 2021 allowing warrant holders to purchase stock at $11.50 per share. The plaintiffs say they made a combined investment totalling over $2.1 million and later purchased additional warrants in March 2022, after the merger with Black Rifle was announced, for roughly $272,000 more.
However, when attempting to exercise the warrants, Marathon, Clark and JBC claim they were unable to do so because Black Rifle’s legal counsel “decided a Form S-1 was necessary, even though the SEC made no such comment, requirement, or recommendation”.
They claim they were repeatedly told by Black Rifle that the company was waiting on the SEC for comment and finally an amended S-1 was issued on April 19, but did not go into effect until May 4, 2022, leaving them unable to trade Black Rifle stock at its high point.
In the interim period, the plaintiffs say they “attempted to mitigate their losses by attempting to sell stock and were forced to liquidate” their warrants.
“Black Rifle’s erroneous conduct caused Plaintiffs substantial financial loss,” the complaint states, noting that at the close of trading on April 11, 2022, Black Rifle’s common stock was $33.11, but by May 4 it had fallen as low as $14.61, substantially undercutting their profits.
Updates on the lawsuit went quiet in October 2023 until this month when the plaintiffs filed a motion to bring two new attorneys into the case to represent them. The motion was granted last week.
There could be some precedent favoring the plaintiffs here. In 2023, a New York court allowed a similar shareholder lawsuit filed by Tang Capital Partners LP to go ahead, which also alleged they were blocked from exercising the same warrant agreement.
In November, Tang was awarded a partial win in the case, according to a report by Westlaw Today.