Lawsuit against founder/brewer after brewery’s failure provides lessons for founders dealing with investors.
Haplessness appears to have saved the founder/head brewer of a brewery that never got off the ground from having to stick with a debt after filing for personal bankruptcy and repay $140k that some investors claimed he should owe them.
The brewery, Bulk Head Brewing Co. – did not open after years of work by a young brewer. The brewery’s failure forced him into bankruptcy.
In bankruptcy, the investors looking for a return of the money they’d invested and the money they’d also been forced to pay as a result of being personal guarantors on a loan the business defaulted on sued arguing the debt was non-dischargeable because the young founder/head brewer had allegedly made misrepresentations about the financial state of affairs of the brewery at the time the investors put in money.
What were the representations you ask? Mostly oral statements to the investors about whether the state and local liquor licenses had been obtained and whether the monies being raised were sufficient to meet debts like the lease obligations and the brewery build-out costs.
The case went to trial, and the opinion details the long and twisted history and circumstances provide some specific bedrock for the Court’s determination that there was insufficient proof of fraudulent intent on the part of the founder/brewer. But most of that was based on a technicality about the statements being oral and not written.
That opinion is worth a read as the fact pattern will be familiar to many.
The Takeaway: Statements that may be half-truths or rosy but impractical or false forecasts could lead to liability in a similar situation with slightly different facts. Brewer/Founders should vet their statements and qualify them with conditions if necessary to bring the statements into compliance.