I’ve been following and writing about the Bow Truss v. Marcus Lemonis kerfuffle – now lawsuit – because messy litigation is my reality TV. And, this is messy. As a lawyer, my stock in trade is careful, calibrated elocutions of ambivalence. But, here, I’m not lawyering, I’m writing, so I get to be as candid as I want to be.
Marcus Lemonis’ ML Food Group agreed to invest in Phil Tadros’ Bow Truss coffee chain in December, 2016 for $3.25 million, part of which was to go to paying off $2.3 million in Bow Truss’ debt. Just a few weeks after the Letter of Intent (“LOI”) was signed, Crain’s reported that Lemonis’ had soured on the deal.
I started my examination of the case prejudiced against Tadros’1 chances because of Tadros. Here’s a guy who has sued two different business partners for breach of contract and defamation and has been sued in return by numerous vendors. Here’s a guy who the business press loves to cover because of the enemies he makes and the reputation he has forged as a scum bag. Here’s a guy who sues and gets sued, but often with a different set of lawyers, a sign to me of someone who doesn’t build reliable, mutually lucrative partnerships.
I expected to see a standard, well-crafted LOI, giving the buyer the right to kill the deal if he discovers financial and operational problems during due diligence. And, I expected to see the same bullshit allegations of fraud and tortious interference that I see in many complaints filed by serial suers. I found all that. But, I’m starting to think Tadros may have a case, at least for some of the money.
First, there’s the LOI. Either this is badly written or Tadros’ lawyer is spectacular. Because it says that the only way to terminate the LOI before February 28, 2017 is for Lemonis to communicate doubts to Tadros and Tadros to terminate. Lemonis has no right to terminate prior to February 28th. But, the press covered Lemonis’ termination of the deal in January in real time.
Then, there is the breakup fee. The LOI gave Lemonis the exclusive right to negotiate with Tadros for investment in Bow Truss until February 28th – in exchange, he promised to pay a breakup fee of $162,500. But, it doesn’t look like Lemonis let Tadros terminate the discussions. Instead, Lemonis started trashing Tadros in the press and on Twitter. Lemonis claimed that he was surprised at how commingled Bow Truss’ accounts were with Tadros’ other businesses and he was surprised at the extent of Tadros’ payment failures.
The only way Lemonis gets out of the breakup fee is if he can prove Tadros hid his pattern of using Peter to pay Paul. But, the problem for Lemonis is that Tadros’ misdeeds and woes have been well documented so it’s hard to believe Lemonis didn’t know what was out there. And, Tadros himself has confessed to using the funds from one business to cover the debts of another. In October, Tadros posted this to his blog:
“The one seemingly substantial claim Crain’s made is this: that I have loaned money from one company to another, from time to time, to meet obligations such as payroll. … That is true. A dissatisfied investor could theoretically contest that, since the small loans don’t bear interest, they harm the company they’ve invested in while benefiting the recipient of the loan.”
Further, the Chicago business press has created a small industry in covering the animosity and anecdotes of Tadros’ former investors, partners, customers and vendors – can Lemonis demonstrate he knew none of this? Because Lemonis didn’t continue to negotiate until Tadros terminated the LOI and because it’s going to be hard to prove that he was defrauded into signing the LOI in the first place, I give Tadros a 65% chance of winning the breakup fee.
The breakup fee is the easy question. Tadros also sued for fraud and tortious interference, asking for $26 million – that amount seems like a silly overreach. But, time will tell on the claims. Tortious interference is about doing underhanded things to kill a business relationship of someone else; it’s often a catch-all for nefarious conduct and also often bullshit. But, here, Tadros alleges that Lemonis reached out to Bow Truss vendors and employees to convince them to stop doing business with Tadros, then floated importing a competing coffee chain into the Chicago market. If Tadros’ facts bear out, the tortious interference claim may fly.
Here is what I think really happened. In January, the Bow Truss employees refused to come to work and published an open letter calling for Tadros’ resignation. In that letter, the employees allege that although their employment taxes had been deducted from their paychecks, they had not been sent into the IRS or Illinois department of revenue. It’s also been reported that employees’ health insurance premiums were deducted from paychecks, but not paid to the insurance company. People with governing control of an employer that withholds employee taxes but doesn’t pay them into the government are personally liable for those taxes plus interest and penalties. That kind of shoddy game – essentially double stealing from both employees and the government – is a canary in the coal mine for other dangers. Lemonis’ people probably identified actual legal problems – unpaid withheld wages maybe among others – and advised Lemonis to run.the.fuck.away. So, he did. Given Tadros’ deeply covered history of shenanigans and failed ventures, it is clear to me that Lemonis broke my number one business law rule of risk management: Don’t do business with douchebags.
1I’m going to refer to Bow Truss and Phil Tadros as “Tadros” and to ML Food Group and Marcus Lemonis as “Lemonis.” It reads better. If I were writing a legal brief or document, I would correctly refer to each person or entity as appropriate.