5 Rabbit's Legal Woes

5-Rabbit-Logo3We recently wrote about an appalling incident of price-fixing in Germany.  Many large-scale, national breweries worked together to artificially increase the price of beer in Germany and the whole of England.  At the time I used it as an example of how when money becomes more important than the craft it is only a matter of time before malfeasance begins.

5 Rabbit Brewery has been a brewery plagued by lawsuits.  The brewery was founded in 2011 by Mexican and Costa Rican nationals and the brewery had explosive popularity and growth.  A latin themed brewery in Illinois is an adventurous angle and the beer, theme, and brewery philosophy seemed to resonate with fans.

Yet within two years co-founder Andres Araya sued his partner Isaac Showaki alleging that Showaki told multiple people that Araya had stolen money from the brewer specifically $25,000 from an investor and that he had an extra-marital affair with a former female employee.

The relationship between the owners had clearly soured and a defamation lawsuit seemed to have been the death knell as the duo split.

The Chicago Tribune is reporting that 5 Rabbit is again facing legal trouble as four of the brewery’s original investors have sued Andres Araya and Randy Mosher who is a minority owner and crafter of the brewery’s early recipes.

The fiscal details are rather complex but the Tribune offers an explanation of the alleged complex scheme.

  1. Before Isaac Showaki’s departure from 5 Rabbit, Andres Araya sold 11 shares of 5 Rabbit to Diego Foresi for $250,000.  (Isaac Showaki and the other plaintiffs were unaware of this sale of stock.)
  2. Andres Araya allegedly chose to treat the Foresi stock purchase funds as debt, not equity.  (The company owed a quarter million rather than having a savings of that value.)
  3. 5 Rabbit then hired a company to determine the brewery’s value instructing them to also treat the $250,000 as debt.
  4. The defendants then created a Delaware company called Benjamin Thomas Inc that with the combined shares had controlling interest of 5 Rabbit brewery.
  5. Benjamin Thomas Inc and 5 Rabbit enacted a short-form merger that forced out Showaki’s investors at a stock price determined on the quarter million debt.
  6. Once the investors were out the $250,000 debt was converted to equity and the value of 5 Rabbit increased significantly.

The article states that when investors were forced out by the merger they lost nearly $2,000 per share.  Which is a considerable amount of money for each share.

One would think that both parties could find a way to part amicably but when it comes to personalities it can be difficult.  It seems clear that if this allegations are true that Andres Araya and cohorts truly screwed his initial investors pretty seriously out of some real money.

Yet the pain doesn’t stop there.  It appears that Showaki is suing 5 Rabbit’s lawyer, Timo Rehbok (who just happens to be the brother-in-law of Araya) alleging that Rehbock helped Araya sell the shared to Foresi, which diluted Showaki’s stake in the company.

As a craft beer enthusiast you want every brewery to find success and to be staffed solely with angels.  Yet when passions flare and money becomes an issue brewery owners and operators, regardless of craft brewery status, can truly be trouble.

I hope 5 Rabbit gets itself sorted as their beer has a respectably reputation.  It would be tragic if fine beer was no longer brewed because of unrelated legal strife.