Jolt Cola Inc. founder C.J. Rapp has filed a $31 million lawsuit targeting the New York City-based private-equity firm that took over the company, moved it to New Jersey and ousted him earlier this year.
A complaint filed Friday by Rapp in state Supreme Court in Monroe County accuses Emigrant Capital Corp. and several Jolt board members linked to Emigrant of forcing the company into a “growth at all costs” strategy that brought Jolt to ruin.
The lawsuit follows a Chapter 11 bankruptcy filed by Jolt and dismissed by the court. In the bankruptcy, Jolt CEO Robert Clamp, who replaced Rapp after Emigrant’s takeover, laid out a plan under which Jolt would be sold to the highest bidder in a bankruptcy auction.
The bankruptcy was dismissed last month after a hearing in which Rapp sought to have the case converted to Chapter 7 liquidation and accused Emigrant’s Ohio-based bankruptcy lawyer of failing to disclose an alleged conflict of interest.
In the state court action, Rapp claims that after maneuvering Jolt into running up $1.9 in red ink, Emigrant forced the company into the bankruptcy as ploy to allow the private-equity firm to acquire Jolt’s assets at a fire-sale price to the detriment of Rapp and other minority shareholders.
Rapp founded the high-caffeine cola company in 1985, creating the forerunner of what became a crowded energy-drink market that other bigger and better financed bottlers came to dominate.
In bankruptcy court filings, Clamp, who simultaneously heads Jolt and Boylan Bottling Co., an Emigrant owned soft-drink firm in New Jersey, blamed Jolt’s downfall on a strategy Rapp pursued to bottle Jolt in expensive screw-top “battery” bottles.
In court papers, Clamp blames a contract Rapp allegedly inked with the Chicago-based Rexam Can Co. for much Jolt’s ill fortune. The contract required Jolt to buy some 1 million battery bottles, a provision Jolt could not fulfill as its sale slumped, Clamp states in court papers.
In the state court action, Rapp accuses Emigrant of engineering a “sub rosa” combination of Boylan’s and Jolt’s assets as part of a plan to take over the Rochester company. After upping its investment in Jolt and becoming a majority owner in early 2009, Emigrant kept him and a lone independent director remaining on Jolt’s board in the dark while Emigrant’s handpicked directors approved a bargain-priced sale of the company to Emigrant and voted to proceed with the Chapter 11 as a means of acquiring the company, Rapp claims in the state court complaint.
Emigrant, and not Rapp, arranged the Rexam contract in “sham negotiations,” Rapp maintains.
After being forced to withdraw the bankruptcy filing, Emigrant is planning to pursue the same end under the so-called Article 9 provision of the Uniform Commercial Code, the Jolt founder claims.
Clamp referred questions on the lawsuit to Emigrant’s bankruptcy attorney William Kohn of Benesch, Friedlander, Coplan & Aronoff LLP in Cleveland.
Kohn said he was baffled by Rapp’s suit. Emigrant only had invested in Jolt since January, while Rapp had long been an officer and director of the company and therefore bore greater responsibility for Jolt’s financial ills, the attorney said.
Kohn said he was not sure of what path Emigrant would pursue now but that the New York City firm’s main goal is to see Jolt’s creditors paid. Emigrant, which had been willing to advance a $1 million to fund a Bankruptcy Court auction, believed the transparency of a court-supervised sale would have been a the fairest and best way to achieve that goal, Kohn said.
Bankruptcy Court filings list Emigrant and an Emigrant affiliate as holding some $2.4 million of Jolt’s $2.95 million in secured debt.
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