It isn’t yet clear why Spokane Valley-based Zaycon Foods LLC suspended its operations late last month, leaving customers feeling duped. But a legal fight stretching back more than a year between the food distribution company’s former CEO and its four managing members sheds light on issues and conflicts within the business.
Richard Braddock has sued Zaycon and its four managers, seeking $6.5 million in damages for what he alleges is fraud, lying, hiding of information and conspiring to have him fired as CEO.
On its website, Zaycon states it “has put forth monumental efforts to endure recent challenges but conditions are such that this suspension is necessary.”
The Seattle law firm Ryan, Swanson & Cleveland PLLC, which is representing Braddock, did not immediately return a call Thursday from The Spokesman-Review. Spokane-based Lee & Hayes PLLC, which is representing the defendants, did not respond to requests for a comment.
After Zaycon suspended operations June 25, dozens of customers took to social media, commenting online on media stories and on Yelp.com. Some said they hadn’t received their orders or were not reimbursed.
Braddock filed the lawsuit in Seattle federal court in November 2016 after he was fired as CEO, even though, the lawsuit states, he was a successful manager and grew the company’s revenue from $16 million to $25 million from 2014 to 2015, with projected growth of $73 million in 2016.
The problems between Zaycon and Braddock began as soon as he was hired in 2014, according to a court documents.
Zaycon Foods started in 2010 with the idea of shipping meats and other food directly from farms to consumers, “bypassing the normal maze of wholesalers …” to offer savings of up to 50 percent.
Four years later, the managing members of the startup – Mike Conrad, Frank Maresca, Michael Giunta and Adam Kremin – were looking for investors. At the time, the company was “floundering” because of a lack of capital and leadership, Braddock’s lawsuit asserts.
That’s when the four managing members recruited Braddock, who had a successful history of investing in startups and corporate management. Braddock had been president and chief operating officer of Citicorp, which owns Citibank; the CEO of Priceline.com; and the CEO of FreshDirect, an online grocery delivery company.
The lawsuit states that in initial talks with Braddock, the four defendants lied and failed to reveal the proper distribution of their voting stock.
Braddock then joined their ranks by investing $2.45 million in the business over two years and also provided about $1.7 million in convertible debt to Zaycon.
By September 2015, however, Braddock began to suspect the four defendants’ claims about the company’s financial and operational strength had been untrue, and he decided to take a more active role in the management, court documents state. A month later, he became CEO of Zaycon and received more voting stock.
Things heated up in April 2016 when Zaycon’s growth caught the eye of a big investor – a private equity firm called Great Hill Partners, which offered to invest $25 million in the company. Great Hill would spend $10 million buying equity from the four managing members and Braddock, and $15 million would go directly to the company to grow it.
Court documents state the four managing members then realized they would lose control of the company to Great Hill and Braddock if the deal went through because the two would be the largest investors.
Thus, they began an alleged “conspiracy to oust Braddock,” the lawsuit states, with Maresca, Giunta, Conrad and Kremin looking for ways to get rid of the CEO but also hold on to the Great Hill deal.
They needed 80 percent of the voting stock to fire Braddock, which the lawsuit states they didn’t legally have. The complaint also states the defendants were keeping Braddock in the dark about the actual distribution of the stock when he was hired.
The lawsuit also alleges the defendants spread rumors that Braddock wanted to kill the deal with Great Hill, using the misinformation to persuade others to vote to fire him, the complaint states.
With Braddock gone, however, Great Hill left negotiations, because Zaycon had lost its leadership, the lawsuit states, leaving Zaycon starved for the capital needed for growth and rendered the company unable to pay back money it owed Braddock.
In the next mention of events in the lawsuit, Braddock approached Zaycon with another potential investor, Spring Lake Equity Partners, with an investment of $7 million. But the defendants rejected the offer out of hand and didn’t offer a counter.
The complaint also states that Braddock was told Zaycon would buy out his interest with revenue generated from the Great Hill deal, but that fell through because of Braddock’s firing.
The suit’s claims include law fraud, negligence, breach of contract and breach of fiduciary duty.
The defendants filed a motion in April 2017 to dismiss Braddock’s lawsuit but were denied by Judge Thomas S. Zilly of the U.S. District Court for the Western District of Washington in Seattle.