7 Brew Coffee Co. is in a legal dispute with Jimmy John Liautaud, the billionaire founder of the Jimmy John’s sandwich operation, over ownership of the rapidly expanding coffee shop chain based in Fayetteville.
You may remember Arkansas Business reporting on a lawsuit filed Jan. 13 in Benton County Circuit Court by Stillwater Brew LLC, a Delaware company of which Liautaud is a principal. Stillwater sued Drink House Holdings LLC, the parent company of 7 Brew Coffee, and Bar 7 Bar LLC, the manager of 7 Brew. Both Drink House and Bar 7 Bar are based in Wyoming.
Stillwater’s complaint said that it’s a member of Drink House Holdings and that Bar 7 Bar had failed to respond to multiple requests by Stillwater to review the company’s books. “As an owner of the Company, Stillwater has the explicit right (as does any other owner Member) to review the Company’s books and records,” the suit said.
Late last month, Drink House and Bar 7 Bar responded to the lawsuit, claiming that not only had Stillwater been given the opportunity to review the company’s books, but that Stillwater has no ownership interest in the company.
Drink House and B7B said that the ownership agreement cited by Stillwater isn’t a valid contract “because there was no meeting of the minds as to the performance required by Stillwater in the Agreement.” And even if a court determines that it was a valid contract, “Defendants were fraudulently induced into making the contract.”
Drink House and B7B went on to file a counterclaim against Stillwater in which they allege that Liautaud failed to live up to promises that he would help the company develop its franchise program.
Specifically, the counterclaim said, “Mr. Liautaud stated that he had access to the franchisees of Jimmy John’s, that he would contact those franchisees on Drink House’s behalf regarding this new franchising opportunity and that he would attempt to persuade them to become 7 Brew franchisees.
“On multiple occasions, Mr. Liautaud told Drink House that he would have no problem accessing the franchisee relationships of Jimmy John’s such that he was confident he would sign up in excess of 500 7 Brew Coffee franchisees for Drink House.”
That didn’t happen, Drink House and B7B said.
What’s at Stake
The question of ownership could involve millions of dollars. The Drink House counterclaim said that the plan was to give Stillwater a more than 22% “profit interest” in Drink House. 7 Brew Coffee is growing fast, with CEO John Davidson telling Arkansas Business earlier this year that the chain was “closing in on 3,000 units sold. I think we’ll get there this year for sure.” The website currently lists 69 locations.
Back in March 2021, a news release touted a majority investment in 7 Brew by Drink House Holdings, described as a “partnership focused exclusively on the consumer sector.”
“The Company also unveiled plans to launch its franchising program, fueling accelerated growth and expansion across the country,” said the March 23, 2021, news release announcing the investment.
The release said Drink House was led by Jamie B. Coulter, founder of Lone Star Steakhouse, and Liautaud. Coulter died June 24.
The counterclaim described Drink House’s formation on Jan. 2, 2020, and said the company bought a controlling interest in Brew Culture LLC, “which would thereafter operate the 7 Brew Coffee business alongside the previous owners.”
In the summer of 2020, Drink House and Stillwater began talking about Stillwater’s ability to help expand the 7 Brew business by developing a franchising program, the counterclaim said.
“Drink House began these conversations with Stillwater specifically to gain the assistance of Mr. Liautaud, who is Stillwater’s principal,” the filing said, going on to describe him as “well known in the industry and … recognized for having developed and implemented a highly successful franchising operation at Jimmy John’s before selling the company in 2019.”
On Sept. 23, 2020, an agreement between Drink House and Stillwater was signed. “Then suddenly and unexpectedly, Stillwater ceased its involvement and support for 7 Brew,” the counterclaim said, and Drink House has not heard from Stillwater since November 2021 about developing the franchise business.
The counterclaim requests a declaratory judgment that the Sept. 23, 2020, agreement is not valid. It also seeks compensatory and punitive damages and attorney’s fees.
The lawyers for Drink House and B7B are Robert A. Sacks of Sullivan & Cromwell of Los Angeles and Marshall Ney and Alexa Mizer of Friday Eldredge & Clark of Little Rock.
The lawyer for Stillwater is Todd P. Lewis of Conner & Winters of Fayetteville.