New Glarus Brewing co-founder and CEO Deborah Carey called a lawsuit filed last week against her and her Wisconsin craft brewery by three minority investors “slanderous,” and she said she plans to file a counter complaint.
“These things are so egregious and so ridiculous, they’re going to be easy to defend, easy to prove,” Carey told Brewbound. “I’ve got the slander suit all lined up.”
The three original investors in New Glarus claim in their lawsuit, filed in Wisconsin’s Dane County Circuit Court, that Carey breached her fiduciary duties and the company has oppressed minority shareholders.
“Deb Carey operates the company with no regard for established corporate rules and instead exercises complete autocratic control with no personal accountability,” the complaint reads.
The plaintiffs — Steven Speer of Camas, Washington; Roderick Runyan of Lawrence, Kansas; and Karin Eichhoff of Middleton, Wisconsin, who inherited her shares after the 2015 death of her husband Dierk Eichhoff — have owned shares, currently amounting to 12.46% of the craft brewery, since its founding in 1993.
According to the complaint, Speer owns 1.71% of the company’s voting shares and 3.85% of the overall business; Runyan owns 0.46% of the voting shares and 0.91% overall; and Eichhoff owns 3.41% of the voting shares and 7.7% overall. Eichhoff and Speer are the third- and fourth-largest shareholders, following Carey (50.48% of the voting shares and 37.98% of the company) and its Employee Stock Ownership Program (ESOP), which holds 26.6% of the voting shares and 20% of the overall business.
In the lawsuit, the plaintiffs claim that New Glarus has “compiled $100 million in retained earnings and $40 million in cash, and repeatedly refused to distribute any of those profits and reserves beyond the tax distributions that are specified in the shareholder agreement.”
Carey disputes those claims.
“There they are, sending out a press release that no dividends have been paid and Deb’s taken $100 million from the brewery,” she said. “Are you out of your ever-loving fucking mind? I just got audited by the state, a two-year audit. They started out thinking I was going to owe them this huge amount of money. They owed us at the end over $100,000. You think they wouldn’t have noticed that I pilfered $100 million?”
The lawsuit also alleges that “although the brewery has become extremely successful over time, the defendants have thwarted the reasonable expectations of sharing in the profits and have instead operated the brewery for the benefit” of Carey and her husband, Dan Carey. New Glarus is the nation’s 12th largest craft brewer by volume, according to the Brewers Association. It produced 206,302 barrels of beer in 2020 — all sold within the borders of its home state of Wisconsin.
“Where you see the oppressive conduct is that Deb Carey has given herself more and more control of the brewery, and she gets to decide where the money goes and what’s done with it,” Kevin Palmersheim, the attorney representing Speer, Runyan, and Eichhoff, told Brewbound. “The last straw was this recent shareholder agreement she’s proposing.”
In June, New Glarus proposed a new shareholder agreement that would allow the company to offer shareholders “an annually fixed internal price that could be substantially lower” than offers made by third parties to purchase their shares, and give the company the ability to purchase some, but not all of a shareholder’s shares, which would allow it to selectively acquire more voting shares, according to the complaint.
The proposed agreement also specifies that shareholders are only permitted to donate their shares to New Glarus’ Only In Wisconsin Giving, Inc., a non-profit foundation Carey set up this year, according to the lawsuit, and adds a clause that reads “all parties agree that it is in their mutual interests ‘to preserve local ownership of the brewery.’”
According to Carey, the company presented the proposed agreement with shareholders more than a month before the June meeting and advised them to consult their personal attorneys and come prepared with questions. During the meeting, Speer opposed the changes to the shareholder agreement.
“Steve in particular was upset, and we were like ‘OK, we’ll put a pause on this — let me make these changes that you’re asking for and we’ll send it to you to review and make commentary and see if we can find some middle ground,’” Carey said. “He said he wanted to work with us and was supportive of what I was doing.
“Where in this is oppression?” she asked. “They say, ‘She changed it.’ No, I did not change it, I want to change it. I talked to you about changing it. You don’t think in 30 years, I’m going to propose some changes?”
Carey, her family members and the ESOP that New Glarus instituted in 2015 are not beholden to the shareholder agreement, and Carey does not intend to sign an agreement herself.
“Well, there’s really no reason to,” she said. “I am the founder and the president; my initial contract with the brewery was for three years, and I have worked there for almost 30, so I have given my life and an enormous amount of time and energy to building this business. These people invested a few thousand dollars and stay at home and collect checks. Now, why should I have the same agreement they have?”
Speer — a neighbor of the Careys in Fort Collins, Colorado, before they relocated back to Wisconsin — and Eichhoff’s late husband assisted in the brewery’s formation, according to the complaint. Speer helped the Careys write a business plan and Eichhoff recommended the village of New Glarus as a location for the brewery, “given its old world European charm [that was] suitable for Dan’s beer styles, and a community that would be supportive of the new business, combined with the advantages of the close proximity to the larger Madison metropolitan area,” according to the lawsuit.
In 1993, Speer invested $25,000, which “represented virtually his entire savings” that he had “inherited from his deceased father.” Dierk Eichhoff invested $12,500 and acquired additional shares as the company grew, according to the complaint.
In 2019, the plaintiffs sold some of their voting class shares to New Glarus, which allocated 40 shares acquired from Runyan to the ESOP, but not the 1,250 and 625 it purchased from Eichhoff and Speer, respectively.
“Upon information and belief, the reason for this purchase structure was to retain Deb Carey’s slight majority control of the issued and outstanding voting shares and that assigning Eichhoff[‘s] and Speer’s voting shares to the ESOP could lead to Deb Carey owning less than 50% of the outstanding voting shares,” the complaint said.
The plaintiffs’ goal is to sell their shares after a judge determines “a fair value” for them, Palmersheim said.
“Up until May of this year, their long-term goal was to absolutely remain a shareholder,” he said. “They were founding shareholders so they wanted to just remain and work these things out in the New Glarus brewery family. Now they just think it’s just gone on to the point where that’s going to be impossible.”
In regards to the valuation of the company, all parties are in disagreement. The lawsuit alleged that the company “refused to disclose financial information and valuation information to the minority shareholders, even after shareholder requests.” However, Carey said this is untrue and added that the company’s valuation must be calculated annually for its ESOP, which is available for shareholders to see.
“They have at minimum a reviewed financial [statement], the valuation and an annual meeting, plus four communications with their dividend checks,” she said. “I don’t know, what do they think they should be getting?”
The most recent ESOP valuation placed New Glarus’ value between $92.8 million and $113 million, according to the lawsuit. Carey estimated that it’s closer to $100 million. But based on recent acquisitions and other traits about New Glarus, Palmersheim estimated the value is between $350 and $500 million.
“This brewery is extremely profitable for the level of sales that it has,” he said. “It has zero debt; it’s expanded and bought all the land around it and built two new facilities. So, it’s a little different animal than the other craft breweries that I’ve seen.”
The plaintiffs allege that Carey has “refused to disclose outside offers” would-be buyers have made for New Glarus. Carey told Brewbound that New Glarus has been approached by Anheuser-Busch InBev (A-B) and Gambrinus, the former she recounted in “The Tale of the Spotted Cow,” a 2015 documentary about the company. The complaint notes that Carey received an offer of $100 million for 10% of her shares, which Carey reiterated to Brewbound was a proposed deal from A-B several years ago. “The talks didn’t go very far,” she said.
“They’re not looking to buy out the investors. They’re not even coming in and offering a pile of money for the brewery, they want to buy 10% of my stock,” Carey added. “What they say is, ‘We’ll bring in people to help you manage the brewery’ — and here I’m doing air quotes — and of course they want me and Dan to stay there and keep working. And I think I’m like, I cannot imagine a worse, horrible reality than I’m not in charge anymore, but I have to stay there and work. No, no, this is not interesting.”
At the crux of the lawsuit are three claims:
- The brewery committed securities fraud when it acquired shares from each plaintiff in 2019 and “omitted to state material facts to the plaintiffs,” including offers made to Carey to acquire the brewery and that the shares “were worth significantly more than a discounted price from the per share ESOP valuation.”
- Carey breached her fiduciary duty “by using New Glarus Brewing profits and resources to fund her own personal interests,” including a distillery created with company funds and employees’ labor that is owned solely by the Careys and the Only In Wisconsin Fund, which employees serve while being paid by the brewery. Carey told the Wisconsin State Journal the distillery had to be incorporated as a separate entity by law.
- New Glarus and Carey have engaged in “minority shareholder oppression” when they “refused to pay dividends to shareholders beyond distributions to cover taxes associated with the substantial income generated by the brewery” and through Carey’s “proposed oppressive changes” to the shareholders agreement and the company’s articles of incorporation.
The plaintiffs are asking a judge to order New Glarus to acquire their shares “at fair value” and pay their attorney fees; that Carey step down as the company’s sole director or that “independent directors” be appointed; that all non-voting shares be converted to voting shares; and that a judgment be made against Carey “for breach of fiduciary duty” and against the company “for aiding and abetting her” and for damages plaintiffs sustained as a result of the alleged securities fraud.
Palmersheim said the defendants don’t begrudge the Careys for their success and appreciate Dan Carey’s brewing talent, but want fairer treatment as shareholders.
“I do a lot of these types of cases in representing closely held businesses,” Palmersheim said. “I have never seen a particular case where I’ve seen such an extreme level of majority control and oppression in this particular case with New Glarus Brewery.”
Carey took particular umbrage with the lawsuit’s request that she be forced to step down or step aside for independent directors.
“I started this brewery with $237,000 — that would be a GoFundMe today,” she said. “With $237,000, I had built a multi-million dollar business … and somewhere in America, there’s someone else who can do my job? Please, show me another brewery who has outperformed me.”
Carey sees the lawsuit as the crystallization of a larger issue: Who should benefit from a company’s success?
“There is a lot of chatter about who should get the money, and I feel like there’s enough money to go around, and I’m really proud of the balancing I’ve done to really take care of my investors, and really take care of my people,” she said. “It’s interesting when this big national conversation gets down to a local level because that’s what you see now. Out of all of my investors, I’ve got three of them that are pissed off, and are going to try to destroy the company. Now, should they get to do that? Are they so important that the rest of the investors and all the employees and myself and my husband should all suffer?”
The first time Carey said she sensed frustration among some shareholders was during the June meeting when she recapped the year and explained how New Glarus did not lay off any employees or cut their hours during the pandemic, nor apply for a loan from the U.S. Small Business Administration’s Paycheck Protection Program (PPP). Speer pushed back against those decisions, she said.
“I, basically in his opinion, wasted money keeping people,” Carey said. “I should have sent them home and saved some money, applied for PPP and all these additional funds.”
In addition to the plaintiffs, New Glarus has nearly two dozen other investors. The complaint said the company has 25; Carey said there are 27. After Carey and Speer’s standoff during the meeting, several other investors thanked her for her stewardship and assured her they were pleased with her leadership, Carey told Brewbound.
Carey colored the lawsuit as “a vendetta” both “personal and political” on the part of Speer, who she said has encouraged the brewery to hire his son, a trained professional brewer. The complaint noted that “one of the plaintiffs’ children was denied employment despite his college degree and experience being specific to brewing beer,” and contrasted this with the fact that the brewery has employed the Careys’ daughter Katherine E. May as an architect.
“Steve being upset that we didn’t hire his son is not going to get me to sell the brewery — we’re not going anywhere,” Carey said. “I don’t cave to bullies, and I don’t start fights, but I will finish them.”