A verified complaint filed Tuesday in Jefferson County Business Court contains details of a $69 million lawsuit against Bluegrass BioExtracts, Owensboro’s first industrial hemp processing facility, which opened its doors in early 2019. The complaint was filed by former BBE owner Gerald Edds.
The complaint cites a number of reasons for the suit, but the central argument Edds’ attorneys at Louisville-based law firm Bingham Greenebaum Doll LLP make is that DTEC Ventures, LLC — a Nevada-based limited liability company — signed purchase and royalty agreements for BBE in Oct. 2019 that haven’t been followed through on.
“This case presents a clear breach of contract case,” the complaint states. “BBE, LLC and DTEC Ventures, LLC have unequivocally failed to honor their obligations under the Purchase Agreement and the Royalty Agreement. In fact, Defendants have never paid one penny due under these agreements executed just two months ago.”
The complaint also alleges that DTEC acquired all of the equity interests in BBE from those who’d made investments in the company and immediately began to divert BBE’s assets, including cash and equipment.
The complaint describes BBE, founded in 2018 by Edds and Bruce Peters, as an industrial hemp processing plant that wanted to create opportunities for local farmers that didn’t have the “specialization to process industrial hemp, but had the skills and resources to grow hemp.”
As time demands and management obligations became more substantial over time, the founders sought assistance in managing the day-to-day operations at BBE. So in September 2019, BBE entered into a management service agreement with Omny Management, LLC, run by Joseph Gomez and Nathan Yates.
The complaint states that Gomez had unknown ties to DTEC, so when he requested BBE turn the company over to DTEC, Edds and his team had no reason to believe they were being misguided. According to the suit, Gomez had financial and professional investments in the company that BBE was about to sell to.
A Purchase Price Payment of $75 million was originally established between Edds and DTEC, to be made payable in two installments. The buyer was required to pay Edds and his partners $40 million at closing, and the rest by March 2, 2020. However, Edds received a phone call asking him to fly to California immediately and negotiate the purchase agreement.
Edds flew to California on Nov. 8 to meet with representatives from DTEC. However, instead of meeting the people he’d flown in to speak with, Edds was greeted by a person he was unfamiliar with — Daniel Chartraw — who primarily negotiated on behalf of DTEC.
“Daniel represented himself as the managing partner of DTEC,” according to the complaint. “However, Daniel was not, and is not, listed as a member of DTEC in corporate filings with the Nevada secretary of state.”
The complaint describes Chartraw expressing his concerns with Edds over BBE, claiming he’d discovered discrepancies in his due diligence to his company. According to the suit, these representations regarding the due diligence were false, but they were used to convince Edds that the price of BBE was falling and “time was of the essence to close the transaction.”
According to the suit, Chartraw also told Edds DTEC couldn’t put any money upfront for the purchase of BBE.
An amended purchase and sale agreement was given to Edds, as well as an amended royalty agreement, and Edds was told it was a “take it or leave it” proposition based on due diligence.
Yates and Gomez said Edds should take the deal and accept the offer immediately, as BBE might not survive without it, even telling Edds that DTEC was about to walk away from the deal if he didn’t sign immediately. On Nov. 14, 2019, the founders and owners of BBE agreed to sell the company to DTEC under the revised terms and agreements.
“BBE was to immediately create an escrow account and to deposit an amount of 25 percent of the monthly net income of the BBE’s prior month’s net income with initial payments no later than Jan. 15,” the complaint states. “[For the royalty agreement], DTEC must provide a minimum mandatory amount into the escrow account. $1 million was to be deposited by Jan. 15, $33 million by March 2 and $35 million by May 1.”
The suit states not only have Edds and his business partners not been paid in accordance with the contracts but that as of Jan. 16, 2020, BBE has ceased operations completely and has laid off the majority of its workforce.
Edds and his team also believe BBE is failing to honor growing contracts with farmers, the suit states.
The complaint claims that Edds and those he represents have not been allowed inside the facility to audit or inspect, despite being given visitation and audit rights as part of the agreement.
“In clear violation of their obligations under the Purchase Agreement, Defendants have shut down operations at BBE and failed to honor BBE’s contracts with contractors, suppliers or even pay BBE’s employees all that they are owed,” the suit states. “Without operations, Defendants will not have the ability to pay the $69,000,000 that is now due and owing under the Royalty Agreement.”
