BOSTON — Considering a bankruptcy, a warning letter from the Food and Drug Administration and a lawsuit seeking payment, perhaps the closing of the Necco plant was not that surprising.
Round Hill Investments L.L.C., owned by C. Dean Metropoulos and his sons Evan and Daren, on July 24 shut down the plant in Revere, Mass., that makes the candy wafers and other confectionery items. The closing came less than two months after Round Hill purchased the 171-year-old candy maker out of bankruptcy.
“We are disappointed that Round Hill could not follow through on the enthusiasm it expressed when it acquired Necco barely two months ago,” said Brian Arrigo, mayor of Revere, on July 25. “We received no advance word about the situation from any representative of any of the involved parties and only learned about it after receiving media inquiry.”
An article online July 25 in The Boston Globe said Round Hill already had sold Necco to another candy maker, but the Metropoulos family did not reveal details on the sale, including the buyer.
Metropoulos & Co. could not be reached for further comment.
The lawsuit seeking payment from Round Hill Investments centers around if Round Hill, before buying Necco, knew how severe the problems were with the F.D.A. Harold B. Murphy, Chapter 11 trustee of the New England Confectionery Co., Inc., filed the lawsuit in a U.S. Bankruptcy Court in Boston on July 3. It accuses Round Hill of “breach of contract and for unfair and deceptive business practices,” alleging Round Hill failed to pay $250,000 due on June 30 and renounced the remainder of its $1 million post-closing payment obligation.
The lawsuit alludes to the F.D.A. warning letter that Necco received May 16, or before Round Hill bought the company. The letter said the F.D.A. inspected the Necco manufacturing facility from Nov. 13, 2017, to Dec. 14, 2017, and found evidence of rodent activity and insanitary conditions throughout the facility.
“Based on these analyses and findings, we have determined that your candy products are adulterated within the meaning of section 402(a)(4) of the Federal Food, Drug, and Cosmetic Act (the Act), 21 U.S.C. § 342(a)(4), in that they have been prepared, packed, or held under insanitary conditions whereby they may have become contaminated with filth, or whereby they may have been rendered injurious to health,” the letter said.
The warning letter did not conclude Necco’s remediation efforts were inadequate but reserved judgement, according to the lawsuit. Since Necco had filed for bankruptcy on April 17, the warning letter was e-mailed May 21 to bidders for the company, including Round Hill, according to the lawsuit. The F.D.A.’s findings on Necco also appeared in media outlets such as The Boston Globe, USA Today, The Pittsburgh Post-Gazette and a Boston TV station.
The Spangler Candy Co. made a top bid in a May 23 bankruptcy auction, but that deal fell through.
Round Hill then bought the company in a deal requiring Round Hill to pay the Chapter 11 trustee, Mr. Murphy, $17,330,000, consisting of $16,330,000 in cash at closing and $250,000 to be paid on each of the following dates: June 20, July 30, Aug. 31 and Sept. 30. The deal closed on May 31 as Round Hill made the scheduled payment of $16,330,000.
Round Hill on June 22 e-mailed Mr. Murphy about matters that had a “significant impact” on Round Hill’s ability to turn the struggling Necco business around, according to the lawsuit. The e-mail alluded to the F.D.A. warning letter and said Round Hill understood that Necco had taken care of the matter but after buying the company found out that was not the case. The lawsuit alleges Round Hill, when making its bid for Necco, knew the F.D.A. matter had not been resolved.
The lawsuit requests that the bankruptcy court award the Chapter 11 trustee, Mr. Murphy, all unpaid amounts.
Besides its namesake wafers, Necco also produces such items as Sweethearts candies, Sky Bar and Clark Bar. The Metropoulos family has invested in about 80 entities over nearly 40 years and has reinvigorated such brands as Hostess, Chef Boyardee and Vlasic.