REVEERE, MASS. — An auction for certain brands and equipment of the New England Confectionery Co. will take place Sept. 26-28 in Revere. Meanwhile, a lawsuit involving the sale of the 171-year-old candy maker has a new twist. Round Hill Investments, L.L.C., which bought and then sold the bankrupt Necco in a span of less than two months, on Aug. 8 filed multiple counterclaims in a lawsuit that seeks payment from Round Hill.
Round Hill Investments, owned by C. Dean Metropoulos and his sons Evan and Daren, bought Necco on May 31 and then sold the company to an undisclosed buyer in late July. Union Confectionery Machinery, which has a U.S. office in Harrison, N.Y., is representing the undisclosed buyer at the auction, said Jim Greenberg, owner of Union Confectionery Machinery.
The undisclosed buyer will keep the brands Necco wafers, Sweethearts and Canada Mints, along with certain equipment, and set up manufacturing operations at another location, not Revere, Mr. Greenberg said. Brands for sale include Mary Jane, Mighty Malts milk balls, Haviland thin mints, Clark Bar and Sky Bar, Slap Stix, Peach Blossoms and Banana Splits. The brands are for sale now, and it’s possible they all will be sold before the Sept. 26-28 auction, Mr. Greenberg said.
The lawsuit centers around how much Round Hill Investments knew about Food and Drug Administration food safety problems at the plant in Revere before buying Necco.
Harold B. Murphy, Chapter 11 trustee of the New England Confectionery Co., Inc., filed the lawsuit July 3 in a U.S. Bankruptcy Court in Boston. 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.
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.
Round Hill 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 Investments filed a counterclaim on Aug. 8, alleging that Mr. Murphy and/or his agents fraudulently induced Round Hill to purchase the assets of Necco. The counterclaim said Mr. Murphy breached the contract through his actions and asked the court for more than $2 million in damages.
“Had Round Hill known the truth, it would never had entered into these transactions in the first place, let alone at the agreed price,” Round Hill said in its court filing.
Round Hill acknowledged that it received the F.D.A. letter on May 21 but said Mr. Murphy, before the sale closed, gave false representation that the F.D.A. issues were under control. Mr. Murphy also gave false representation in saying that insurance was in place for the facility, with Round Hill Investments and its affiliate, Sweethearts Candy Co., L.L.C., also being insured, according to the court filing.
After the sale closed on May 31, Round Hill discovered the F.D.A. issues had not been addressed fully, according to the court filing. Damages for the cost to close the facility due to the F.D.A. issues were over $1 million while other damages of over $1 million came because the Necco assets purchased by Round Hill were worth less than the assets would have been if Mr. Murphy had complied with his end of the bargain, according to the court filing.
The Metropoulos family has invested in about 80 entities over nearly 40 years and has reinvigorated such brands as Hostess, Chef Boyardee and Vlasic.