The Bucks County distillery behind the popular Faber liquor line has filed for Chapter 11 bankruptcy protection as the co-founders engage in separate litigation alleging shareholder oppression and wrongful use of company resources to aid a spouse’s local business.
Midnight Madness Distilling LLC, which rebranded in 2018 under the name Theobald & Oppenheimer, has both assets and debt valued between $1,000,001 and $10 million, according to June 21 filings in the United States Bankruptcy Court for the Eastern District of Pennsylvania. Located at 118 N. Main St. in Trumbauersville, the company produces its own liquor products and also provides co-op canning, bottling, packing and other services at its more than 160,000-square-foot warehouse.
Midnight Madness Distilling was founded in 2012. The concept was born out of a group business project by co-founders Anthony Lorubbio and Casey Parzych during an Intro to Entrepreneurship course at Carnegie Mellon University in Pittsburgh the preceding year. Holding nearly 47.2% total company interest but 4,550 (52.43%) Class A units, Parzych is the company’s majority shareholder, while Lorubbio holds almost 39.4% total company interest and 3,798 Class A units, per court documents.
A sale of the company's assets, including its Trumbauersville building, is in the works as part of the bankruptcy proceedings in a move that aims to retain the approximately 80 full-time and part-time jobs at the distillery as well as Midnight Madness' relationships with other businesses, said Harry Giacometti, a lawyer at Flaster Greenberg PC who is representing Midnight Madness. The distillery's products, such as Faber spirits, are used in bars throughout Philadelphia and carried in Pennsylvania Fine Wine & Good Spirits stores.
Inside the bankruptcy
The distillery is in default with its primary lender PNC Bank and “its business operations are losing money,” according to bankruptcy court documents.
PNC has multiple credit facilities outstanding to Midnight Madness including on the distillery’s mortgage, a line of credit, and equipment financing, Giacometti said. A default on one of the loans resulted in all of them being cross-defaulted and cross-collateralized, he added.
Bankruptcy filings indicate Midnight Madness is in debt to between 50 and 99 creditors. Of the top five, three are entities affiliated with PNC Bank for combined unsecured claims totaling upwards of $1.75 million.
The largest creditor is Polebridge, a limited liability company created in April 2019 that also lists 118 N. Main St. as its business address and appears linked to Faber’s sanitizer line, according to public records. That claim is for more than $4.73 million, and is noted as “contingent,” “unliquidated” and “disputed.” Also in the top five creditors is Mike Boyer of Wilmington, Delaware-based Spectre Distributing LLC, who is owed $525,000.
A motion has been filed to approve the sale of Midnight Madness' assets to a buyer that intends to come in and “operate it much the same way that it’s operated now,” including by keeping existing employees working and paying creditors in full, Giacometti said.
Without “outside investment” and continued support from the buyer and buyer affiliates (denoted as AgTech VI LLC, EtOH Worldwide LLC and XO Energy Worldwide LLP), Midnight Madness “will be unable to pay debt service and continue operations,” according to court documents.
Buyer affiliates “have made a substantial investment” in the distillery’s operations to keep it afloat. That includes leasing canning equipment to the company since February at a below market rate of 12 cents per can in a move that allowed Midnight Madness to generate about 60% of its current revenue, court documents state. The distillery owes more than $140,000 for those services to date, according to the filings.
“At this point, the debtor cannot survive without the buyer affiliates or another purchaser,” court documents note. “Absent consummation of the [Asset Purchase Agreement] and related transactions, the debtor will likely be liquidated, leaving the debtor’s secured lenders with far less than their portion of the purchase price, trade creditors with nothing and approximately 80 employees out of jobs in a small town.”
The buyer affiliates are “running out of patience” due to an “inability to reach a resolution outside of bankruptcy” with Midnight Madness’ secured lender and minority equity holder, the documents add.
A timetable is in place for putting the sale in motion in bankruptcy court, including a June 29 hearing that will allow the distillery to continue operating and using its assets while the sale is pending, Giacometti said. A July 14 hearing is scheduled to review the bidding process for a targeted August sale, he said. Midnight Madness has also hired Bensalem-based Comly Auctioneers & Appraisers to continue marketing its assets in case any other competitive bidders are interested.
The Covid-19 pandemic and associated product shortages played a role in the bankruptcy, Giacometti said. For Midnight Madness employees and companies doing business with the distillery, he emphasized that it’s anticipated the distillery’s operations will continue and jobs will be kept via the sale.
“That’s the whole reason to go through this process and get a new operator in there: to assume the assets and continue to operate the business as it has been,” Giacometti noted.
Lorubbio is no longer involved with Midnight Madness, according to Giacometti. It's anticipated that Parzych will stay on for a transition period following the sale but will otherwise no longer be involved with the company, he said.
Lawsuit alleges misuse of distillery resources
The bankruptcy proceedings come just over two months after a civil complaint was initiated on April 2 in the Court of Common Pleas of Bucks County by Lorubbio against Parzych alleging two counts: breach of contract and breach of fiduciary duty. The lawsuit seeks monetary damages in an amount to be determined by the court but exceeding $50,000.
In his complaint, Lorubbio asserts “minority shareholder suppression.” He states that Parzych funneled Midnight Madness funds and resources to his wife Ashleigh Baldwin’s business Good Design Inc., which manufactures CBD products including the popular beverage line cbdelight, to the detriment of Midnight Madness. Those resources include use of Midnight Madness’ sales team and the distillery’s manufacturing capabilities for Good Design products including cbdelight, which was originally trademarked by Midnight Madness, according to court documents.
Good Design Inc. registered as a fictitious name in February 2020, according to public records. It lists 118 N. Main St. as its business address and indicates it’s owned by Polebridge LLC, which is located at the same address and is the largest creditor listed in the Midnight Madness bankruptcy filing. Midnight Madness filed a trademark application for cbdelight in April 2019, per SEC filings.
Baldwin declined to comment for this story through an employee at the distillery.
According to Lorubbio’s complaint, Good Design Inc. is co-owned by Baldwin and Angus Rittenburg, described as Parzych’s “close friend” and roommate to both Parzych and Baldwin at the time of Good Design’s incorporation. Rittenburg also owns about 3.42% of Midnight Madness and holds 330 Class A Units, making Rittenburg the only other Class A Member owner of the distillery besides its co-founders, according to the bankruptcy filings, which Rittenburg signed alongside Parzych but without Lorubbio.
Good Design kept profits and did not adequately pay Midnight Madness for services rendered, Lorubbio alleges, and upon confronting Parzych, Lorubbio states that Parzych unilaterally and unlawfully stripped him of his CEO role in January 2020. The co-founders alone composed the company’s board of managers.
The lawsuit states Lorubbio was then frozen out of Midnight Madness’ operations and internal systems, that Parzych has gone on to further “devalue” the distillery and is seeking to sell the distillery to a third party without Lorubbio’s consent, thus violating the company’s operating agreement.
In his complaint, Lorubbio claims that as CEO he helped grow the distillery's sales from zero to almost $10 million from 2014 to 2019 with average growth of over 150% year over year.
In preliminary objections filed May 24 on behalf of Parzych, the co-founder asserts that Lorubbio was removed as CEO for causing Midnight Madness “to default on its outstanding debt.” Following the termination, Lorubbio “threw a tantrum” and “locked himself in an office” for hours, prompting employees to evacuate the building for their safety, according to Parzych’s objections.
Lorubbio then “fled the premises with a company car, computer, phone and confidential documents” after cutting a $10,130.23 check for himself as reimbursement for “unauthorized expenses,” per court documents. The company car was subsequently vandalized, according to Parzych's objections. Parzych’s legal team is also asking the Bucks County court to dismiss Lorubbio’s “breach of fiduciary duty” claim, saying it essentially duplicates his “breach of contract” allegations.
Lawyers representing Lorubbio and Parzych in the Bucks County civil case did not return requests for comment. Lorubbio declined to comment for this story. Parzych, through an employee at the distillery, also declined to comment.