Brynwood vs Willis Stein Marches On –

New funds typically usher in new beginnings. Brynwood, however, remains engulfed in issues surrounding its third fund, or more specifically its Lincoln Snacks investment from that fund.

The firm sold Lincoln Snacks to Willis Stein in February of last year, and by November Willis Stein had filed a $23 million lawsuit against Brynwood asserting the Greenwich-based firm knowingly misrepresented the snack maker’s financial performance. It did this, the complaint said, by stuffing its “three largest” customers with surplus inventory.

Brynwood quickly fired back with a motion to dismiss the suit, citing that Willis Stein, as it began marketing its latest fund, was touting the potential “to more than double its return” on the Lincoln Snacks investment. Moreover, in its movement for dismissal, Brynwood claimed Willis Stein ignored the post-close audit from its own accountant, Ernst & Young. Responding to the motion, at the end of July, the judge overseeing the case dismissed all of the individuals named in the lawsuit as well as the general partner of Brynwood, which subsequently obviated all of the fraud claims.

Willis Stein’s latest move was to withhold a $2.8 million tax refund, which according to the original Lincoln Snack sale agreement was to go to the selling party. A letter from Kirkland & Ellis LLP, representing Willis Stein, to Brynwood’s counsel at Orrick, Herrington & Sutcliffe LLP, indicated that the firm intends to withhold the refund, and any future refunds “pending entry of a final, non-appealable judgement” related to the aforementioned litigation.

Brynwood, meanwhile, responded to this with its own lawsuit, seeking the amount of the tax refund and future tax refunds, plus interest, and its costs of litigation.

Brynwood’s Hartong called the latest move by Willis Stein to hold the tax refund “unethical and outrageous,” and added, “The very fact that we’ve had to file a lawsuit demonstrates the challenges that we’ve had to face…[Willis Stein] has shown a blatant disregard for the terms of the merger agreement.”

Calls to Willis Stein were not returned by press time.