NKY woman built distributorship with cousin’s money, but didn’t tell him about its sale
Sometimes, old adages are true: Never mix family and business, especially when large sums of money are involved.
A Northern Kentucky woman has learned that lesson the hard way, after a federal judge ruled she owes her cousin $1 million from the sale of the craft beer business they built together.
Mary Kenney and Charles Sisson spent decades turning Erlanger-based Beer House Distributors into a profitable craft beer distributorship – and then they spent two years in federal court fighting over what was owed, and to whom.
Ultimately, U.S. Magistrate Judge J. Gregory Wehrman ruled that Kenney improperly sold the company in 2011 without consulting Sisson, the only other shareholder. On Jan. 15, he ordered Kenney to pay Sisson $1 million.
Kenney, who lives in Covington, has appealed the ruling. Her attorney, Louis Gilligan of Keating Muething & Klekamp in Cincinnati, said he was not at liberty to discuss the case.
“This case is primarily one of family members not following good business practices,” Wehrman wrote in his ruling.
That’s a bit of an understatement; the court documents read like a textbook case of why family, business and money shouldn’t mix.
Kenney opened Beer House Distributors in 1985, but struggled to make the company profitable. Loans from her cousin, an economist at the International Monetary Fund and a real estate investor in the Washington, D.C., area, helped keep it afloat.
In all, Charles Sisson of Virginia lent his cousin more than half a million dollars between 1989 and 2004, according to court records.
At first, the loans simply helped keep the doors open. Then Beer House Distributors began to turn a profit as Kenney began bringing craft beers like Goose Island to the region.
“It was one of the first craft beers that was brought into Kentucky, and it started to take hold: People were asking for it, bars were asking for it. It wound up being a pretty big percentage of the business,” said Sisson’s attorney, Stacey Graus of Adams, Stepner, Woltermann & Dusing in Covington.
In 2000, Sisson agreed to forgive the balance of two previous loans in exchange for a 34 percent stake in the company, and the agreement was formalized the following year.
That’s when things started to get tricky.
Court documents indicate Kenney, the company’s sole officer and only other shareholder, didn’t treat her cousin like a typical shareholder. She received dividends from the company beginning in late 2006, but Sisson did not.
In 2011, she also paid herself $1.8 million in “catch-up compensation,” plus nearly $1.2 million in interest on loans she had made the company.
Those payments ended up being key legal points in the case: The judge found the $1.8 million was “way in excess” of what Kenney should have received, Graus said, while he also found that the loans were actually capital contributions to the company.
Kenney did sell off the Goose Island brand in early 2006 when Sisson, who was in financial trouble following a failed investment, asked for repayment of the loans he’d made to try to avoid losing his home.
Nobody was quite clear on whether the $400,000 he received settled the balance of the earlier loans, but Sisson remained a shareholder in Beer House Distributors under the 2001 agreement, which gave him a say in all major business agreements involving $50,000 or more.
Kenney didn’t consult him, however, when she sold the company’s assets to BHD LLC, a consortium of local distributors, in August 2011. In fact, Sisson only found out about the sale when he dropped by the company a few months later while visiting the area.
Kenney argued that since she’d repaid Sisson in 2006 and he no longer had a stake in the company, but Wehrman found that the 2001 agreement remained in effect. He awarded Sisson $918,646, or what his equity in the company would have been worth at the time of the sale, plus $93,617 in dividends.
Payment has not been arranged. Mary Kenney has filed for Chapter 11 bankruptcy protection in federal court, but Graus said his firm will pursue payment and is working with a forensic accountant on the matter.
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