Advertisement

Rokit Reignites Liquor-Fueled Fraud Suit Against Rockets’ Fertitta

eben novy-williams and daniel libit
·6 min read

Rokit, the default-plagued tech and liquor company co-founded by billionaire John Paul DeJoria, is continuing to press its thus-far losing legal fight with Houston Rockets owner Tilman Fertitta.

On Wednesday, three Rokit subsidiaries filed an amended complaint to a lawsuit they originally brought in May, accusing Fertitta’s companies of fraud and breach of contract over an agreement that his Landry’s dining and hospitality establishments would purchase Rokit liquor products. The original suit was dismissed last month by a U.S. District Court judge in Texas, which allowed Rokit to reassert some of its claims in a new complaint.

More from Sportico.com

The partnership in dispute was negotiated in 2018, around the same time that Rokit inked a four-year marketing deal, worth over $40 million, with Fertitta’s NBA team. That agreement made Rokit the Houston Rockets’ inaugural jersey patch sponsor, a high-profile partnership that Rokit CEO Jonathan Kendrick hailed as the fusion of companies aimed at “improving the lifestyle of mankind.”

Rokit paid the Rockets the first year’s payment—an upfront fee of $9.75 million—but when the team made the second round of the playoffs, triggering a $500,000 bonus, Rokit stopped paying entirely. The Rockets sued for breach of contract and won an award of $11.23 million in arbitration. Rokit Marketing Inc., the specific entity that was party to the jersey-patch deal, filed for Chapter 7 bankruptcy in California this March, listing the Rockets as one of several pro sports creditors to which it owed millions.

As Sportico reported earlier this week, Rokit Marketing Inc. is one of at least six Rokit subsidiaries that have filed for bankruptcy in the last 18 months. Several of the debtors, including Rokit Marketing Inc., were scheduled to have a continued creditors’ meeting this week, but that has been postponed to next month.

In the case of the Rockets, however, Rokit continues to insist it was in the right to renege, arguing that Fertitta’s companies caused catastrophic harm to what was shaping up to be a highly profitable drinks division of its enterprise.

Representatives for Landry’s and the Rockets did not respond to emails seeking comment. Kendrick and a lawyer representing Rokit also did not respond to emailed questions.

According to Rokit’s lawsuit, Fertitta and his representatives made verbal and written promises about liquor distribution that never came to fruition, which led to millions of dollars in losses and dozens of layoffs. The suit states that though the Landry’s and Rockets deals were legally distinct, it was always understood between the parties that Rokit was paying for the jersey patch in large part so it could have its alcohol sold in abundance throughout Landry’s 500-plus establishments.

Rokit’s latest filing includes what it claims is an excerpt of an email sent by Jason Miller, of Excel Sports Management, who was hired by the Rockets to help facilitate the jersey-patch sponsorship. In the Aug. 7, 2018 message, Miller wrote to Clinton Ehrlich, Rokit’s chief marketing officer at the time, that Fertitta’s son Patrick, a Fertitta Entertainment executive involved in the negotiations, “made it clear that we could push your product” across all Landry’s locations. (A representative for Excel declined to comment.)

Rokit suggests this email proves that the partnership had always “contemplated two separate components.” The lawsuit claims that Kendrick “sealed the deal” for the beverage component during a lunch meeting with Tilman Fertitta at a Mastro’s steakhouse in Houston, during which Fertitta picked the Rokit-owned Bogart’s Vodka over Tito’s in a “blind taste test.” Mastro’s, which is owned by Landry’s, is known to be a favorite stomping ground for Kendrick, who sources say was once a weekly patron of the steakhouse’s location in Malibu, Calif. Those sources perceived that he was delighted by the prospect of having his company’s liquor sold in a restaurant he frequented.

In July, Landry’s and Fertitta Entertainment Inc. filed a motion to dismiss Rokit’s lawsuit, saying the case was “bordering on unethical,” and accusing its one-time sponsor of trying to “enforce an agreement that never existed.” A lawyer for the Fertitta companies said they planned to file a new motion to dismiss within the next 30 days and seek attorney’s fees from Rokit.

The row with the Rockets is just one in a long line of legal entanglement involving DeJoria’s and Kendrick’s Rokit “Group of Companies,” a labyrinth of LLCs registered in England, Ireland and the United States, with business aspirations ranging from mobile technology to water purification. However, as Sportico previously detailed, most of Rokit’s pursuits have shown little ability to make money, raising questions from insiders about the seriousness of the operations.

The Rockets endorsement agreement was part of a rapid string of major pro-sports sponsorships that Rokit signed between 2018 and 2019 and then defaulted on, in one way or the other. Several of Rokit’s former sports partners filed lawsuits or pursued arbitration, most notably F1’s Williams Racing, which won an arbitral award in Britain of what is now nearly $30 million.

At the same time, Rokit has proven zealous in pursuing its own litigation, whether against former business partners or one-time employees, which Rokit insiders say has enabled the two-decade-old operation to keep its problems mostly out of public view.

However, in continuing to wrangle with Fertitta, Rokit is choosing to add another potentially damaging layer of legal discovery and concomitant public exposure amid a gaggle of pending legal cases and bankruptcy petitions.

In its lawsuit against Fertitta, Rokit lists a series of financial hardships associated with the Landry’s beverage agreement, some of which have been directly refuted in interviews with former insiders, who were granted anonymity because the details of the deal are private. Rokit claims it laid off 26 employees as a direct result of underwhelming sales through Landry’s, which multiple sources said isn’t accurate. Former Rokit employees say that the company has shown an inability to produce anywhere near the inventory contemplated in a deal with Landry’s that Rokit insists was meant to create “tens of millions of dollars” in revenue.

As of July 9, 2019, nearly a year into the partnership, Landry’s had purchased $256,000 worth of alcohol from Rokit, according to the complaint. By that time, Rokit was already delinquent on its jersey-patch playoff bonus to the Houston Rockets.

One of the Rokit plaintiffs, Rok Imports Inc., had its wholesale license suspended for 15 days in 2021 by California’s Department of Alcoholic Beverage Control (ABC). That determination came after an ABC agent found the company to be violating state laws by selling its alcohol directly out of its warehouse, according to the department’s ruling, according to records obtained by Sportico. 

Another named plaintiff, ROK Stars Limited, has served as Rokit’s liquor holding company in the UK. According to the most recent publicly available copy of its audited financials, ROK Stars Limited and its subsidiaries turned a profit of $960,000 (£868,000) in 2020, after reporting a $2.69 million (£2.43 million) loss in 2019. However, the group also reported a $24.2 million (£21.86 million) debt at the end of 2020, mostly owing to a loan from DeJoria. In a report to shareholders last year, the company’s British auditor described the financial conditions of ROK Stars Limited as casting “significant doubt about the Group and parent Company’s ability to continue as a going concern.”

(This story has been updated in the headline.)

Best of Sportico.com

Click here to read the full article.