‘Immediate and Ongoing Harm’: David Sued Over Epogee Acquisition

Last week’s blockbuster investment news about David – including a $75 million round from investors and a post-money valuation of $725 million, according to co-founder Peter Rahal – is also creating a supply chain gridlock for a number of other brands.

That’s leading to legal headaches as well. The protein bar brand is facing a lawsuit just days after announcing that the investment, which led to an acquisition of Epogee, the supplier of its plant-based fat replacer ingredient EPG (esterified propoxylated glycerol).

In a filing Monday in New York, plaintiffs OWN Your Hunger, Lighten Up Foods and Defiant Foods alleged David and Epogee violated federal antitrust laws and orchestrated the deal “through secretive and collusive conduct,” cutting off the supply of the novel ingredient.

EPG reduces 92% of calories for each unit of fat replaced without altering taste and texture in a variety of food applications, according to Indiana-based Epogee.

The suit claims the plaintiffs and other food manufacturers invested hundreds of thousands of dollars into research and development, marketing and product development specifically tailored to the ingredients, “reasonably relying on Epogee’s encouragement and assurances of continued access.”

“These brands fundamentally restructured their entire business models around EPG as their core competitive advantage and ‘secret sauce’ ingredient, making EPG access essential to their survival,” the lawsuit states.

The plaintiffs assert David’s acquisition and exclusionary conduct was a “deliberate ‘bait-and-switch’ scheme” that “pull[ed] the rug from underinvested companies” and subsequently destroys the businesses that helped propel the consumer acceptance of the ingredient.

According to the lawsuit, Epogee began reporting supply shortages in late March, providing vague responses such as “two to three months” timelines. Following the announcement of the acquisition, Epogee informed its clients via email that it would no longer accept new orders and would wind down accounts. In an interview with Snaxshot, Rahal confirmed Epogee would cease supplying to other brands, noting David “will be taking all the supply” while adding, “CPG sucks… because of the competition.”

The plaintiffs cite “immediate and ongoing harm” stemming from the supply issues that began in March, including layoffs, lost sales, sunk costs and inventory write-offs.

While Epogee supplied other brands, prior to the acquisition, David accounted for 90% of Epogee’s business, per the lawsuit.