Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

The disclosure of purchase commitments in these consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2019. The disclosures below relate to legal commitments with significant events occurring during the six months ended June 30, 2020.

We are in the process of assessing the impact the COVID-19 pandemic will have on our future commitments and contingencies; we do not believe that there will be a material adverse effect on future commitments.

General

We are subject to various claims and pending or threatened lawsuits in the normal course of business. Although we do not anticipate that the resolution of legal proceedings arising in the normal course of business or the proceedings described below

will have a material adverse effect on our financial position, results of operations or cash flows, we cannot predict this with certainty.

Legal

On February 28, 2017 and March 6, 2017, respectively, two lawsuits, Sara Cilloni and Simone Zimmer v. Craft Brew Alliance, Inc., and Theodore Broomfield v. Kona Brewing Co. LLC, Kona Brew Enterprises, LLP,  Kona Brewery LLC, and Craft Brew Alliance, Inc., were filed in the United States District Court for the Northern Division of California. On April 7, 2017, the two lawsuits were consolidated into a single complaint under the Broomfield case. The lawsuit alleges that the defendants misled customers regarding the state in which Kona Brewing Company beers are manufactured. On May 30, 2019, we announced our entry into a definitive settlement agreement, which received preliminary approval from the Court on June 14, 2019. The settlement claims period ended October 7, 2019, and the Court entered a Final Judgment on February 11, 2020. A notice of appeal of the final judgment was filed by an objector on March 3, 2020. On June 30, 2020, the Court approved a settlement with the objector and the appeal was dismissed. We recorded a charge of $4.7 million on a pre-tax basis in the quarter ended March 31, 2019, based on our estimate of the probable costs of settling the litigation. The total cost of settling the litigation is currently expected to be approximately $4.4 million.

In connection with the pending merger transaction with ABC, several lawsuits were filed on behalf of our shareholders. On January 3, 2020, a purported class action complaint brought on behalf of a putative class of our shareholders, captioned Kost et al. v. Craft Brew Alliance, Inc., et al., Case No. 20-2-00389-1 SEA, was filed in the Superior Court of Washington, King County (the “Kost Action”). On January 14, 2020, a second purported class action complaint brought on behalf of a putative class of our shareholders, captioned Birkby v. Craft Brew Alliance, Inc., et al., Case No. 20CV02867, was filed in the Circuit Court of the State of Oregon for the County of Multnomah (the “Birkby Action”). On July 9, 2020, a third purported class action complaint brought on behalf of a putative class of our shareholders, captioned Malloy v. Craft Brew Alliance, Inc., et al., Case No. 20CV23549, was filed in the Circuit Court of the State of Oregon for the County of Multnomah (the “Malloy Action”). The Birkby, Malloy and Kost Actions assert state law claims for alleged breaches of fiduciary duty against our company and our directors, and the Birkby and Malloy Actions also assert claims against our Chief Executive Officer and ABC. The Malloy and Kost Actions also include allegations of material misstatements and omissions in our definitive proxy statement filed with the SEC on January 21, 2020 (the “Proxy Statement”).

In addition, four complaints were filed in federal court asserting claims against our company and our directors under the federal securities laws and alleging material misstatements and omissions in the Proxy Statement: Sabatini et al. v. Craft Brew Alliance, Inc., et al., Case No. 1:20-cv-00138, filed in the United States District Court for the District of Delaware on January 29, 2020 on behalf of a putative class of our shareholders (the “Sabatini Action”), Halberstam v. Craft Brew Alliance, Inc., et al., Case No. 2:20-cv-01243, filed in the United States District Court for the Central District of California on February 7, 2020 on behalf of an individual shareholder (the “Halberstam Action”), Michael Roberts et al. v. Craft Brew Alliance, Inc., et al., Case No. 1:20-cv-00208, filed in the United States District Court for the District of Delaware on February 12, 2020 on behalf of a putative class of our shareholders (the “Michael Roberts Action”), and Dennis Roberts v. Craft Brew Alliance, Inc., et al., Case No. 1:20-cv-00337, filed in the United States District Court for the District of Colorado on February 10, 2020 on behalf of an individual shareholder (the “Dennis Roberts Action”). The Sabatini Action also asserts claims against ABC and a subsidiary of ABC.

On February 18, 2020, we announced the resolution of claims with the plaintiffs in the Kost, Sabatini, Halberstam, and Michael Roberts Actions, whereby we filed supplemental disclosures and plaintiffs in the Kost, Sabatini, Halberstam, and Michael Roberts Actions dismissed their individual claims with prejudice, and plaintiffs in the Kost, Sabatini, and Michael Roberts Actions dismissed their class claims without prejudice. We did not view the supplemental disclosures as material or required by applicable law, but determined to make the disclosures in order to avoid the expense and risks inherent in further litigation. On April 1, 2020, plaintiff in the Dennis Roberts Action dismissed his case without prejudice.

The Birkby and Malloy Actions have not been resolved. On March 31, 2020, the Court granted the parties’ joint motion to abate the Birkby Action until September 30, 2020. There have been no substantive proceedings to date in the Malloy Action.