A recent American Lawyer story, “In Vaping Bankruptcy, No Smoke, But Plenty of Unpaid Legal Bills,” reports that NJOY Inc., one of the nation’s largest electronic cigarette makers, filed for bankruptcy in Delaware. The company owes close to $4 million in unpaid legal fees to several big firms, including DLA Piper and Goodwin Procter.
Michael Busenkell and Ronald Gellert, name partners at Delaware’s Gellert, Scali, Busenkell & Brown, are advising NJOY in its Chapter 11 case, along with fellow partner Brya Keilson. The Scottsdale, Arizona-based company, which seeks to remain in business while selling off assets is a leading manufacturer and distributor of e-cigarettes and other vaping products.
According to a declaration filed by Busenkell, his firm has received a $75,000 retainer from NJOY to provide legal services to the company in its Chapter 11 case. Busenkell and Gellert are billing $450 per hour, while Keilson is billing at $350 per hour. Associates and of counsel at the firm are billing between $280 and $300 per hour in the matter. (Gellert Scali has offices in Philadelphia and Wilmington, Delaware.)
Jeffrey Weiss, NJOY’s general counsel and interim president, said in a declaration of his own that the company’s bankruptcy was attributed to several issues. Among them were the market failure of NJOY’s King 2.0 disposable e-cigarette in 2013 and its unsuccessful attempt at a rebranding in 2014.
Another contributing factor’s to NJOY’s Chapter 11 filing were the substantial costs incurred by the company this year in order to comply with a series of regulations announced by the U.S. Food and Drug Administration in May controlling the registration and distribution of e-cigarettes, according to Weiss’ declaration.
Bankruptcy filings show that NJOY accrued substantial legal costs in its effort to establish itself in the emerging vaping industry. In its 12-page bankruptcy petition, the company lists about $3.7 million in debt to four firms: DLA Piper ($2.3 million); Goodwin Procter ($1.1 million); Washington, D.C.’s Kleinfeld Kaplan & Becker ($161,256) and Boston-based IP firm Wolf, Greenfield & Sacks ($157,905). NJOY’s largest creditor is Las Vegas-based Caesars Entertainment Corp., a casino giant with which it has a sponsorship and is owed $3.8 million.
In terms of NJOY’s legal debts, Weiss mentioned that the company incurred significant costs from a 2012 patent infringement suit filed by Fontem Ventures BV. The dispute, according to Weiss’ declaration, cost NJOY “attorney’s fees in excess of $2.5 million.”
John Allcock, co-chair of DLA Piper’s IP and technology group, led NJOY’s defense team against Fontem Ventures, an active litigant in the e-cigarette space advised by Perkins Coie. Other DLA Piper partners working on the matter were Thomas Hindman, Richard Mulloy and Brent Yamashita. A settlement was reached in November 2015 and earlier this year NJOY and Fontem Ventures resolved all of their ongoing litigation in the U.S. and Germany.