Twin Cities produce suppliers say new private-equity owner left them to rot

The marriage on paper looked destined for success. Two of the Twin Cities' longest-running fruit and vegetable distributors were to be acquired and merged under one new brand: New Harvest Foods.

The longtime competitors had their own strengths and weaknesses — one was better at bagged and bulk produce while the other excelled in packaging organic, precut fruits and veggies. Together, it seemed, they could fulfill nearly any grocery store or restaurant order.

But less than two years after a private-equity firm took over the family-run businesses, one closed and the other is imperiled by legal battles and unpaid debts.

J&J Distributing, a 43-year-old company in St. Paul, laid off its production workers on March 23. Two days later the doors on its Rice Street production plant and headquarters were closed. H. Brooks, a 116-year-old produce wholesaler in New Brighton, is still operating but has laid off some workers.

Investor Jason Jaynes bought both companies in 2019 through an Edina-based private-equity firm he created, the Dragonfly Group, with an eye to renaming them as New Harvest Foods. The fate of the companies since then is documented in a half dozen lawsuits filed in U.S. District Court in Minnesota and in state courts in Hennepin and Ramsey counties.

The Star Tribune contacted nearly a dozen former employees, customers and produce suppliers of the two companies. While most were unwilling to go on the record, in some cases due to pending wage disputes, they confirmed many of the details laid out in the lawsuits.

Jaynes did not return several requests for an interview. But in court documents he alleges the families that previously owned the firms concealed troubles inside them, ranging from noncompliance warnings about organic certification received from the Agriculture Department to undocumented workers exposed by the Internal Revenue Service.

"Jason was sold a bill of goods," said Terrance Moore, one of Jaynes' lawyers from Hellmuth and Johnson. "We've alleged fraud in the underlying initial acquisition transactions."

The former owner of H. Brooks, Phillip Brooks, and former owners of J&J Distributing, James Hannigan and his children Kevin Hannigan and Stephanie Melstrom, deny those allegations and said that Jaynes has not kept up payment terms of the deals.

Both families declined to comment on the record. Their lawyers said their views and experiences are outlined in the lawsuits.

In legal filings, the families say Jaynes first showed interest in acquiring and merging the two companies in 2018. Brooks says in a legal complaint that Jaynes told him "he had interest in preserving the legacy of the family company and had financial backing of significant investors, as well as connections to well-known investment groups."

After months of discussions, both families signed over ownership of their companies to Jaynes on July 17, 2019. Court records show the Hannigans sold J&J for $9 million and Brooks sold H. Brooks for $4.9 million. Jaynes agreed to pay the owners in monthly installments over several years as well as a sizable lump sum due last August.

But Jaynes stopped payments to both families in July. Court documents show he still owes the Hannigan family nearly $8.4 million and Brooks nearly $4.4 million. And even by then, the operations of the two companies weren't fully united and had not taken the New Harvest name.

"We never got there," said Louis Peltier, who was warehouse operations manager at J&J until the company was recently shut down. "It operated as two independent companies under one management controlling the money."

Jaynes' lawyers said he had the financial means to pull off the merger. Last August, they sued the Hannigans for $50,000, an amount Jaynes said he incurred due to the alleged failed disclosures. The family denied all wrongdoing, asked a judge to dismiss Jaynes' complaint and order him to pay the $8.4 million he still owed them for the company.

Meanwhile, other companies started to complain about bills going unpaid. Masis Staffing, a Massachusetts-based temp agency with an office in Richfield, filed suit saying that Jaynes and New Harvest Foods stopped paying for about 100 contracted workers it supplied at J&J's warehouse.

"[New Harvest] began having severe financial difficulties due to Jaynes' mismanagement of the business," Masis states. The agency threatened to pull its workers in September 2020 unless Jaynes started paying them what he owed. According to the legal complaint filed by Masis, Jaynes promised the agency its money was coming; Masis extended New Harvest credit on that oath.

Then, fruit and vegetable suppliers halted shipments to the company, citing unpaid bills. Customers canceled orders as a result.

Kowalski's Markets, with 11 grocery stores in the Twin Cities, had been one of J&J's prime customers for 30 years.

"When the two companies merged under new leadership, that seems to be when the quality issues started that affected us," said Terri Bennis, Kowalski's chief merchandising officer. "We started to notice that they weren't able to get things, especially on the organic side."

The situation deteriorated further last fall.

"We had a disastrous Thanksgiving," said Peltier, the former J&J warehouse manager. "We were short out the wazoo. We couldn't fulfill orders. We also had a contract with the [U.S. Department of Defense] for the schools and we started shorting them because we couldn't get the product."

In December, Brooks sued Jaynes for breach of contract, demanding that Jaynes pay the nearly $4.4 million he still owed for control of H. Brooks & Co.

Wholesale produce is a notoriously slim-margin business with smaller companies depending on rapid payment for their perishable goods. Four Star Ag, a North Dakota vendor, in February sued Jaynes, New Harvest, H. Brooks for more than $120,000 in produce shipped that had gone unpaid.

Two days later, J&J filed a food-safety recall with the U.S. Food and Drug Administration for certain products — from taco dips to turkey sandwiches — possibly contaminated with listeria.

Then on March 19 Masis' onsite supervisors walked in to Peltier's office, informing him that corporate headquarters was pulling all the contract workers. Masis filed a lawsuit against Jaynes and New Harvest that same week seeking nearly $2.7 million in unpaid labor costs plus interest.

"I knew it was coming," Peltier said. "It had to be coming. You can't be in so much debt to someone and think they'll keep supplying service."

The following week, management laid off its own workers at the J&J St. Paul facility and shuttered the company.

New Harvest Foods filed and received two rounds of Paycheck Protection Program loans from the federal government's COVID-19 relief packages. A government database shows the first in April 2020 was for more than $3 million based 235 reported employees. The second draw came in January 2021 for nearly $2 million based on a reported 161 employees.

The staffing agency alleges in its lawsuit that New Harvest counted Masis' workers as a part of its payroll on at least one of those federal loan applications. Jaynes' lawyers declined to comment on that allegation and has yet to respond to the complaint.

More produce brokers filed lawsuits last month, seeking payments ranging from $83,000 to $232,000, court records show. And there are more than 30 active complaints by fruit and vegetable growers filed against J&J and H. Brooks with the U.S. Department of Agriculture under what's known as Perishable Agricultural Commodities Act (PACA).

Produce companies that file PACA complaints are more likely to get paid first because the law moves them to the front of the creditor line, said Jason Vee, president of Superior, Wis.-based Vee's Marketing, which brokers potatoes and onions.

At one point New Harvest owed his company $135,000, Vee said. He eventually received a check for $85,000, but said he's less concerned about whether his company gets the remainder and more about some of the smaller vendors who don't have the means to litigate or fight it.

He published two articles on LinkedIn criticizing Jaynes. "An investment group that did not know much, if anything about produce tanked two companies … And they did it quickly," he wrote in one of them.

In an interview, Vee said New Harvest also owes money to small mom-and-pop freight or trucking businesses that can't file PACA complaints.

"They are just tanking people like that," he said. "They are really doing damage to people they work with every day."

Jaynes has a few other small business interests. He is listed with the Minnesota Secretary of State as a co-owner of Totally Driven golf center in Edina. No one from the golf coaching and club-fitting company returned a request for comment.

He also owns Island City Transport, a trucking company in Cumberland, Wis. Reached by phone, the general manager, who provided only his first name as Joey, said he wasn't allowed to talk about Jaynes. He said company's trucks are running.

Kristen Leigh Painter • 612-673-4767