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Coffee pact turns bitter

— Over the course of two decades, John Mahoney built and grew a small chain of coffee shops called The Atomic Cafe.

By last year, he and his brother had three locations, in Beverly, Marblehead and Newburyport, as well as a coffee roasting facility in Salem, and had trademarked the “Atomic Coffee Roasters” brand.

They had also built a loyal following of customers.

Then John Mahoney met Kyle and Peter Roy, who own a business called LeanBox, which supplies food and beverage vending machines and equipment to businesses.

Mahoney and the Roys came up with a plan to create a new business that would take advantage of the growing popularity of “cold brew” coffee. It would be called ” Cold Brew Ventures.” And, if successful, it was projected to be a $10 million to $12 million a year enterprise.

It seemed like a perfect plan: bring Mahoney’s decades of expertise and contacts in the coffee business together with the Roys’ financial resources and business customer base.

But a year later, the three men are embroiled in a lawsuit.

In the suit, Mahoney alleges the Roys and their company, LeanBox, essentially stole the business out from under him — after Mahoney spent months setting up a production facility and obtaining the required permits and licenses, sharing all of his business contacts and giving the Roys the proprietary recipe for his cold brew coffee.

And, relying on a promise that he would receive a six-figure salary as an executive of the new partnership, as well as a quarter of the profits from the new venture, Mahoney bought out his brother’s stake in the Atomic Cafe and sold his Marblehead and Newburyport coffee shops.

But in September, as production at a new plant in Wilmington was getting underway, Mahoney said in the suit that the Roys reneged on the deal, withdrawing their offer of a position and offering him just 7.5 percent of the profits from the cold-brew coffee.

That’s when Mahoney went to court.

The suit was filed in federal court in Boston. Late last month, a judge granted a preliminary injunction against the Roys and LeanBox, barring them from using any of Atomic Cafe’s trademarks.

LeanBox had already scrubbed its website and some materials of the Atomic Cafe trademarks before the ruling was issued, and acknowledged in court filings that they no longer have permission to use it.

The cold brew now being produced at the Wilmington plant is now labeled as “Grind.”

But the Roys are disputing the other allegations.

Defendants: There was no deal

In a partial response to the suit filed in U.S. District Court, the Roys and their attorney say that there was no deal in place and that Mahoney was proceeding at his own risk when he spent time and effort setting up the Wilmington plant.

And they say Mahoney should have had them sign a non-disclosure agreement before sharing his business contacts and any formulas he considers proprietary — not that they agree that there is such a thing.

“As far as any ‘formulas’ are concerned, the basic process/recipe for making cold brew that can be found on innumerable websites is as follows: Add water to ground coffee/tea bags; Let the mixture steep in a chilled environment for approximately 18 hours; Remove the coffee grounds/teabags; Add more water until the desired flavor richness/intensity is achieved.”

But Mahoney, in the suit, says it’s not that simple, and that his formulas were developed not only for a specific flavor but for their ability to be bottled and sold.

“Mahoney specifically selects the coffee bean used, coffee (or tea)-to-water ratio, proper grind settings, steep time and temperature, dilution ratio, concentrates, and other factors that relate to the production of cold brew beverages,” the suit says. “For beverage product placed in bottles, his formula is additionally unique and proprietary because it uses a specific bottling technique to produce a flavorful cold brew product with extended shelf-life that also complies with applicable food safety requirements set by the Food and Drug Administration, as confirmed by independent lab results.”

Mahoney and his lawyers say in the suit that he had raised some concerns about the operation of the new plant and brought in a food-safety consultant to conduct an audit shortly after it opened.

He brought the results to Kyle Roy, including an opinion that LeanBox employees working in the facility had violated food-safety policies.

According to the suit, Kyle Roy then told Mahoney that some of the customers of the new business were having issues.

Mahoney called the customers on Sept. 18, and, according to the suit, said their chief concerns were about distribution, installation and billing — all of which were Roy’s responsibility.

Later that day, Peter Roy sent Mahoney an email saying that he and his brother “were no longer interested in their long-term commitment.”

Mahoney says that over the summer, he and the Roys had put their deal into writing, including the salaried position and 25 percent interest in the Cold Brew Ventures business.

But the agreement was never signed.

In their response to the motion for an injunction, lawyers for the Roys say “it was made absolutely clear to Mr. Mahoney from the very beginning that there would be no binding agreement until all of the relevant documentation was finalized and executed.”

And that hadn’t happened, the Roys say in their response, because they hadn’t completed due diligence on Atomic Cafe.

Kyle Roy, in an affidavit, acknowledged the work Mahoney had done on the new facility. But he says he warned Mahoney in July in a text message that he was “taking the risk of doing this with no deal.”

The suit alleges trademark infringement, breach of contract, bad faith dealing, conversion, taking trade secrets and fraudulent inducement, among other counts.

The Roys have not filed a formal response to the full complaint, according to the case docket. Their attorneys at Burns and Levinson did not respond to an email seeking comment.

Courts reporter Julie Manganis can be reached at 978-338-2521, by email at jmanganis@salemnews.com or on Twitter at @SNJulieManganis.

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