Chicken Soup for the Soul Entertainment Sued Over Redbox Acquisition by Consultant Who Claims He’s Owed Several Million Dollars

A media consultant sued Chicken Soup for the Soul Entertainment, alleging he is owed “at least several million dollars” for work he did related to the company’s $370 million acquisition in 2022 of Redbox, the DVD kiosk and streaming company.

Keith Knee, described in his legal complaint as an advisory and consulting services professional in the media industry, filed suit against Chicken Soup for the Soul Entertainment on Friday, April 19, in the U.S. District Court for the Southern District of New York. Knee’s lawsuit seeks unspecified monetary damages. A copy of the complaint is available at this link.

Reached by Variety, a rep for Chicken Soup for the Soul Entertainment declined to comment.

In 2016, Redbox‘s parent company, Outerwall, was taken private by Apollo Global Management. According to the suit, in March 2020, Chicken Soup for the Soul Entertainment CEO and chairman Bill Rouhana asked Knee “to provide consulting services to CSSE in connection with a strategic business transaction” between Chicken Soup for the Soul Entertainment and Redbox Automated Retail LLC.

On the Redbox project, Knee “worked directly with Rouhana and Galen Smith, Redbox’s CEO,” per the lawsuit. On or about April 2, 2020, Knee sent Rouhana an overview of the potential transaction with Redbox. The following day, “CSSE sent Knee’s overview almost verbatim to Redbox,” the suit alleges.

On or about April 15, 2020, Rouhana told Knee that “he did not want to pay a retainer for Knee’s services, but instead proposed a fee payable upon the success of the transaction,” according to the lawsuit. “Per Rouhana’s instructions and understanding that his work would not go uncompensated, Knee analyzed and provided strategic advice to CSSE concerning the integration of Redbox’s lines of business to complement CSSE’s overall business strategy by providing operational and financial scale, increasing cash flow, and enhancing CSSE’s corporate rate of return.” Knee sign a nondisclosure agreement in connection with a potential transaction between CSSE and Redbox and “ran all due diligence between Redbox and CSSE until August 2020,” the lawsuit claims.

In November 2020, CSSE and Redbox “executed a nonbinding term sheet for a potential business combination. However, no final agreement was reached between the parties at that time,” Knee’s lawsuit states.

In early 2021, Rouhana “continued to communicate with Knee concerning the Redbox project and Knee’s compensation for his services,” according to the lawsuit. “Based on Rouhana’s representations, Plaintiff Knee continued to make himself available to CSSE on the Redbox Project, forgoing other business opportunities.”

But later that year, Redbox proceeded with a plan to go public via a merger with a special purpose acquisition company (SPAC), which occurred in October 2021. Redbox hit a steep drop-off in business and reported mounting losses, leading the company to lay off 150 employees, about 10% of its workforce.

Rouhana expected Redbox “to implode” following the SPAC deal, after which CSSE could “purchase the distressed Redbox at a significantly lower price after the SPAC predictably failed to produce the results Redbox anticipated,” according to Knee’s lawsuit. “Rouhana reassured Knee, that Knee would be compensated for his work should a merger occur with the reorganized Redbox even after the SPAC/IPO,” per the suit.

In February 2022, Chicken Soup for the Soul Entertainment resumed negotiations to acquire Redbox “at a substantially lower price for essentially the same assets,” according to Knee’s lawsuit. The merger agreement, originally valued at $375 million, was announced in May 2022, after which CSSE execs “confirmed to Knee that CSSE would compensate Knee for his work in connection with the merger,” according to the lawsuit.

On or about Aug. 5, 2022, before the close of the deal, Knee, through his attorney at the time, “sent an intent to sue and demand letter to CSSE,” which alleged that CSSE owned him “at least several million dollars.” Chicken Soup for the Soul Entertainment “failed to respond to the demand letter,” according to the lawsuit.

CSSE announced the close of its acquisition of Redbox on Aug. 11, with a deal value of $370 million. “CSSE has continued to ignore ongoing requests by Knee and his counsel to discuss the compensation owed to him,” the lawsuit states.

According to the lawsuit, Knee “provides advisory and consulting services to corporate executives, specializing in corporate development and strategic initiatives for large corporations, including business combinations between deep media, digital media and entertainment media companies.”

Chicken Soup for the Soul Entertainment owns and operates three flagship ad-supported streaming services: Redbox, Crackle and Chicken Soup for the Soul. In addition, the company operates Redbox Free Live TV, a free, ad-supported streaming television service (FAST), a transactional VOD service, and the network of Redbox kiosks across the U.S. for DVD and Blu-ray rentals. The company produces, acquires and distributes films and TV series through its Screen Media and Chicken Soup for the Soul TV Group subsidiaries.

Chicken Soup for the Soul Entertainment is a subsidiary of Chicken Soup for the Soul LLC, which publishes the famous book series and produces pet food under the Chicken Soup for the Soul brand name.