Former Employees Of Redbox Parent Chicken Soup For The Soul Entertainment Sue Bankrupt Company And Ex-CEO Bill Rouhana For “Ponzi Scheme” & “Greed At Shocking Levels”

A group of 11 former employees of bankrupt Redbox parent Chicken Soup for the Soul Entertainment have filed a lawsuit charging the company and ex-CEO Bill Rouhana with “greed at shocking levels.”

The suit, filed in Los Angeles Superior Court by Michael Alder and Lani Levine of L.A. firm AlderLaw, seeks up to $1 billion in damages. It comes after the company careened through a series of financial spasms in recent months before filing for Chapter 11 bankruptcy protection. Amy Newmark, Rouhana’s wife and a former hedge fund executive, is also named as a defendant in the suit. She sat on CSSE’s board of directors until a purge in June and continues to serve as editor-in-chief and publisher of self-help book publisher Chicken Soup for the Soul, which operates separately from CSSE.

Already in arrears with payroll, bonuses and benefits when it filed Chapter 11, the company’s proceeding was shifted to a Chapter 7 bankruptcy after financing could not be arranged to keep bills paid during restructuring. That resulted in the termination of about 1,000 workers with no severance or back pay, representing one of the most stunning and abrupt ends of an entertainment company in recent memory.

The defendants “engaged in a scheme to defraud employees not only out of their hard-earned compensation and siphon such money away for their own personal benefit,” the suit maintains, “but also deducted wages from employees’ pay checks for, inter alia, medical and dental premiums while allowing these policies to lapse and ultimately get canceled. This resulted in employees unknowingly incurring millions in unreimbursed medical expenses.” The suit goes on to allege that the defendants “engaged in an elaborate ‘Ponzi Scheme,’ setting up multiple business entities under the umbrella of the until-now warm-hearted brand Chicken Soup for the Soul.”

Spun off from the namesake book publisher in 2017 after Rouhana and a partner acquired the publishing company in 2008, CSSE grew via a string of acquisitions. It took over streaming service Crackle from Sony, film outfits Screen Media and 1091 and production entity Sonar Entertainment. Its most ambitious M&A deal, the 2022 purchase of Redbox for $50 million in stock and the assumption of $325 million in debt, would prove to be the company’s downfall. With physical media declining markedly, Redbox was also starved of film titles due to the dual strikes of 2023. Its debt proved unworkable due to disputes with various lenders. The company then fell behind on payments to retailers and studio suppliers. As part of the Chapter 7 ruling, the network of 20,000-plus Redbox kiosks was unplugged for good.

At the heart of the suit is an allegation that Rouhana, Newmark and the company established Chicken Soup for the Soul Productions, LLC as an umbrella entity for a number of smaller entities that were formed or acquired. They then were able to manipulate the books in such a way that employees were bilked out of benefits and denied bonuses and back pay, the suit maintains.

Plaintiffs in the case include Brian Skajem, Lisa Papatzimas, Erin Tuttle, David Ellender, Dara Cohen, Matt Loze, Jessica Stoeckeler, Heather Bundy, Carey Campbell, Kelly Burke Hopkins and Courtney Smith.

A judge will need to certify the suit as a class-action case before others beyond the initial plaintiffs can become eligible for relief. The complaint was provided to Deadline by AlderLaw and filed with L.A. Superior Court, but the court’s filing system has been affected by widespread software outages since last Friday.

A lawyer who recently represented Chicken Soup for the Soul Entertainment in Delaware Bankruptcy Court did not immediately respond to Deadline’s request for comment on the lawsuit.