NORTHWEST ARKANSAS (KNWA/KFTA) — A popular pie shop in Northwest Arkansas is closed after the owner was sued by two companies she borrowed money from and then allegedly didn’t repay as agreed. In addition, the lawsuit alleges that the owner falsified a loan application and committed other contract breaches, according to court documents.
Fork & Crust Pie Company owner Lori Rae is being sued for more than $287,000.
Rae has denied most of the allegations through her attorney, Charles T. Coleman of Wright, Lindsey & Jennings LLP.
Fork & Crust has a devoted following of fans on social media, many of whom questioned why the company’s three locations – in Bentonville, Fayetteville, and Rogers – closed without notice in July.
The lawsuit – filed by James Street Capital LLC and TWG Resources, LLC through their attorneys, Kutak Rock LLP – claims Rae took out two loans from the two companies and failed to pay back the agencies as agreed.
Rae borrowed more than $270,000 and gave up 51% of ownership of Fork and Crust, the documents state.
James Street Capital, LLC loaned Rae a total of $50,000, according to a promissory note dated April 10, 2019, ($13,000 and $15,000 in February 2019, $22,000 March 2019), according to the court case.
In addition, the company acquired a 51 percent “membership.”
On March 5, 2020, Rae signed a promissory note for $223,150 with TWG Resources, LLC.
The payments were to begin on August 1, 2020.
Part of the agreement between James Street Capital, LLC and Rae was for her to manage all daily productions of goods, and the new partner would give clearance for inventory needs and control, and ordering.
James Street Capital would also do all the bookkeeping and financial reports, according to the document.
The lawsuit alleges the opposite happened.
“Rae failed/refused to yield control of Fork & Crust’s financial management to James Street. Used bank accounts on which no representative of James Street was a signatory. Restricted James Street from all information relating to the day-to-day financial affairs of the business,” the lawsuit states.
Rae is also accused of not being upfront regarding financial obligations to the tune of $142,000. Most of the debt was $80,000 in unpaid taxes to the IRS, $10,000 in state taxes, and $40,000 to Sysco, according to the lawsuit.
“Rae knew if she disclosed the full extent of Fork & Crust’s liabilities, James Street would not have loaned the money,” the court document states.
She is being sued on nine counts:
- Four counts Breach of Contract (both defendants).
- Breach of Contract of the Purchase agreement (both defendants).
- Two counts Unjust Enrichment (both defendants).
- Fraud and Conversion by James Street
In response to the allegations against their client, Rae’s attorneys claim that James Street, (Alex Schwyhart, and/or Tong Schwyhart) improperly diverted $37,000.00 out of Fork and Crust’s bank account without authority, and thus committed theft, embezzlement, and/or misappropriation of funds.
The response also accuses the plaintiff James Street of breaching the Operating Agreement, “including but not limited to James Streets’ gross negligence with respect to its financial management of Fork and Crust, willful misconduct, conflict of interest, failure to fulfill financial duties, failure to provide financial reporting and inspection, and misuse of company funds.”
Rae’s attorneys say she reserves the right to file counterclaims in these respects.
According to a social media post, the last regular business day at Fork and Crust was July 18.
Rae declined a request for comment for this article, while Kutak Rock LLP has not yet responded to a request for comment.