Industry News In Depth Report: PRIME Ammunition and RUAG Ammotec Take it to Court Adam Kraut April 24, 2019 Join the Conversation Editor's note: The topic of RUAG vs Prime and Prime vs RUAG has caused quite the media frenzy. There are always two sides to every story, and this one is no different. We spoke in-depth with Jim O'Shaughnessy, a representative of Citizens Ammunition. O'Shaughnessy was very forthcoming with his side of the story, some of which we may publish at a later date. RUAG stood by the release they gave and would not offer additional comment. But in order to be journalists and not further sensationalize things, we're going to provide you with the facts we have, which have been released by the courts and from documents O'Shaughnessy sent us. Be warned, this grown-up stuff needs you to dedicate some time to it– it's a long read. With no expectations of fluffing, read on… Recently, Prime Ammunition's Founder and CEO Jim O'Shaughnessy released a video about the current litigation that is ongoing between Citizens Ammunition, LLC (“Prime”), RUAG Ammotec USA, Inc. and RUAG Ammotec AG (“RUAG”). In addition to the video, Prime has also released the complaint filed by RUAG, along with Prime's Answer and counterclaims. As one would expect when it comes to litigation there are two very different stories being presented. RUAG's Complaint RUAG alleges that in March of 2015, it entered into a two-year contract with Prime, under which RUAG would supply Prime with a variety of calibers of ammunition, including .22LR, 9mm, .40 S&W, .45 ACP, .223 REM, .308 WIN, .338 Lapua, and 12-gauge. Under the supply agreement, RUAG maintained its ownership interest in all of the product until Prime had sold and paid for it. The agreement stated that after the two years expired, any remaining inventory, along with any additional ammunition ordered, was to be paid for within 30 days. At the two year expiration of the agreement, Prime had not sold all of its inventory. The parties entered into an addendum that extended the deadline to pay until September 30, 2017. The agreement also specified that failure to pay the balance in full would result in Prime no longer having the right to sell, transfer, or dispose of any remaining inventory and that it would have to be returned to RUAG, at RUAG's discretion. Photo courtesy of the RUAG Facebook page RUAG alleges that Prime failed to meet its September 30, 2017 payment deadline and did not issue any payments until after January of 2018. It further alleges that Prime advised them of sales of ammunition from the initial agreement between March and August of 2018. As a result, RUAG issued five invoices amounting to $772,147.27. According to RUAG, on July 15, 2018, Prime sent notice that it could not afford to pay any of the overdue amount. Four days later, on July 19, 2018, RUAG served a Notice of Default on Prime. At the end of July, RUAG followed up with a Notice of Termination of the Supply Agreement and Addendum. As a result, RUAG obtained physical possession of the ammunition. RUAG Ammunition quality control In August of 2018, RUAG accepted a purchase order from Prime for the production of 355,000 rounds of ammunition for a pre-payment of $399,360.00, which was paid by Prime. RUAG claims, as of the filing of the complaint, that Prime owes in excess of $772,147.27. The legal claims include: 1) breach of contract, 2) breach of implied covenant of good faith and fair dealing, 3) unjust enrichment and 4) declaratory judgment. RUAG brands When we reached out to RUAG for comment, the company sent back a portion of its official statement: RUAG Ammotec has taken contractually-defined recourse on Citizens Ammunition, LLC. RUAG has been loading the PRIME brand ammunition for several years. Well over a year ago Citizens stopped paying RUAG for the ammunition it sold and has refused to make any additional payments on the debt owed. This has forced RUAG to exercise its contractual rights through litigation and product sales. PRIME Ammunition is delinquent on payments for more than 1.2 million rounds of ammunition sold and received. PRIME’s practice of selling and receiving product but refusing to pay caused RUAG to act to protect its interests. Any statements, claims or representations to the contrary are simply false. The full news release can also be found at: https://www.norma-ammunition.com/us/Media-Center/Downloads/News-Releases/. Prime's Answer Prime's Answer contained a number of responses to the allegations in RUAG's complaint. For those who have never seen an answer to a complaint before, it's a paragraph by paragraph response to the allegations presented in a complaint. Certain jurisdictions require answers to be more specific than others. From Prime's Answer to RUAG's Complaint. Generally speaking, allegations are either admitted or denied. Sometimes more specifically or with additional information. You can read the answer in full here. In addition to answering each allegation in the complaint, Prime raised seven affirmative defenses. Those defenses include: 1) the Complaint failed to state a cause of action for which relief could be granted, 2) RUAG lacked standing to bring the action, 3) RUAG was guilty of unclean hands and not entitled to the relief it was seeking, 4) RUAG was not harmed and thus not entitled to the relief it was seeking, 5) RUAG was not justified in withholding delivery of ammunition paid for, 6) RUAG has granted itself a pre-judgment attachment and is not entitled to relief, and 7) RUAG's wrongful, malicious, and fraudulent conduct, does not entitle it to relief. Prime's Counterclaim Along with filing an answer to the complaint, Prime filed a counterclaim against RUAG. Citizen’s PRIME brand became wildly successful, and Citizens became one of RUAG’s top purchasers of OEM ammunition in the United States. Through a combination of product placement, market insight and knowledge and brand marketing, PRIME, within the arena of high precision ammunition, outsold multiple competitors, including RUAG’s own high precision ammunition brand, sold under the brand name “Norma.” The counterclaim stated that the parties entered into a Second Addendum agreement, which was not included as an exhibit, on January 21, 2018. This new agreement allegedly, “converted the value of the then existing inventory of ammunition held by Citizens and supplied by RUAG into a performing loan with a term of three (3) years and quarterly interest payments of 2.5% of current inventory…” Prime also purports that as of November 7, 2018, it had made principal payments of $593,216.46, first quarter interest payments of $15,479.33, and Federal Excise Tax payments of $44,943.14. Prime alleges that at the time of this Second Addendum, RUAG had a new CEO and that RUAG Holding AG, an entity of the Swiss government, “wished to avoid the optics of the Swiss government profiting from the sale of ammunition to the United States public,” and made it known it was looking to liquidate its civilian ammunition business. Based on this notion, RUAG allegedly refused to honor the Second Addendum and took the position it was relying on the prior agreement. As a result, RUAG took control of Prime's inventory, which denied Prime the ability to fulfill customer orders. Prime claims this created a void in the “very successful high precision ammunition market space” that it had shaped. Video link: https://www.full30.com/embed/MDIwMjk0 In addition to this first step to “clear the market space,” Prime alleges that RUAG sought to drive a stake through its heart by offering for sale ammunition, but only if it were paid for in advance of manufacturing. This would require Prime to borrow money. Once the money was sent to RUAG, it could then keep the money, not deliver the product, and place Prime in a position where it could not seek more money from third parties. As of the filing of the complaint, Prime has allegedly paid RUAG $608,695.79 under the Second Addendum. Prime's counterclaim has several different legal counts. In relation to the Second Addendum, Prime has filed claims for: 1) breach of contract, 2) detrimental reliance, and 3) breach of implied covenant of good faith and fair dealing. For the Initial Agreement, Prime has filed claims for 1) breach of contract, 2) common law fraud, and 3) unjust enrichment. Prime also has filed claims for 1) conversion, 2) misappropriation of trade secrets, 3) tortious interference with prospective business relations, 4) tortious interference with contractual relations, 5) civil conspiracy, 6) bad faith, 7) punitive damages and 8) a claim for breach of contract in relation to a non disclosure agreement. Photo courtesy of Prime Ammunition Facebook page Prime is seeking punitive damages in excess of one million dollars, along with interest, attorney's fees, and costs. The Second Addendum and its Timeline While penning this article, the author mentioned to the editorial staff that the alleged Second Addendum was not included as an exhibit to the counterclaim. The editorial staff reached out to Mr. O'Shaughnessy and obtained a copy. In addition to the alleged executed Second Addendum, Mr. O'Shaughnessy provided numerous emails and documents pertaining to the negotiations of the transaction. The only alterations to these documents as to how they were provided were the removal of comments, “title” pages which contained conclusory statements and highlights. The addition of redactions to email addresses and phone numbers was done by the author. Any part of an email chain that is missing is in the original. Based on the author's interpretation of the documents provided, it appears that RUAG had never internally approved the Second Addendum and still considered it to be a draft when it was executed and returned to them by Mr. O'Shaughnessy. Of equal importance is the clause found in the original contract which pertains to alterations of the agreement and requires it to be done in a writing signed by both parties. February 2, 2018 Email and Draft Addendum On February 2, 2018, Mr. O'Shaughnessy sent an email to Matthias Vogel (of RUAG) which contained a draft addendum to the March 17, 2015 supply contract. This email was proceeded by several others which included a document recapping a dinner conversation, on which this draft addendum was based. As noted in the counterclaim, Prime believed there to be a “handshake deal” in place while waiting on the formalization of the agreement (see Counterclaim ¶ 7 “The Second Addendum, which was first entered into with a handshake between Citizens CEO Jim O’Shaughnessy and newly appointed RUAG Ammotec AG CEO Christoph Eisenhardt…”). Redactions of emails and phone numbers were added by the author. February 16, 2018 Email and Draft Addendum On February 16, 2018, Mr. Vogel replied to the email and stated “please find enclosed my modified draft. It is not finally discussed with legal and finance…” The email contained a marked up version of the draft addendum sent by Mr. O'Shaughnessy. April 6, 2018 Email In response to an email sent on April 4, 2018, by Mr. O'Shaughnessy in which he stated “I feel there are only two major points that need to be addressed and then we can move forward in finishing the addendum,” Mr. Vogel responded that “I will evaluate your counterproposal over the weekend… Alternatively we also can continue like we did in the past until we have fixed the addendum.” April 17, 2018 Email and Addendum Based on the email chain, it appears that Mr. Vogel replied to a prior email of Mr. O'Shaughnessy wherein he stated that “We are getting closer…” This email was met with a response by Mr. O'Shaughnessy in which he attached an executed copy of the Second Addendum. 4-17-2018 email in which Mr. O'Shaughnessy includes an executed Second Addendum. April 18, 2018 Email The following day, Mr. Vogel responds stating, “Excellent Jim. There will be a final legal and finance check but the general principals should be fixed so far. I will send you the final version for signing as soon as I have it,” indicating that the prior version was merely a draft. Based on the email chain available, the author believes this to be consistent with the prior emails, that there was not yet a final version of the Second Addendum. May 15, 2018 Email and Addendum On May 15, 2018, Mr. Vogel sends an email to Mr. O'Shaughnessy containing the final draft of the Second Addendum. The email states “[a]ttached you find the legally approved version.” The final draft differs greatly than the prior versions. The Fault Lies With… No doubt that every legal saga has two different sides. The current battle between Prime and RUAG is no exception. Each complaint paints a wildly different story as to the version of events that led up to RUAG's initial suit. As this lawsuit continues, it's likely more information will come out, which will give a better understanding as to the true events that occurred. About the Author Adam Kraut is a firearms law attorney practicing in southeastern PA and across the country federally. He hosts The Legal Brief, a show dedicated to crushing the various myths and misinformation around various areas of the gun world. He was also the general manager of a gun store in the suburbs of Philadelphia. Instagram: @theadamkraut Twitter: @theadamkraut Facebook: www.facebook.com/theadamkraut URL: www.adamkraut.com Explore RECOILweb:Review: Inland Manufacturing M1 - Born Again CarbineJuggernaut Defense Ruggedizes Smartphone for the BattlefieldVortex Red Dot Sight GuidePartial Price, Full Conceal NEXT STEP: Download Your Free Target Pack from RECOILFor years, RECOIL magazine has treated its readers to a full-size (sometimes full color!) shooting target tucked into each big issue. Now we've compiled over 50 of our most popular targets into this one digital PDF download. From handgun drills to AR-15 practice, these 50+ targets have you covered. 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