A settlement was agreed to in a $2.8 million lawsuit between Wells Fargo Bank and Cody-based firearm manufacturer Gunwerks, that was filed in Wyoming Federal District Court on Wednesday, according to Michael LaBazzo, a spokesman for Gunwerks.
He said with the signing of the settlement the case would be dismissed.
Attorneys for Wells Fargo could not immediately be reached for comment.
The lawsuit alleged Gunwerks owed the bank more than $2.8 million for loans. The 17-page complaint demanded company equipment, inventory, accounts, proceeds and intellectual property as collateral for failing to pay the loan.
LaBazzo said the actions taken by Wells Fargo were “extremely drastic” and were regarding the renewal of an operating account.
The news comes as Forward Cody completes construction on a new manufacturing facility for Gunwerks with $6 million of state grants and funds.
LaBazzo said Gunwerks is working out of three facilities – on Lt. Childers and 17th streets, and at the Park County Complex off Stampede Avenue.
The court complaint said Gunwerks owes a principal balance of $2.4 million and $2.78 million after interest. According to court documents, interest is tabulating at a rate of more than $20,000 per month. With attorney and other related fees, the total sum being demanded is $2,847,467.
“The borrower is using proceeds from the collateral to pay operating expenses rather than turning the proceeds over to Wells Fargo,” wrote James Belcher and Timothy Woznick of Casper-firm Crowley Fleck, which is representing Wells Fargo in the case. “The collateral is the only viable source of repayment of the loans given the borrower’s financial condition, and is at imminent risk of further deterioration and loss of value if the borrower uses the proceeds of collateral to pay suppliers and other operating expenses.”
Wells Fargo also stated Gunwerks owes third parties $622,000 and stopped paying sales taxes in 2018. LaBazzo disputed both of those findings.
“(Gunwerks) is in default under the operating loan agreement due to its failure to pay the operating loan at maturity, refuses to provide Wells Fargo with information regarding Wells Fargo’s collateral, has failed to turn over to Wells Fargo proceeds from liquidation of the collateral,” wrote Belcher and Woznick.
The complaint also alleges when Gunwerks defaulted on the loan, it failed to provide a timely listing of finances, accounts it is owed money from, invoices, name and address of each of its accounts. Wells Fargo also discovered Gunwerks transferred funds out of the bank to another bank, despite an agreement to maintain deposits there.
“Wells Fargo brought this to the borrower’s attention and asked the borrower to transfer the funds back to the borrower’s account at Wells Fargo. The borrower refused,” Belcher and Woznick wrote.
Wells Fargo filed a motion with the court to appoint Focus Management Group as a receiver for the owed funds.
A receiver is charged with taking possession of and managing collateral in business debt situations like these, to insure the lender does receive money they are owed.
The complaint also mentioned that Gunwerks failed to inform Wells Fargo of another federal lawsuit it is involved in the Southern District of California, in which the bank said it holds a security interest.
This November 2019 request for declaratory judgement involves an individual from a California company, which alleges Gunwerks did not give him credit for an approved patent to a rifle scope that includes a display system and mirror. The company had demanded credit for that man within the patent and an undetermined amount of legal fees and damages.
LaBazzo said the plaintiff in this case has now offered to dismiss the case but Gunwerks is still seeking legal expenses from the plaintiff.
What is owed vs. what’s paid
In total, Gunwerks and its owner and CEO Aaron Davidson have taken out six loans with Wells Fargo to a tune of $5.11 million, which $1.68 million has been paid off to date.
The largest of these payments and the only loan that was scheduled to be fully paid off, was a $2.25 million “Operating Loan” taken out in October 2018, that was supposed to be paid off by December 2019. In September 2019, the loan was amended to a new total of $2.75 million.
It appears Gunwerks has only paid $256,157.74 of this loan.
Because of this late loan, Wells Fargo is now considering all of Gunwerks’ and Davidson’s other loans in default despite the fact that none of the other loans are due to be paid in full yet.
Prior to the Operating Loan being taken out, in July 2017 a loan was granted to Gunwerks for $750,000. A total of $403,641.06 has been paid on this, leaving $364,359 remaining that was supposed to be paid in full by July 2022.
Three other loans taken out from 2016-2018 are also owed on, for a sum of $592,016.86 with interest, that were to be paid in full by January 2024.
Davidson also took out a loan for SM Group LLC, a Burlington business he is the sole proprietor of. For this company he took out $500,000 also in July 2017, and appears to have paid most of that loan, with only $5,605 remaining on the balance that must be paid in full by July. He took out a security interest in a 2017 Dodge Ram 3500 truck as collateral for this loan.
SM Group is listed as a co-defendant on the case.