Harold MacKay is using the Downeast Beer Factory to bilk investors, alleges lawsuit

Harold MacKay, the founder and president of the Downeast Beer Factory, is using the brewery and restaurant to bilk investors, one of those investors claims in a lawsuit filed Friday with the Nova Scotia Supreme Court.

“Basically, this business was never set up to return money to the investors; this was set up as a way to bring income into [MacKay’s] family,” David MacDonald, the investor who brought the suit, told the Halifax Examiner in a phone interview Friday.

MacKay has a long history as an entrepreneur in the Halifax area, starting many business ventures. He is perhaps best known as the concert promoter associated with Halifax’s concert scandal, but he got his start locally as the VP for marketing for Moosehead Breweries. In that position, he started the Halifax Mooseheads hockey team, which the brewery later sold to Bobby Smith. In 1998, after leaving Moosehead Breweries, MacKay started the Maritime Beer Company, which operated at the same Windmill Road location now occupied by Downeast. Maritime Beer failed, and its assets were sold to Sleeman Breweries.

MacDonald, who says he has invested $200,000 into Downeast, accuses MacKay of irresponsible management, self-dealing, and theft in the establishment and operation of Downeast. He is asking for damages of $200,000 for his investment, and another $200,000 in punitive damages.

The lawsuit also names Harold MacKay’s spouse, Michele MacKay, as a defendant.

MacDonald says that without knowledge or approval of investors or the company’s board of directors, Harold MacKay hired Michele MacKay as an employee and as a contractor. In addition to her employee pay, Downeast hired two businesses owned by Michele MacKay: Michele’s Designs was paid $8,690, and 24/7 Accounting and Consulting Services Inc. was paid $6,900 a month for a total of $58,932. The 24/7 company is registered to the MacKays’ Dartmouth home.

MacDonald also claims that with the knowledge of Harold MacKay, Michele MacKay used the personal credit cards of employees, family, and business associates to buy tens of thousands of dollars of supplies off the books for the brewery and restaurant.

Heather Bruce, who is an employee of MacDonald in an unrelated business, filed a separate action in Small Claims Court Thursday that also names Harold MacKay, Michele MacKay, and Downeast. Bruce says she allowed Michele MacKay to use Bruce’s credit card to make two purchases for about $10,000 worth of supplies for the brewery and restaurant. But after that, claims Bruce, Michele MacKay continued to use the credit card numbers — without Bruce’s permission or knowledge — on 27 separate occasions at a cost of about $20,000. Most of the $30,000 has not been repaid, claims Bruce, and as a result, “I was left to borrowing money from my teenaged daughter in order to meet my minimum payments.”

MacDonald also says MacKay kept numerous transactions off the company books, was paying contractors in cash from unknown sources, and kept a company bank account secret from investors.

The allegations contained in the suit have not been tested in court.

Reached by phone as he was driving to Cape Breton Friday afternoon, Harold MacKay denied all allegations in the suit.

“He’s a disgruntled investor,” said MacKay of MacDonald.

As for Heather Bruce’s small claims court allegations, MacKay said “she knew all about it. She didn’t say anything until her boss started this.”

David MacDonald runs a company called Hockey Family Advisor. He told the Examiner that he mostly works as an agent for the families of children who hope to play college-level hockey, but the industry is increasingly focusing on ever-younger children, and MacDonald’s website says his “clients include young players who play at the prep school, major midget, U-16 and U-18 programs, Junior ‘A’, Major Junior and college hockey (both NCAA and CIS), levels throughout all of North America.”

For his legal action against MacKay, MacDonald is self-represented, although he told the Examiner that by the time the suit goes to court he’ll have a lawyer.

It’s unusual for a lawsuit asking for such large dollar amounts in damages not to be written by a lawyer. Typically, a lawyer will file a three- or four-page initial brief with the court, saying details will be provided later. The threat of alleged malfeasance being made part of the public record is then used as a bargaining tactic to get the defendant to settle before the matter is heard by a judge. In MacDonald’s case, however, his initial filing is a 77-page narrative, making specific and detailed allegations against Harold and Michele MacKay about the faltering business and the quest to bring in more investment money to cover past failures.

Investors, super-rich and otherwise

According to MacDonald’s lawsuit, MacDonald and MacKay would meet for coffee regularly. In April 2015, MacKay told MacDonald about his idea for a new brewery/restaurant, and by June MacKay said that he had already secured a $150,000 commitment from Cliff Gillis, the owner of Metro Roofing.

By August 2015, says MacDonald, MacKay had floated an “Investment Proposal” seeking another $360,000 from private investors. McKay said he had $120,000 commitments from:

• Scott McCain, an heir to and director of the McCain french fry company, owner of the Saint John Sea Dogs hockey team, and board member of the right-wing think tank Atlantic Institute of Market Studies;

• Jim Brennan, a former VP at Bird Construction and current president of a Bird-owned company called H.J. O’Connell, which is employed at the Muskrat Falls hydro project;

• Dave Pottier, owner of Lead Structural Formwork Ltd., which is doing work at the Nova Centre project and the Innovation and Design in Engineering and Architecture project at Dalhousie.

MacKay also told MacDonald that Edward Goguen would “likely” be involved. Goguen is the president of Arrow Construction Products, and was the silent partner in MacKay’s Halifax Common concerts.

With the start-up seemingly going well, MacDonald says he agreed to move his business, Hockey Family Advisor, to the office space at 612 Windmill Road, on the second floor, above Downeast. The $2,000 monthly sublease would help offset costs for Downeast, and in return, MacDonald would work as a consultant for Downeast (“marketing, operations, senior VP of bouncing things off-of”) and receive $1,000 in gift certificates for the restaurant. As MacDonald tells it, the arrangement was friendly and cordial; more importantly, it meant that employees of both businesses — Downeast and Hockey Family Advisor — would work at desks in the same office space, with facilities shared between the two businesses. MacDonald also insisted that he have an out-clause, allowing him to move his business to the new Dartmouth four-pad arena when it opens.

A few days after they worked out the office space agreement, says MacDonald, MacKay told him that Cliff Gillis had dropped out of Downeast. MacDonald said that Gillis was paid back an initial $10,000 loan to get the project started. Gillis was the original director of Downeast, but he was taken off the registration.

MacKay asked MacDonald to help find a replacement investor for Gillis, says the suit, and if he did so, MacDonald would receive a five per cent stake in the company.

MacKay additionally told MacDonald that Goguen might replace Gillis. and that John Lynn was considering getting involved. Lynn is the former CEO of Enterprise Cape Breton Corp. (ECBC), a federal economic development agency that provided funding for start-ups and for existing businesses to expand. In 2014, Lynn was fired after the federal integrity commissioner issued a report that “concluded that he breached the Crown agency’s code of conduct by hiring four people with ties to the Conservative party.” After Lynn was fired, ECBC’s operations were taken over by the Atlantic Canada Opportunities Agency (ACOA).

Lynn, says MacDonald, had been one of four partners in a company called First Fence, which is operated by Harold MacKay’s son, David MacKay. The other partners were Harold MacKay, David MacKay, and Jim Kehoe. (Kehoe is the owner of Joneljim Concrete Construction and a director of Laurentian Energy Corporation, a company formed with the intent of buying the Sydport Industrial Park from ECBC in 1998. He is also a director of East Coast Metal Fabrication.)

According to the lawsuit, MacKay didn’t much like Lynn, “but talked of his great connections,” which is how Kehoe got involved in the fence business.

MacDonald says he didn’t much care for Lynn either. MacDonald, MacKay, and Lynn all sat on the board of the Maritime Minor Hockey League, and MacKay would tell MacDonald of his frustrations with Lynn: “including the numerous meetings that John would call and demand answers from Harold MacKay on how the First Fence business was being operated… MacKay often talked of how much Harold felt that John was interfering in the smooth operation of that company. Harold often stated that he hated having to meet with John Lynn regarding First Fence, as he always felt that John was ‘holding his feet to the fire’ and demanding action, answers and results.”

“In hindsight,” continues MacDonald, he now “understands John Lynn’s obvious frustrations, as [MacDonald] has continuously encountered the same at the Downeast Beer Factory.”

But MacDonald only came to that realization recently. At the time, in September 2015, he had developed a close relationship with MacKay, had discussed moving his offices into the Downeast building, and had been offered a five per cent ownership stake if he found a new investor. MacDonald took the relationship one step further by suggesting that he himself would be the new investor, with a contribution of $120,000 into Downeast. MacDonald had one condition: that Lynn not be involved with the project. MacKay agreed.

That deal was made on a handshake, says MacDonald.

By this time, there was a new list of “confirmed” investors in addition to MacDonald. Scott McCain and Dave Pottier were still in, but Jim Brennan was out, replaced by Jim Kennedy, the owner of Louisbourg Seafoods.

While Goguen wasn’t an investor, he did agree to lend MacKay money to offset MacKay’s living expenses while he established Downeast. As security for the loan, Goguen holds the mortgage on MacKay’s house, says MacDonald.

One day in October 2015, Michele MacKay showed up at a desk in the shared office space. MacDonald says Harold MacKay told him that Michele MacKay was just “supervising some of the work going on downstairs” and she’d only be there temporarily. MacDonald assumed Michele MacKay was working voluntarily, without pay, as part of a family project, and he didn’t have a problem with that. But, he says, “Never did Michele MacKay ever vacate that office.”

About the same time, MacKay told MacDonald that “Dave Pottier had bailed” as an investor. “There were a number of labour issues that required [Pottier’s] attention within his own business operation,” explained MacDonald in the suit, “and cash reserves were of a concern because of a looming strike by his workers.” At the time, Pottier’s company, Lead Structural Formwork, was pouring the concrete for the Nova Centre.

But, says MacDonald in the suit, MacKay said there would be no problem finding a replacement for Pottier. Goguen was still interested, as was MacKay’s dentist. “He made it sound as though people were fighting over being allowed to participate,” wrote MacDonald.

In fact, by November 2015, another investor was on board: Donnie Garnier, owner of Direct Tire in Sydney. Garnier was introduced to Harold MacKay by MacKay’s sister Jean, who lived in a trailer on property Harold MacKay owns in Cape Breton.

So, by the end of 2015, there were four investors in Downeast, two super-rich men (Scott McCain and Jim Kennedy) and two comfortable-but-not-so-rich men (David MacDonald and Donnie Garnier). Each had a $120,000 stake in the company.

The day the beer exploded

As MacDonald tells it, the plan was to get the brewery and restaurant up and running by Christmas 2015. But, claims MacDonald, due to MacKay’s mismanagement, there were repeated delays and cost increases. A $5,000 job to move a bar from one wall to the another ballooned into a contracting job with a price tag of $120,000. Expenses for signs and fixtures came in at nearly twice the $75,000 budget. At one point, writes MacDonald, he asked a painter how a $9,000 quote became a $13,000 job; “he said that Michele MacKay would order a colour and then come back and change it the next day, or go from glossy to flat, or decide to paint a ceiling that he was told did not need to be painted, etc.”

MacKay was also running through staff at an alarming rate, says MacDonald.

A chef, a general manager, and two supervisors were hired and worked for “several months” before the restaurant opened in May 2016, says MacDonald; “three of the four restaurant employees were gone within a few months because Harold MacKay had fired them, and in each case Harold stated that they had lied on their resumes.”

MacDonald says he asked MacKay if he had checked the employees’ references. “His answer was ‘No…, they all lied.’” MacDonald doesn’t think the employees lied on their resumes.

There was similar turnover on the beer side of the operation. The initial brewmaster was to be Kirk Annand, who was the brewmaster for the old Maritime Beer Company. MacDonald says that MacKay told him the brewing equipment had been ordered from China and was “on the water” in November 2015, but the equipment still hadn’t arrived by January 2016. That’s when Annand left and was replaced  by Rod Daigle, who had founded Brimstone Brewery in Ontario. MacKay paid Daigle’s moving expenses.

On February 8, 2016, the brewing equipment finally arrived from China, but the Chinese engineer who was to install it didn’t arrive until March, after the Chinese New Year, says MacDonald.

As MacDonald tells it, MacKay had budgeted US$180,000 for the equipment at a 22 per cent exchange rate, but the exchange rate had increased to 40 per cent, to CD$252,000. Additionally, $60,000 was spent on burners and their installation, $30,000 on stainless steel welders, and up to $20,000 on related equipment.

The company budget had been blown and “by March 2016 the company had run out of money under Harold MacKay’s leadership,” writes MacDonald.

To salvage the company, the four investors agreed to loan Downeast $100,000 through a six-month promissory note on the company, and beyond the loan, MacDonald, Garnier, and Kennedy each increased their investments by $10,000, while McCain increased his by $25,000.

All the while, says MacDonald in the suit, the investors were unaware that Harold MacKay had been using Downeast funds to pay Michele MacKay’s consulting companies.

They were also unaware of large outstanding debts.

A contractor who had been paid with envelopes stuffed with cash had an outstanding bill of $35,000, says MacDonald. The money was withdrawn from a TD bank account established in the early days of the company by Cliff Gillis, the first director who had dropped out of the company. That bank account was supposed to have been long closed, says MacDonald. Where the money came from is a mystery.

In the spring of 2016, Metro Burner placed a $35,000 builder’s lien on the Windmill Road property, and Purity Stainless placed a second  builder’s lien on the property for $20,000. The liens created difficulty between Downeast and Cominar, the owner of the property, says MacDonald.

Downeast had a “soft launch” and opened its doors for business around the first of May 2016. But there were no lighted signs.

Sojourn Signs installed signs outside the restaurant, but did not light them. Asked why, Sean MacKenna of Sojourn told MacDonald that he had not received the promised deposit for the signs. MacKenna showed MacDonald a text conversation between MacKenna and Michele MacKay; “MacDonald realized then and there that he had been told a bold-faced (sic) lie by both Harold MacKay and Michele MacKay in an attempt to keep the actual state of affairs from him,” writes MacDonald. “It was there and then that the Plaintiff MacDonald actually became aware of the awful state of the Downeast Beer Factory finances.”

One day in late May, continues MacDonald, his secretary Heather Bruce came into MacDonald’s office, closed the door, and said she was “very worried” about something. She went on to explain that Michele MacKay had been using her credit card without permission to buy supplies for the restaurant and brewery. That charge is the basis for the small claims action Bruce took Thursday against both MacKays. Click here to read Heather Bruce’s Statement of Claim.

Then, on June 9, 2016, David MacDonald was sitting at his desk in his upstairs office when he “heard a tremendous blast, and experienced a violent shake.” One of the brewing vessels had exploded.

Brewing at Downeast came to a sudden stop. Brewmaster Rod Daigle left the company “immediately,” moving to Propeller Brewing.

Remarkably, Harold MacKay failed to tell the other investors of the explosion, says MacDonald. Once they became aware — in late June, says MacDonald — the investors went into crisis management mode and talked of securing a $350,000 small business loan through RBC.

The business was limping along, until one day the restaurant’s banking machines were cut off for non-payment. “It was discovered as lunch guests were checking out and attempting to pay their bills,” writes MacDonald.

MacKay asked MacDonald if he could pay the delinquent bill with his personal credit card, but MacDonald refused. (MacDonald says unauthorized charges had been placed on his credit card as well, and so he had cancelled the card.)

Then, according to MacDonald in the suit, Michele MacKay suggested that the banking machine bill be paid with the credit card of an employee who had recently been fired. “Let’s put in on Pat’s Visa… and we’ll have it paid off before he realizes it,” said Michele MacKay. MacDonald said, “No. Doing that is out-and-out fraud.” Michele MacKay then called her mother, and paid the bill with the mother’s card.

In August 2016, the investors received a Canada Small Business Financing Loan for $350,000 through RBC. The five shareholders (including MacKay, who owned stock but had not invested money) guaranteed the loan up to 25 per cent of the outstanding balance, or to $87,500 each.

Downeast finally started brewing beer again on October 22, 2016.

Throughout this time, says MacDonald, Harold MacKay had divided attention and wasn’t devoting enough time to Downeast. MacKay was talking about organizing an NHL hockey exhibition game in Halifax, to be backed financially by Edward Goguen. MacKay was also planning to put on a concert in 2017. Additionally, says MacDonald, MacKay was doing First Fence business in the Downeast boardroom, receiving mail for David MacKay’s company 1-800-GOT-JUNK at the restaurant, and holding meetings with David MacKay about a start-up to be called “Fireball.”

MacDonald and MacKay call the cops on each other

In the days before Christmas 2016, says MacDonald, Harold MacKay suggested to the board of directors that they seek out advice on filing for receivership. “At the same time, Harold MacKay and Michele MacKay threw a party at their house using company resources.”

On January 18, 2017, Downeast was unable to meet its payroll, says MacDonald. And so, he and Garnier each provided $5,000 on the condition that it be repaid from the coming weekend sales. MacDonald had a second condition: that he be a co-signer on the TD bank account.

The next Monday, MacDonald says that Harold MacKay paid him back the $5,000 with a cheque, but Garnier was repaid with cash MacKay had received from Jim Kennedy. “Harold explained that Jimmy had provided him with $10,000 in cash to be placed into the business operation, which Jimmy gave him from between his truck seats.”

About that time, says MacDonald, he finally got bank records from RBC, which held the primary chequing account for Downeast. Those records showed that Michele MacKay’s mother had been reimbursed for over $6,000 placed on her credit card. In contrast, at that point his employee, Heather Bruce, had only been reimbursed $581 on the $30,000 placed on her credit card. MacDonald says he was “furious.”

At a January 21, 2017 board meeting, says MacDonald, he and Garnier demanded detailed accounting for many Downeast expenses, and especially for a $2,600 cheque written to Michele MacKay. At that point, the Downeast board of directors consisted of Harold MacKay, David MacDonald, and Donnie Garnier.

As MacDonald tells it, Harold MacKay told MacDonald and Garnier that “he had instructed Michele to ‘get whatever she could prior to the likely closure of the Downeast Beer Factory.’” During the meeting, says MacDonald, Harold MacKay threatened to punch him in the face.

At the meeting, MacDonald asked for Harold MacKay’s resignation. As MacDonald saw it, the initial business plan was for an investment of about a half-million dollars, but by that time about $1.2 million had been placed in the business. Sales projections were $2 million annually, or about $166,000/month, but no month of operations had achieved even a third that amount.

“By December 2017 [he means 2016],” writes MacDonald, “it was becoming very clear that the Downeast Beer Factory was never established by Harold MacKay to produce a return on investment for the shareholders of the corporation, but rather a way to enable him to access money for his personal life.”

Harold MacKay refused to resign. MacDonald vacated his office, moving his hockey business to Ilsley Avenue.

A week later, on January 25, writes MacDonald, he again called for Harold MacKay’s resignation, and had the verbal support of Garnier and McCain, or 75 per cent of the investors.

Again, Harold MacKay refused to resign. MacDonald says he called the police. “In the end, Harold agreed that he would immediately call a shareholder’s meeting and he told the police officer that he would resign if the simple majority voted to terminate his role within the Downeast Beer Factory. Harold has never called that meeting, although he has been continually asked to do so.”

MacDonald says that Harold MacKay has consulted with lawyer Michael Madeelina, who told MacKay that he couldn’t be fired with less than a four-fifths vote (80 per cent) of shareholders. MacDonald says he is contemplating suing Madeelina as well.

It appears that the lone hold-out investor not willing to fire Harold MacKay is Jim Kennedy.

With matters at a stand-off, MacDonald and Garnier resigned from the board, leaving Harold MacKay as the sole director. MacDonald and Garnier resigned because they did not want to be held personally responsible for further liabilities incurred by Downeast, and Harold MacKay had refused to purchase directors’ insurance.

Even after the January 21 confrontation, writes MacDonald, on February 1, Harold MacKay asked for still more money from the investors, and provided a list of what would happen if Downeast didn’t receive the added investment. At the top of the list, says MacDonald, was “Harold would get bad press.”

On February 8, MacDonald emailed Harold MacKay and demanded to see documentation of expenses. The company’s constitution entitled him to see that documentation, says MacDonald. MacKay wrote back to say he was in meetings all day, but would produce the documents the next day. He refused to meet with MacDonald that day as well, claims MacDonald.

On February 10 at 9am, says MacDonald, he was served notice of a restraining order prohibiting him from being on the Downeast property. The order was signed by Harold MacKay.

During February and March, says MacDonald, Harold MacKay was attempting to gather together documentation so that Downeast beer could be sold in NSLC stores. There’s a long back-and-forth between the NSLC, MacKay, and MacDonald over that documentation.

The NSLC began selling Downeast beers in April, but the battle over documentation continued, says MacDonald.

Also in April, RBC was threatening to call in the Downeast small business loan because company financials had not been submitted to the bank. A meeting of shareholders was called for April 28 — at the Downeast office.

MacDonald attempted to attend the meeting, but as he arrived, he “was accosted by Harold MacKay, and was told that he was not allowed to attend. He said that [MacDonald] was not allowed on the premises. [MacDonald] told him that as a shareholder, he had the right to be present. Harold MacKay said that he would call the police, which he did. The police arrived, and Harold had me arrested and dragged out the door in handcuffs for Trespassing.”

MacDonald was charged, and there’s a court date scheduled for March 18, 2018.

MacDonald doesn’t know what happened after that, but he’s “under the impression that between February 1st and June 30th, Jim Kennedy has advanced over $150,000 to Harold MacKay to supplement the operation of Downeast Beer Factory, without any authorization of the shareholders as a whole.”

“On several occasions,” continues MacDonald, “[MacDonald] has requested information regarding where the money was coming from to keep the business alive, and under what understanding were funds being advanced. Never were any of the shareholders told the details.

“During this period, Harold MacKay was simply extending the life of the business, while driving the company further into debt, and eliminating any possible recovery through the proper restructuring of, or orderly winding-up of the business, which should have occurred last Fall.”

On June 30, says MacDonald, Downeast had its first and only Annual General Meeting of shareholders. This meeting was held in North Sydney. MacDonald brought a lawyer, but MacKay and Jim Kennedy said no one besides the the shareholders could be present. MacKay cited the advice of Madeelina. Kennedy said he had the advice of Breton Law. The lawyer was not allowed in.

At the meeting however, claims MacDonald, he finally was given company financial statements. They showed that as of April 30, 2017, the company had a deficit of $525,228.

But, “it was information that was ‘between the lines’ and discovered during the questioning of the accountant, Andrew Hendrikson, which caused the greatest concerns,” writes MacDonald. Specifically, the investors (apparently MacDonald, Garnier, and McCain) learned of the payments to Michele MacKay and her companies.

MacDonald doesn’t say why, but the meeting lost quorum and came to an end. “Harold MacKay stated that he would call for the conclusion within two weeks. He has not done so.”

And so, MacDonald has filed his suit.

Read David MacDonald’s Statement of Claim:
Part 1
Part 2
Part 3
Part 4
Part 5
Part 6
Part 7