CEO of Hot Celebrity Boxing Startup Has a History of Legal Fights
(Bloomberg) -- Andrew Stenzler, co-founder of hot new boxing startup Rumble Fitness LLC, is used to putting up a fight in court.
The serial entrepreneur has faced multiple lawsuits from the two previous companies he co-founded, with accusations ranging from falsifying documents and breach of contract to negligence, deceptive trade practices and fraud, according to court records dating back to 2003. In each case, Stenzler has avoided an adverse verdict with the lawsuits either being dismissed or settled out of court, documents show.
Now, Stenzler is being sued again, with two men accusing the 50-year-old New York native of ripping off their idea. This time, the stakes couldn't be higher. Featured in top media outlets and hailed as the next hot fitness craze, New York-based Rumble has already lined up more than $34 million in funding, including from Sylvester Stallone and luxury mega-gym Equinox. Celebrity customers include Justin Bieber, Kendall Jenner and Selena Gomez and Rumble’s Instagram page is flooded with photos of models. Now Stenzler is seeking to line up an additional $200 million in capital so he can more than double the number of locations and expand abroad.
Rumble fits into the trend of exercise-as-entertainment pioneered by the likes of SoulCycle Inc. and Tough Mudder Inc. Indeed, co-founder Noah Neiman is a former Barry’s Bootcamp Master Trainer. Its formula combines dark lighting, personally curated, loud hip-hop mixes and a specially designed, tear-drop-shaped punching bag filled with water. Sculpted trainers bounce around on stage encouraging members to “punch away your stress.” Justin Weil and Elan Danon say Stenzler stole many of those specific features from them after having early, confidential conversations about the concept. The pair is seeking $28 million in damages; Stenzler has filed a motion to dismiss the case.
The celebrity buzz has helped Rumble expand from a windowless office in Chelsea in 2017 to trendy locations on both coasts. Some 600 people pay as much as $36 to rotate through the Flatiron gym in Manhattan on a daily basis, Stenzler said, which he believes makes it the busiest group fitness studio in America. According to PitchBook data investors recently valued Rumble at $77 million -- an impressive feat for a two-year-old startup with just five gyms.
While some industry experts note that entrepreneurship is tough and often riddled with false starts, others point out that the types of lawsuits filed against Stenzler could raise a red flag. Some early investors in Rumble weren’t aware of his current legal battle or his previous lawsuits until now, according to people familiar with the investments, who asked not to be identified because they aren’t authorized to talk publicly about the company.
In a sweaty post-workout interview on the bleachers at Rumble’s flagship gym in Manhattan, Stenzler said the previous lawsuits against him were all based on frivolous accusations –- and he’s expecting the current case to be dismissed this month. “If you’ve been around 20 years and you’ve done well, you’re going to have some nuisances and I stand by my record," Stenzler said, fist-bumping trainers who walked by.
A graduate of New York University’s Stern School of Business, Stenzler was named a 40 Under 40 honoree by Crain’s New York Business in 2000 at the age of 31. At the time, he was co-chairman and CEO of Cosi Inc. after merging his coffee bar chain with the gourmet sandwich shop. But its $39 million initial public offering in 2003 got off to a rocky start after many of the initial underwriters pulled out. Things went from bad to worse only two months later when Cosi said it was laying off staff and didn’t have the capital to open the 59 stores it promised. The shares tumbled 31 percent and Stenzler resigned. A group of shareholders filed a class action lawsuit days later, alleging Stenzler and others made materially misleading claims in the prospectus. A judge later dismissed the case.
Undeterred, Stenzler soon bounced back, co-founding Kidville Inc., with his wife Shari Misher Stenzler, in 2005. The idea for the family-friendly concept -- specializing in early childhood development centers, indoor playgrounds and birthday party venues –- came about after the couple’s daughter was born. After an initial site in Manhattan’s Upper East Side, the Kidville franchise expanded to the Upper West Side, Brooklyn, Chicago and elsewhere. But it wasn’t all fun and games. Stenzler was the subject of at least two lawsuits by Kidville franchisees and contractors. One, a small commercial printing company in Massachusetts, claimed Stenzler refused to pay a $50,000 bill for printing brochures and branded T-shirts. Another accused Kidville of making “misleading and fraudulent’’ claims that downplayed the amount it would cost to open a Kidville franchise by hundreds of thousands of dollars and overstated revenue.
Both of those cases were settled out of court and the plaintiffs signed nondisclosure agreements. One plaintiff, Paul Wilder, speaking after the case was settled, said Stenzler was “pretty good at convincing people they should go along for the ride.’’ While every business has risks and rewards, Wilder said Stenzler’s “kind of aggression was with no remorse for others who get hurt in the process.’’
Stenzler left Kidville to launch Rumble in 2016 with Neiman, Anthony DiMarco, a former managing director at Google, and Eugene Remm, a co-founder of the Catch Hospitality Group.
About 18 months later Stenzler and Rumble were sued for misappropriation of trade secrets by Weil and Danon, whom he knew because their children attended the same school. According to court documents filed by the plaintiffs’ lawyer, Weil and Danon allege Stenzler stole their idea for a concept they called Spar, including specifics for the water-filled punching bag, lighting and music, after having discussed the idea over the course of a few months under a confidentiality agreement.
Stenzler claims the idea for Rumble doesn’t constitute a trade secret because it’s just a basic boxing class. The water-filled punching bags have been around for years and the hip-hop playlists were all designed by Remm, who ran some of New York’s top nightclubs and worked as a DJ. Stenzler said he never signed a confidentiality agreement and that Weil and Danon have only come after him for money because they’ve watched Rumble’s success over the past two years, according to court documents. "Only after Mr. Stenzler achieved that success, entirely without them, did the plaintiffs suddenly rise from the dead -- claiming it was really all their idea and demanding an eye-popping $28 million," according to Stenzler’s motion to dismiss the case. The judge has not yet ruled on the motion.
“It’s not our first time at the rodeo," Stenzler said. “There’s risk in business and we’ve raised a lot of money here and we’re doing well. I think people like people who have long histories and who have navigated any hurdles that come up," Stenzler said.
In the competitive and risky world of startups, it’s fairly typical for companies -- and their founders -- to face litigation. In fact, eight percent of startups fail due to legal hurdles, according to a 2018 study by venture capital database CB Insights.
"If you’ve been in business for a long time and founded a bunch of companies stuff happens and that’s not unusual," said Lori Hoberman, founder of Hoberman Law Group, which represents entrepreneurs. But the lawsuits are usually related to patents, employment contracts or stock vesting -- rarely do they roam into the realm of fraud, deception or class actions over unethical business practices, Hoberman said. “The most valuable thing an entrepreneur can have is their reputation and those kinds of lawsuits raise all kinds of red flags."
Those warning signs aren’t always easy to spot, however. A simple Google search of Stenzler and his companies doesn’t surface the court cases in a very reader-friendly way since they date back to 2003 and haven’t been covered in the mainstream media. And most early investors in a company don’t feel the need to carry out background checks, since often they are investing where they know the people involved, according to venture capitalist Arjun Sethi, (who isn’t familiar with Rumble.) What’s more, angel investors also don’t usually have the resources of a big venture capital firm behind them to cover the $1,000 fee for comprehensive background checks, he said.
The Rumble team is taking it on the chin and drawing on the wisdom of rap artist Notorious B.I.G. to explain how success comes with baggage. "There is always going to be someone who wants to challenge it,’’ co-founder Remm said. ``Once you start being successful, you know, it’s like Biggie said – ‘more money, more problems.’"
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