Just One More Restaurant, the parent company behind legendary brand Palm Steakhouse, filed for Chapter 11 bankruptcy protection March 7, according to a filing with the U.S. Bankruptcy Court in Fort Meyers, Florida. The judge called the case, “a textbook example of fiduciary misconduct,” adding another chapter to an ongoing family feud that has waged in court over the past year.
The bankruptcy filing comes less than a month after New York State Supreme Court Judge Andrea Masley ordered the company to pay nearly $120 million to minority shareholders who accused the majority owners of cheating them out of royalties over the past 40 years. The majority owners are Walter Ganzi and Bruce Bozzi Sr., who hold 80 percent of the business. On the other side, Ganzi’s cousins, Claire Breen and Gary Ganzi, the grandchildren of the late John Ganzi, who opened the first Palm in Manhattan in 1926.
The earlier ruling called for $73 million in restitution to be paid to the cousins, or what they would have paid under a royalty rate of 5 percent. Legal fees and interest make up the rest. The payments were reaffirmed by the New York State of Appeals January 25 in a final judgment.
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The company’s creditor list was 50 parties long, and the filing said there were liabilities between $10 million and $50 million. The company guaranteed a $10 million Bank of America loan and a $1.8 million line of credit to Bozzi and Walter Ganzi.
Per The Wall Street Journal, Robert A. Schatzman, a lawyer for Bozzi and Walter Ganzi, said in an interview Friday that his clients were “confident there will be a successful reorganization and the chapter 11 will be positively resolved.”
The bankruptcy filing also came just days before a March 11 court hearing about enforcing the judgment.
At the heart of the issue are Gary Ganzi and Breen, and the estate of Charles Cook’s claim that the majority owners were licensing the marks to their restaurants at artificially low rates. Just One More Restaurant licenses the Palm name, known best for its caricature drawings of celebrities on the walls, to 24 restaurants in the U.S. and Mexico.
The minority owners claimed they were deprived millions in royalties over the decades as the company short changed passive investors through a flat $6,000 for 21 of the brand’s 24 units annually instead of a percentage of the restaurants’ gross sales.
The cousins said in the lawsuit that those restaurants were paying less than market rates to license the trademarks, which deprived Just One More Restaurant of revenue it was entitled to.
Gerard A. McHale, chief restructuring officer of Just One More Restaurant, said in the filing that the company’s total revenue was $177,600 in 2018, with a net income loss of $230,352. It was $234,449 in 2017 with a net income loss of $1.59 million. He said the judgment belongs to Just One More Restaurant, not the minority owners. The filing prevents the plaintiffs from enforcing the judgment against Bozzi and Walter Ganzi.
He added the bankruptcy would provide a “critically important ‘breathing spell.’”
In December, the judge said Bozzi and Walter Ganzi treated the company “as their own without any regard to other shareholders.”
In a statement to The New York Post, Josh Rievman of Dunning Rievman & Davies, the attorney for Breen and Gary Ganzi, said, “The bankruptcy filing is an attempted end run around the $119 million judgment against Wally Ganzi and Bruce Bozzi.”
Adam Stein-Sapir, a bankruptcy expert, told The New York Post the bankruptcy shouldn’t affect current operations, and that in the most likely scenario the parties work out a settlement, and “Bruce and Wally have a big judgment to pay, money they have been avoiding paying for 40 years.”
Bruce Bozzi Jr., an EVP in the company, added that Just One More Restaurant is “having a good year,” and this is “part of running a family business.”
The Wall Street Journal points out the bankruptcy is unusual because, typically, companies are forced into chapter 11 because they face large judgments against them. In this case, the company is seeking court protection because of an award issued in its favor.
The New York judgment canceled the licensing agreements that allowed Bozzi and Walter Ganzi’s restaurants permission to use the Palm intellectual property. This would “severely disrupt” business arrangements between the owners and the company that been in place for the past four decades.
Just One More Restaurant is requesting a court order prohibiting the minority owners from taking any action to enforce the judgment, saying the award is valuable property of the bankruptcy estate. A hearing on the request is scheduled for Wednesday with U.S. Bankruptcy Judge Caryl E. Delano.
