- Family Feud, Bankruptcy Filings, Coronavirus Loom Over Million Palm Restaurant Sale | Daily Business Review
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Family Feud, Bankruptcy Filings, Coronavirus Loom Over $45 Million Palm Restaurant Sale | Daily Business Review
News Paul Singerman, Berger Singerman. Courtesy photo
The sale of an iconic steakhouse brand was accomplished against the backdrop of a longstanding family feud, bankruptcy filings and the looming threat of an economic shutdown from the coronavirus.
Attorney Paul Singerman led the Berger Singerman legal team who worked through the challenges to execute the $45 million sale of the intellectual property of The Palm restaurants, ownership stakes in more than 20 locations and licensing rights to three others.
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Going, going gone: Iconic Palm restaurants could be sold to highest bidders
With no settlement in sight to resolve a bitter family dispute, the iconic Palm restaurant enterprise could be sold to the highest bidders.
At a court hearing on Monday in Tampa, a bankruptcy judge agreed to allow a trustee to hire real estate brokers and accountants to pursue a sale of the restaurants and other assets.
Until a few months ago, the dueling sides seemed intent on reaching a “global settlement” to resolve all of the claims involving the restaurants and its owners, who have ties to Naples.
“I have given up hope of a settlement. So let's just move on,” said Caryl Delano, the federal bankruptcy judge, during the hearing.
In this file photo from 2011 photo, a waiter resets a table at The Palm restaurant in New York's Tribeca neighborhood. After opening its doors in 1926, The Palm restaurant soon became a gathering place for bold-faced names. (Photo: Richard Drew, Associated Press)
Although a settlement is doubtful, Delano said if one could still be struck it would be “wonderful.”
The judge heard how a global settlement was reached “in principle” late one October night inside a law office in Miami, but then failed to materialize, with no explanation offered about why the negotiations fell apart after that productive meeting a few months ago.
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In March, Just One More Restaurant Corp., the Naples-based company that owns and licenses the use of the Palm name, trademarks and other intellectual property for the legendary restaurant, filed for Chapter 11 bankruptcy protection.
A related company, Just One More Holding Corp., also filed for bankruptcy.
The filings — made in U.S. Bankruptcy Court in the Middle District of Florida in Fort Myers — came after a state court judge in Manhattan sided with Gary Ganzi and sister Claire Breen, who claimed their cousins had cheated them millions of dollars in royalties over many decades.
After a bench trial, Justice Andrea Masley ordered the defendants, majority owners Walter Ganzi Jr. and Bruce Bozzi Sr., to pay a roughly $120 million judgment to resolve the dispute, along with interest and attorneys' fees.
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Together, Ganzi and Bozzi, the grandsons of the original founders, have opened more than 20 Palms around the country and they've licensed the right to use the name, look and feel, logo and other intellectual property to themselves at a flat rate set more than 40 years ago.
Meanwhile, the cousins have received a $6,000 licensing fee from every new restaurant, which they've argued isn't nearly enough.
In her ruling, Judge Masley said the majority owners' actions were “a textbook example of fiduciary misconduct.” She found that they treated Just One More Restaurant Corp. “as their own without any regard to other shareholders,” putting their interests before the company's.
After the ruling, Ganzi and Bozzi filed an appeal, which is still pending.
In the Chapter 11 bankruptcy filings, they said they needed a “breathing spell” from the judgment to “reorganize successfully.”
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In August, the bankruptcy court lifted the automatic stay for determining the amount of attorneys' fees that should be awarded to the cousins who brought the derivative suit — a suit brought by shareholders on behalf of a corporation. Judge Masley rejected the defendants' request to reduce the amount of fees by 50% finding that percentage to be arbitrary “with no factual or analytical basis,” and awarded the full amount sought — totaling more than $4.5 million.
In her ruling, Masley said attorney Fred Newman and his legal team with Hoguet Newman Regal & Kenney LLP in New York, who represented the minority shareholders in the suit, should be awarded the entire amount they asked for his significant commercial litigation, supervisory and managerial experience and impressive resume, as well as his team's trial skills, which she described as “extraordinary.”
“The court factors into the calculation the fierce litigation over six years, which succeeded in stopping multiple breaches of fiduciary duty in a beloved family business and iconic New York restaurant,” she wrote.
Newman described the award as “pretty unusual,” given its size.
Here's an aerial view of The Palm Miami at Bay Harbor Island, Florida. (Photo: Google Earth)
According to court records, the dueling sides reached a tentative settlement agreement Oct. 10, then Ganzi and Bozzi each filed for Chapter 7 bankruptcy the next day, a legal maneuver that further complicated the case and the collection of the judgment — including the winning lawyers' fees.
Settlement documents were to be executed by Oct. 31, but that day came and went without any action.
Months have passed and nothing has been collected in an effort to pay the judgment, Newman said.
In their personal bankruptcy filings, Ganzi and Bozzi both said they had assets of $10 million to $50 million, with liabilities between $100 million and $500 million. Their creditors include Bank of America and the IRS, as well as their cousins and their cousins' attorneys.
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Ganzi has a Naples address, while Bozzi lives a few counties away in the Sarasota area.
Court records show that Just One More Restaurant Corp. and Just One More Holding Corp., which held the real estate for the original Palm restaurant in Manhattan until the property sold, have been “directed, controlled and coordinated” Naples.
The Palm restaurants have been owned and operated by the same families for more than 90 years, with the first one opening in 1926.
With the bankruptcy judge's decision this week, Newman said all of the Palm restaurants could be sold, as well as the personal assets of Ganzi and Bozzi — including their vacation homes — to pay off multi-million-dollar judgment against them, as well as other creditors.
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The judge agreed to allow the trustee in the Chapter 7 cases to hire real estate brokers in New York and Maryland, where Ganzi and Bozzi own property.
“Our clients are disappointed that it has come to this,” Newman said. “They were willing to have a settlement, but that never happened.”
The judgment would get paid to the family-owned businesses — Just One More Restaurant Corp. and Just One More Holding Corp. — and the plaintiffs would end up getting 20%, while the defendants would receive 80% of it back, he explained.
In this June 29, 2011 photo, caricatures adorn the walls of The Palm restaurant in New York's Tribeca neighborhood. (Photo: Richard Drew, Associated Press)
In other action Monday, Delano denied a motion to dismiss the Chapter 11 cases filed by Gary Ganzi and Claire Breen.
In their motion to dismiss, Ganzi and Breen said their cousins had failed to do what they promised to do more than eight months ago, which was to reach a global settlement. Further, they argued the Chapter 7 cases were making a settlement impossible, preventing the enforcement of the judgment and holding up a decision on the debtors' appeal of the judgment.
“Time is of the essence” in resolving the dispute, Judge Delano said, with legal costs and court-related administrative fees mounting. By not dismissing the Chapter 11 case, a restructuring officer can continue to manage and keep a watchful eye on the two companies involved, with a fiduciary duty to shareholders on both sides, she said.
Also, the companies will still be under the watch of the bankruptcy court, which Delano argued has advantages, too.
“That's the planet I'm on,” she said.
Robert Schatzman, an attorney representing Walter Ganzi and Bruce Bozzi in their Chapter 7 cases, agreed time is of the essence, saying Just One More Restaurant Corp. is in a financially precarious position — and that the enterprise could have a “cash crunch crisis sometime toward the beginning of January.”
Newman told the judge he'd seen no evidence of the restaurants being in “dire straits,” as suggested.
“Not a single restaurant has filed for any kind of relief,” he said.
On top of the restaurants and the personal assets of Walter Ganzi and Bruce Bozzi, the intellectual property tied to the Palm could be sold to the highest bidders. The debtors' attorneys have argued that selling the restaurants and intellectual property together might bring a much higher return on company assets to the benefit of all creditors.
Gerard “Jerry” McHale, the chief restructuring officer in the Chapter 11 cases, told the court he's still researching what the intellectual property might be worth. He noted that in the first five months after he came aboard most of the Palm restaurants operated in the red, with losses of about $5.6 million across 21 locations, leaving him with little resources to pay off debt.
“My purposes have always been to advance a global settlement … I don't see a global settlement happening,” he said.
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Newman estimates the value of the intellectual property alone at $100 million the sale of comparable restaurant properties.
“The intellectual property may or may not be sold, depending upon buyer interest,” he said.
During the hearing, attorneys suggested there might be what's known as a 363 sale, or controlled auction, for the businesses.
In this type of bankruptcy sale, the assets are first marketed for sale, then a bidder, identified as the “stalking horse,” is chosen to make the first bid, or reserve bid.
Others are then invited to make better offers at the court auction, with the best one accepted.
The Palm steakhouse, started by two friends from Parma, Italy, is now in its fourth generation of family ownership. The fact that it could soon change hands is a “big story,” Newman said.
The first Palm restaurant in New York became known for the quality of its service and food and, especially, for the caricatures that covered its walls, drawn by local cartoonists who exchanged their artistic talents for meals during the Great Depression.
Through the years, the restaurants have continued to line their walls with caricatures of local celebrities and loyal customers, reflecting their unique communities.
The closest Palm restaurant to Naples is in Miami.
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