Company News

Perkins Operator’s Chapter 11 Raises Questions of Fraud, Mismanagement

BOARDMAN, Ohio – Legal entanglements – a federal trademark case in Tennessee and a Chapter 11 bankruptcy in Pittsburgh – leave in limbo the jobs of 1,000 workers at 26 Perkins restaurants in Ohio and Pennsylvania, the creditors of the franchise who are owed nearly $7 million and a potential settlement between Perkins & Marie Callender’s Inc. and 5171 Campbells Land Co. Inc.

Further complicating the situation is a shadow thrown over the disarray by the office of the U.S. Trustee, which has petitioned a bankruptcy court to authorize an investigation into potential “fraud, dishonesty or gross mismanagement.”

The legal entanglements began June 27 when Perkins and Marie Callender’s filed suit in Tennessee claiming that Campbells Land Co. Inc., the Pittsburgh-based operator of the restaurants, defaulted on license agreements, failed to complete construction projects and owes nearly $2.2 million in franchise fees.

The nine Perkins restaurants operated in the region by Campbells Land Co. are in Boardman (pictured above), Austintown, Warren, Niles and Ashtabula in Ohio, as well as in New Castle, Greenville, Hermitage and Grove City, Pa.

That led to U.S. Judge Jon P. McCalla granting a temporary restraining order July 2 that barred the CLC restaurants from doing business as Perkin’s, and setting a July 8 hearing on a permanent injunction. Two hours before that hearing was to begin in Memphis, CLC filed Chapter 11. The hearing was held but the issue shifted to whether bankruptcy law puts an automatic hold a civil claim of trademark violation. Arguments on that question are scheduled to be heard Friday.

The U.S. Trustee’s Office is concerned about the legitimacy of Campbells Land Co.’s $4.8 million acquisition of the 26 Perkins restaurants as part of the 2017 bankruptcy of the previous operator, Unique Ventures Group. CLC lists in its bankruptcy petition unsecured debts of “almost $7 million.” By comparison, unsecured claims were nearly $5.7 million in the Unique Ventures bankruptcy reorganization, which concluded in February 2018.

On July 12, an expedited motion was filed that seeks the appointment of a trustee to protect CLC creditors. Listed among them are the Internal Revenue Service, $350,000; The Mahoning County Treasurer, $82,188.41; The Ohio Department of Taxation, $835,786; and the Pennsylvania Department of Revenue, $1.325 million.

Should a trustee be appointed to take control of CLC’s financial affairs, work would begin to unravel a series of complaints filed in Allegheny County Court of Common Pleas by individuals and business entities that lent CLC money to buy Unique Ventures but claim they were never reimbursed.

“The United States Trustee is concerned about the nature of these transactions and whether there was an attempt to improperly transfer assets or defraud creditors,” court documents state.

Meanwhile, CLC is seeking court approval to hire a chief restructuring officer, Pittsburgh-based Compass Advisory Partners LLC, which the trustee also opposes. “In this case, an independent fiduciary is needed to investigate the financial affairs of the debtor, not operate under the control of the debtor’s principal, cover up past problems and pack up the debtor for a sale,” the trustee’s office argues. “This will not address the glaring financial and corporate mismanagement that has occurred with respect to this estate. The estate needs an independent fiduciary to work for the benefit of all creditors.”

In opposing the appointment of a trustee, Campbells Land Co. states that upon filing Chapter 11, its lawyers and Compass representatives “commenced extensive negotiations” with Perkins and Marie Callender’s with regards to the TRO and attempts to secure a temporary license to operate the restaurants. An agreement has been reached for CLC to receive a temporary license to operate 17 restaurants as Perkins, and 10 other restaurants under a non-Perkins concept,” according to court papers.

“In fact, [CLC] and PMC have already commenced negotiations with another Perkins’ franchisee to allow said franchisee to enter into new license agreements with PMC and to purchase the majority of the debtor’s assets,” court documents state.

Still, what does or does not happen and when depends on whether the U.S. Trustee Office can convince the court that it must protect all creditors in determining who gets what and how.

An evidentiary hearing is scheduled for Aug. 7.

Published by The Business Journal, Youngstown, Ohio.