The licensor of The Palm high-end steakhouse chain has filed for Chapter 11 bankruptcy protection after being ordered by a federal judge to pay minority stakeholders $119 million for charging just $6,000 in annual royalties for 21 of the brand’s 24 restaurants.
The operators of those restaurants were the licensor’s majority stakeholders, Bruce Bozzi and Walter Ganzi, the grandchildren of the brand’s co-founders. They were ordered to pay the money to their cousins and passive business partners, Gary Ganzi, Claire Breen and the estate of Charles Cook.
In a lawsuit decided last year, the minority owners of the brand’s licensor, Just One More Restaurant, had argued that the flat royalty rate of $6,000, set in the late 1970s, was far below prevailing rates in the restaurant business. New York State Supreme Court Judge Andrea Masley agreed and ordered Bozzi and Walter Ganzi to pay $73 million in restitution, or what they would have paid under a royalty rate of 5%, a rate she adjudged to be closer to the industry norm. The rest of the $119 million was for legal fees and interest.
The Palm’s annual sales averaged $4.7 million per restaurant in 2017, for systemwide sales of $112.3 million, according to Technomic research.
The payments were reaffirmed in a final judgement by the New York State of Appeals on January 25.
Just One More Restaurant said in its bankruptcy filing that it was seeking "breathing space" under bankruptcy protection, and noted that an appeal of the final judgment is pending. The documents also indicate that Just One More Restaurant hopes to negotiate a settlement with its minority shareholders.
“The bankruptcy filing is an attempted end run around the $119 million judgment against Wally Ganzi and Bruce Bozzi," Fred Newman, founding partner in Hoguet Newman Regal & Kenney, LLP and co-lead trial counsel for the plaintiffs, said in a statement. "The judgment is against them personally, not against any of the Palm restaurant companies. With the filing, they have put Just One More Restaurant Corp., the company that owned the original Palm Restaurant and still owns its intellectual property, into reorganization.”
The 24 branches of The Palm, a 93-year-old concept known for covering its walls with caricatures of frequent and celebrity customers, remain in operation. Three of the stores, including the one in John F. Kennedy International Airport in New York City, are licensed to operators other than Bozzi and Ganzi.