Partnership Disputes

Celebrity Chef Gordon Ramsay Faces a Lawsuit by a Longtime Partner

Opening a bar or restaurant, or any business for that matter, in New York City has the potential to be expensive and risky, which can sometimes act as a deterrent for individuals who want to start a company of this kind on their own. Instead, partners and investors may be brought in to pool resources and talent. Restaurant partnership agreements vary greatly depending on each individual business, and disputes, misunderstandings and even potential cases of fraud can arise over such contracts. A recently filed lawsuit by an investor against celebrity chef Gordon Ramsay serves as a case in point.

Several years ago, Ramsay opened a Los Angeles restaurant called The Fat Cow with financial backing by Rowen Seibel, who had already worked with Ramsay on the opening of several other restaurants, including Gordon Ramsay Steak, Gordon Ramsay Pub & Grill and BurGR, all in Nevada. Seibel likely had little cause to anticipate a conflict, but quickly realized he wanted to pursue legal action.

Perhaps not content with Grimaldi’s Pizza getting all the attention in New York’s “pizza news,” Peter Castellotti Jr. of John’s Pizzeria, has filed a lawsuit seeking a full accounting and $25 million dollars in damages against his sister Lisa Free with respect to their Times Square location. According to the court filing, Peter was disinherited by his mother which resulted in the business being left to his sister. Despite this, she always treated him as an equal partner, but according to John, has been cutting him out of profits and failing to pay appropriate sales tax amounts, as well as violating the SLA’s rules by purchasing wine from retailers with cash.

Most restaurants operate as a limited liability company with the expectation that its members will be protected from personal liability.  Despite this many owners never enter into an operating agreement with their business partners, or alternatively enter into a poorly drafted agreement that does nothing to guard their perceived limited liability status. A major reason to have an operating agreement is to ensure that courts will uphold your limited personal liability especially if you are a single member LLC which resembles a sole proprietorship.

All Partnerships End.  Whether it occurs by sale, sickness, death or court order, your partnership will end at some point.  Unfortunately, most partners do not have a written exit strategy or buy-out agreement in place.  They implicitly trust their partner during the honeymoon phase only to later realize that substantial differences of opinion exist as to how the business should be run.  Take Albert Trummer of Apotheke in Chinatown.  Last year Mr. Trummer was arrested twice for lighting alcohol atop his bar on fire, something he has argued is a common bartenders’ practice.  Partially at issue is whether Mr. Trummer’s partner, Heather Tierney, set Trummer up to be arrested in an effort to force him out of their partnership.  According to Glenn Collins of the New York Times, the partnership dispute is now in mediation in New York County’s Supreme Court.  A better practice is to build into your partnership agreement a buy-out provision while your partnership is still in its infancy.  Partners must ask themselves what they will do when a dispute arises, if partner falls ill, or if a death occurs.  Unless you want your partner’s husband or wife to inherit their interest in the partnership, these considerations must be given careful forethought.  For more information on Partnership considerations, click here.