Blaming the COVID pandemic, the 14-unit plant-based concept By Chloe filed Chapter 11 bankruptcy on Monday and CEO Jimmy Haber stepped down.
New York-based parent company BC Hospitality Group Inc. also said it has put the chain up for sale as part of the bankruptcy proceeding. It has also obtained debtor-in-possession financing to continue operations from existing investors that includes Bain Capital Double Impact Fund LP, QOOT International, Kitchen Fund and Lion Capital.
The company is seeking an auction by mid-February 2021. While the company searches for a new CEO, Catey Mark Meyers, who is chief of staff, will serve as CEO in the interim.
Haber is also CEO of ESquared Hospitality, which operates the BLT Steak concept and affiliated brands. ESquared confirmed that Haber remains CEO of that company.
The bankruptcy comes after years of legal wrangling over the plant-based chain, which was founded in 2015 by Chloe Coscarelli as a vegan concept featuring house-made burgers, sandwiches, pastas, cold-pressed juices and baked sweets. It was initially developed in partnership with Samantha Wasser, who is Haber’s daughter.
With interest in plant-based diets rapidly growing, the concept was a hit and it grew to include locations in Boston, Los Angeles and Providence, R.I., as well as licensed units in Canada and the U.K.
Initially Coscarelli owned 50% of the company with ESquared Hospitality, which controlled BC Hospitality Group. But the relationship “soured,” according to court documents, and Coscarelli was terminated.
ESquared acquired Coscarelli’s 50% stake and the name was changed to BC Hospitality Group LLC. ESquared explored opportunities with outside investors, ultimately taking in $31 million in two tranches from the group led by Bain Capital and Kitchen Fund, according to the filing, leading to the current ownership group.
Coscarelli later sued to reclaim her stake, charging ESquared Hospitality with trademark infringement and other violations. In that lawsuit, Coscarelli also said her termination was motivated in part by her rejection of advances by Haber, who she said had become infatuated with her.
The case went to arbitration in 2019 and Coscarelli was issued a partial award that, if held up in federal district court, would reinstate Coscarelli’s interests, along with $2.3 million in attorney’s fees. According to the bankruptcy filing, however, BC Hospitality Group considers that ruling "unenforceable" and attempts to negotiate a settlement have reached an impasse.
Coscarelli said in a statement Monday that she had just learned of the bankruptcy and that her lawsuit against the company is ongoing. She has filed a motion in the U.S. District Court for the Southern District of New York to confirm that her ownership in the company was reinstated.
"In addition, we have a number of other claims still pending in the lawsuit we filed against the company and related entities," the statement said. "My attorneys intent to continue vigorously pursuing my claims, including objecting to this bankruptcy filing without my consent."
Meanwhile, the pandemic severely disrupted operations and three restaurants were closed entirely since March, with others operating at reduced capacity, the company said in the filing. About half of the company’s staff were furloughed or laid off, and revenues are down 67% since February, according to the filing.
BC Hospitality obtained $2.7 million in Paycheck Protection Program loans, and the company expects the debt will be fully forgiven, the filing said.
Mark Meyers in a statement described the restructuring as a positive step that would move the company toward its growth goals, which include more expansion in the Los Angeles market and internationally in 2021.
“The COVID-19 pandemic hit all sectors of the restaurant industry especially hard, including the fast-casual category,” said Mark Meyers. “In the face of remarkably challenging conditions to operate in, we believe that a complete reorganization of the company is necessary for By Chloe to emerge and thrive long term.”
UPDATE: This story was updated to include a comment from Chloe Coscarelli.
Contact Lisa Jennings at [email protected]
Follow her on Twitter: @livetodineout