The fight over the Lardo sandwich chain just got its stakes raised in a mighty way.
This afternoon, Lardo stakeholder Ramzy Hattar filed a $9 million lawsuit in Multnomah County Circuit Court, alleging business partners Kurt Huffman and Rick Gencarelli improperly diverted funds from Lardo's Southeast Hawthorne Boulevard and westside locations to other enterprises.
Hattar already filed suit Dec. 22, as WW first reported, in an attempt to compel Huffman and Gencarelli to sell their stake in Lardo to him for $1.6 million.
The current lawsuit asks for $9 million in damages, based on a wide variety of grounds that include breach of fiduciary duty, breach of contract, and—unusually—breach of federal racketeering laws, extending from the use of wire transfers and the U.S. Postal Service.
"So much more was uncovered," Hattar told WW when reached by phone. "It's not that negotiations didn't go well, it's that during negotiations we realized how deep a hole [Huffman's company] ChefStable put the company in, with the way they were running the business. Negotiations were at a standstill because there's no way to negotiate with a failing business."
Huffman, reached by phone tonight, disagrees.
"We really thought we were close to figuring a way out of this," Huffman tells WW. "Now it seems we're not close at all. It seems to have gone nuclear."
The current lawsuit repeats the claims in the previous suit—including that Huffman and Gencarelli conspired to cut Hattar out of all decisions related to Lardo, as well as out of ownership of Lardo's intellectual property.
The suit also re-alleges he was cut out of an ownership stake in Lardo's newest location on North Williams Avenue.
Hattar owns a 10 percent stake in the original two Lardo locations due to his initial investment of $50,000, and claims he was not informed of the plan to open the new location. (Hattar also is an investor in Russian restaurant Kachka, as well as River Pig Saloon.)
The lawsuit repeats the previous suit's allegation that Huffman and Gencarelli deceptively diverted $280,000 from the Hawthorne and westside locations to the Williams Avenue Lardo and Huffman's Philippe's Bread. The bakery serves as a commissary kitchen for Lardo, as well as other restaurants owned by Huffman's restaurant company ChefStable, including Ox, P.R.E.A.M. and St. Jack.
Gencarelli and Huffman breached contract by diverting these funds without Hattar's knowledge, according to the lawsuit.
In December, Huffman told WW Hattar had agreed to how the funds were spent, and that he and Gencarelli made no efforts to cut Hattar out of the company.
"He's part of the ownership of all of them," Huffman tells WW. "He's received two consecutive K-1s [partner's share of interest forms]. That's a big mystery in which he says he's not an owner."
Huffman says that Gencarelli's wife had been in touch with Hattar three days before this new lawsuit was filed, telling him they would find investors to settle Hattar's original suit.
The new lawsuit contains additional allegations not included in the December lawsuit.
In the new suit, Hattar asserts additional Lardo funds were diverted without his knowledge to pay debts owed after the collapse of a Huffman-owned Mexican restaurant called Corazon in the West End, which closed after three months of business in 2012.
The large space of Corazon has since been divvied up into smaller pieces to be occupied by three ChefStable restaurants: Lardo, Grassa (also co-owned by Gencarelli), and now-closed Spanish-modernist restaurant Racion.
The suit alleges Lardo funds were used to pay rents owed by Grassa and Ración, and to pay back debts incurred by Corazon.
In addition, the suit claims Hattar has been deprived of profits from Lardo's catering activities, and that he has yet to receive any profits from the Hawthorne and West End Lardo locations.
Huffman says that all profits have gone to reducing Lardo's debts, and that he also has received no profit payouts. Gencarelli draws a salary, but no profits, he says.
Huffman says that the $9 million lawsuit "defies all sense of proportionality" and that the Hattar is trying to "kill Lardo."
"It's a shame that it got to this point," Hattar says, "but if it were about money, I would have already taken the hush money."
"It all revolves around money we've transferred from the profitable Lardo to the unprofitable Lardo," Huffman says. "Theoretically, his 10 percent share of that $280,000 is $28,000. He's suing us for $9 million because he believes he's been shortchanged $28,000. It's a really aggressive, dirty tactic, and I have no idea what's going to happen out of it."