The trustee overseeing Ruby’s Diner’s Chapter 7 chapter proceedings has filed a lawsuit that accuses the chain’s co-founders and longtime leaders, Doug Cavanaugh and Ralph Kosmides, of pushing the chain into insolvency of their pursuit of a private enterprise alternative.
The go well with seeks $35 million in damages over a scenario that extends again years. The motion pivots on how Cavanaugh and Kosmides represented themselves and their enterprise affiliations when the pair have been pursuing a contract to exchange a foodservice operation in a California-owned leisure facility.
The pair agreed to scrap the antiquated operation inside Crystal Cove State Park for 2 eating places they might personally personal and function, together with a unit of Shake Shack.
Chapter court docket trustee Richard Marshack alleges that the chance ought to have been pursued as an initiative of Ruby’s Diner. His go well with accuses Cavanaugh and Kosmides of leveraging Ruby’s repute and property to land the state contract. He additionally costs that Ruby’s personnel have been used to get the operations up and working.
Along with damages, the go well with seeks a switch of the Crystal Cove eating places to a belief that Ruby’s would management.
Marshack additionally accuses the longtime companions of granting themselves loans from Ruby’s totaling greater than $1.5 million. His go well with asserts that the loans sat on Ruby’s books for years, and have been finally reclassified by the debtors as a disbursement quite than an IOU.
Cavanaugh and Kosmides couldn’t be reached for remark.
Because of their actions, the go well with contends, Ruby’s was pressured in 2018 to file for chapter safety. The corporate, which had grown by that time to 32 areas, had about $14 million in debt, in accordance with Marshak’s attorneys.
A franchisee, Stephen Craig, stepped ahead at the moment to offer a money infusion. Cavanaugh remained CEO of the corporate he’d based with Kosmides in 1982. By that time, the pair’s stake of their brainchild had been bought to settle years of squabbling over the Crystal Cove undertaking.
Marshak, as trustee of the chapter proceedings, is represented within the matter by the Los Angeles legislation agency Miller Barondess.