A long-running family dispute involving the iconic Palm restaurant isn’t over.

The bitter fight has shifted from a state court in New York to federal bankruptcy court in Florida.

Just One More Restaurant Corp., the Naples-based company that owns and licenses the use of the Palm name, trademarks and other intellectual property for the legendary restaurant, filed for Chapter 11 bankruptcy protection March 7.

The filing — made in U.S. Bankruptcy Court for the Middle District of Florida in Fort Myers — is the latest legal maneuver in a battle involving four cousins whose grandfathers opened the first upscale Palm restaurant in the 1920s. 

The bankruptcy filing came after a state court judge in Manhattan sided with Gary Ganzi and Claire Breen, who claimed their cousins had cheated them out of millions of dollars in royalties over many decades. 

The cousins, who are passive investors, argued they and the company that holds the intellectual property were short-changed by an agreement that brought in $6,000 a year from each Palm steakhouse, instead of a percentage of sales as is customary for restaurant chains.

After a bench trial, Justice Andrea Masley ordered the defendants, Walter Ganzi Jr. and Bruce Bozzi Sr., to pay a roughly $120 million judgment to resolve the dispute, including interest and attorneys’ fees. Together, the grandsons of the original founders have opened more than 20 Palms around the country and they’ve licensed the rights to use the name, look and feel, logo and other intellectual property to themselves at a flat rate.

The flat rate was set over 40 years ago.

In her ruling, Judge Masley said the majority owners’ actions were “a textbook example of fiduciary misconduct.” She found that they treated Just One More Restaurant Corp. “as their own without any regard to other shareholders,” and put their interests before the company’s.

A “breathing spell”

In the bankruptcy filing, the majority partners, who are pursuing an appeal, seek to stop their cousins from attempting to collect on the multimillion-dollar judgment obtained from the lawsuit. They say a “breathing spell” is “essential to their ability to reorganize successfully.” 

The damages awarded included more than $71 million for past royalties and more than $1.7 million for lost rent. The amount of royalties owed was based on 5 percent of the licensed restaurants’ gross sales.

The bankruptcy proceedings will be “hotly contested” by the minority shareholders, said one of their attorneys, Fred Newman with Hoguet Newman Regal & Kenney LLP in New York.

“The bankruptcy proceedings will take time, but the plaintiff-shareholders are a determined lot,” he said. “They will not be deterred.”

It’s an unusual bankruptcy case, Newman said.

“Companies and people file for bankruptcy when their liabilities are greater than their assets,” he said. “Here Just One More Restaurant has one huge asset, which is a $119 million judgment, and it has virtually no liabilities because it’s not an operating company anymore.”

The bankruptcy involves two related companies. The other company, Just One More Holding Corp., held the real estate for the original Palm restaurant in Manhattan until the property sold. Before the property changed hands, the judge found it was leased for below market rates, resulting in lost rent.

Just One More Holding Corp. doesn’t operate any restaurants either, Newman said, so he argues the bankruptcy filings are both improper.

“It is a clear stunt,” he said. “We are confident that the bankruptcy court will see through it.”

The judgment would be paid to the family-owned businesses and the plaintiffs would end up getting 20 percent, while the defendants would get 80 percent of it back, Newman explained.

“That’s theoretically what should happen,” he said.

Naples connection

According to court filings, the two companies are “directed, controlled and coordinated” out of Naples.

Walter Ganzi Jr. lives in Naples, while partner Bruce Bozzi Sr. resides in Longboat Key, near Sarasota.

The closest Palm restaurant to Naples is in Miami.

The Palm restaurant has a rich history, which now spans more than three generations.

In 1926 two friends from Parma, Italy, Pio Bozzi and John Ganzi, opened the first Palm restaurant in Manhattan. Together they established Just One More Restaurant Corp. 

Just One More Holding Corp. formed in 1946 to own the real estate for the first restaurant location, which later sold.

The second Palm opened in Washington, D.C., in December 1972. The Palm-branded restaurants grew from there. 

The steakhouse is now in its fourth generation of family ownership.

The first Palm restaurant became known for the quality of its service and food and, especially, for the caricatures that covered its walls, drawn by local cartoonists who exchanged their artistic talents for meals during the Great Depression.

Through the years, the restaurants have continued to line their walls with caricatures of local celebrities and loyal customers, reflecting their unique communities.

Today, there are 24 Palm restaurants operating in the United States and Mexico. While the original restaurant is no more, there are still a handful of them in New York City, including one at JFK International Airport.

Precedent-setting decision

The New York case is precedent setting, Newman said, because it establishes that the way to license valuable intellectual property is by using the percentage of sales methodology.

“This is the first time a trial court has fully resolved that important question,” he said.

On Feb. 13, the Appellate Court in New York issued a temporary stay to suspend the enforcement of the court judgment. After a hearing March 11, the court is expected to decide within a few weeks whether to extend the stay until it makes a final decision on the appeal, Newman said.

“The merits of the appeal will not be argued until the spring, and a decision is expected in the fall,” he said.

In their appeal, the defendants argue the claims against them should have been barred by the statute of limitations — and that the damages the court awarded are excessive and disregard the evidence presented at trial. They claim that without a permanent stay the Palm restaurant business will “lose the financing it requires to operate and be forced to close.”

The defendants have hired a chief restructuring officer, Fort Myers accountant Gerard McHale, to help them reorganize the financial affairs of the two companies. McHale, a nationally recognized forensic accountant and bankruptcy trustee with more than 45 years of experience, declined to comment on the case.

In a declaration filed in bankruptcy court, McHale wrote that the relief sought in bankruptcy court was important to the success of the debtors’ efforts “to preserve and to maximize the value of their estates” for the benefit of creditors and stakeholders.  As the chief restructuring officer, he said, he’s focusing on a three-part strategy: to work to ensure the preservation of assets, to negotiate with the majority and minority shareholders “in an attempt to reach a global settlement,” and to pursue other ways to “monetize the judgment.”

McHale stated the judgment appeared to void the licenses that Just One More Restaurant awarded to the Palm restaurants and would “severely disrupt the business arrangements” between them and with other licensees.

Miami-based bankruptcy attorney Paul Singerman, with Berger Singerman LLP, who’s representing the debtors in the case, declined to comment. 

According to court documents, Just One More Restaurant lost more than $1.58 million in 2017 and a little over $230,000 in 2018. The company has less than $137,000 in assets, not including the recent judgment, and it has $6.5 million in liabilities, $1.1 million of which is for legal fees and expenses related to the shareholder action.

Just One More Holding also reports liabilities of $1.1 million for legal fees related to the licensing lawsuit. The company’s primary asset is the $2.97 million it was awarded as part of the larger judgment, which is part of the appeal.

The holding company reported profits of about $147,000 in 2017 — and roughly the same amount in 2018.

The minority shareholders have agreed to a stay in the enforcement of their judgment until April 5, the date for the next scheduled hearing in the bankruptcy cases.

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