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Upper Crust files for bankruptcy

Beset by labor, ownership disputes, gourmet pizza chain says it owes $3.4m

The Upper Crust pizza chain, founded in Beacon Hill in 2001, grew strongly at first, but has since faced legal and financial woes.

Dina Rudick/Globe Staff/File 2010

The Upper Crust pizza chain, founded in Beacon Hill in 2001, grew strongly at first, but has since faced legal and financial woes.

Upper Crust, the gourmet pizza chain that expanded rapidly over the last decade, but in recent years struggled with labor troubles, financial problems, and ownership disputes, has filed for bankruptcy protection.

The Boston company, which defaulted on its loan to TD Bank in late September, said it owes at least $3.4 million, including more than $500,000 to a Brookline construction company, $234,235 to a local food distributor, and $229,049 to former Massachusetts attorney general Thomas F. Reilly, who represented the business after leaving office, according to a list of creditors filed last week with the US Bankruptcy Court in Massachusetts.

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The Chapter 11 filing, which seeks protection from creditors while Upper Crust reorganizes the chain, comes several days after the company shuttered its Waltham location and caps years of turmoil at the upscale pizza empire founded by Jordan Tobins in Beacon Hill in 2001. Upper Crust was profitable in the early years but has been hurt by lawsuits and the founder’s “improper diversion” of corporate assets for his personal use, such as the purchase of a Cessna plane, Dan Hurley, the firm’s chief financial officer, said in an affidavit filed on Friday.

Upper Crust has about 16 locations, primarily in Massachusetts, including four that are operated by franchisees, and will maintain normal operations during bankruptcy proceedings, said Harold B. Murphy, a Boston bankruptcy attorney representing the chain.

Upper Crust’s troubles began surfacing in 2009 when it was ordered by the government to pay workers nearly $350,000 in overtime, following an investigation by the US Department of Labor. Company executives then allegedly devised a scheme to get back the money that included slashing workers’ wages, prompting a class-action lawsuit filed in 2010 by former employees and a second labor department investigation.

These legal actions have “distracted management” and “imposed significant costs” on the chain, Hurley said in the affidavit.

Moreover, Tobins’s alleged misuse of company funds — including putting a down payment on a personal residence and charging yacht costs to corporate credit cards — deprived Upper Crust of cash necessary for the daily business operations and the funds needed to sustain growth, Hurley said in court records. Upper Crust partners Joshua Huggard and Brendan Higgins sued Tobins earlier this year after putting him on administrative leave.

The problems were compounded in June when ZVI Construction Co. filed a lawsuit seeking to recover about $700,000 it claims it is owed for store improvements at Upper Crust restaurants. More recently, ZVI sought to seize Upper Crust’s bank accounts at TD Bank and Bank of America.

As a result, Hurley said, the embattled pizza company, with 176 employees, filed for Chapter 11 to reorganize the balance sheet and company operations.

Scott Ford, a lawyer representing Tobins, said the bankruptcy filing is “testament to the way in which the business was run without Mr. Tobins.”

Upper Crust owes TD Bank about $1.4 million The chain also listed Reilly, the state’s former attorney general, and his law firm, Cooley Manion Jones, as the third largest unsecured creditor. Reilly, who now leads the Boston firm’s governmental investigations and defense practice group, represented Upper Crust during a federal investigation into the company, according to several people briefed on the case. He did not respond to messages seeking comment.

Upper Crust, which won praise for its pizza from local foodies and corporate titans like Jack Welch, relied on a steady flow of illegal workers from the poor town of Marilac in southeastern Brazil, according to a Globe investigation published in 2010. These jobs helped infuse money and hope into the village, but the relationship unraveled over time, employees said, because the restaurant’s management began taking advantage of the Brazilian workers by underpaying them for long work weeks while the owners indulged in personal extravagances.

Shannon Liss-Riordan, an attorney who filed the class-action suit on behalf of former Upper Crust workers, said the bankruptcy does not affect the claims they have against the owners individually, including Tobins.

Meanwhile, the company also owes about $62,000 in state meals taxes, $35,000 in unpaid wages and benefits to workers, and $16,780 to The Boston Globe, among other creditors. A hearing on several motions related to the bankruptcy case is scheduled for Wednesday.

Jenn Abelson can be reached at abelson@globe.com. Follow her on Twitter @jennabelson.
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