The subject line was a grabber: “Roger Berkowitz and Legal Seafood [sic] deal stiffs creditors.”
The e-mail came from a sales rep for a supplier to Legal Sea Foods, the Boston restaurant chain that, you may remember, was sold in a pandemic fire sale in December.
“After selling to them for over 30 years I got this letter telling me that they are not going to pay me for the products they bought and used from September to December,” the sales rep wrote. “They know that fighting it in court would cost me more than I would get back and the same goes for the 150 or so other people they stiffed.”
Wait — could that be true? Would Berkowitz, a highly regarded member of the Boston business community for decades, take the money and leave vendors out in the cold?
That’s not the Roger Berkowitz his friends and colleagues know. I believe Berkowitz did the best he could under tough circumstances.
Still, a search turned up several lawsuits filed against Legal Sea Foods in the past several months for unpaid bills before the sale.
One complaint was from Martignetti Grocery Co., which said it was owed $48,000 for alcoholic beverages. Another was filed by the landlord for the now-closed Legal restaurant at Faneuil Hall, AAC Fan Hall Realty, which said it was owed $333,000 in rent. A third was from DeVito Verdi Inc., Berkowitz’s longtime advertising agency in New York, which said it was owed nearly $628,000.
A Martignetti executive told me the Taunton liquor distributor had withdrawn its complaint after getting its money, but the executive declined to say who paid the bill. AAC Fan Hall Realty, an offshoot of the New York developer Ashkenazy Acquisition Corp., declined to comment.
Ellis Verdi, who worked for 15 years on Legal’s offbeat advertising campaigns, also declined to comment on his firm’s lawsuit. But he told me he believed that repaying unsecured vendors — which extend credit with no claim on a customer’s assets — was not Berkowitz’s decision to make after the chain was bought by PPX Hospitality Brands Group, a Medford company that also owns the Smith & Wollensky steakhouse chain.
“Roger is out,” he said.
But before he was out, did Berkowitz try to make his vendors whole? The answer is complicated — but so was the deal. Bear with me while I walk through what I’ve learned that puts his role in a fuller context.
The sales rep who flagged the plight of unsecured creditors had attached a PDF of two e-mails from Craig R. Jalbert, who identified himself as a certified insolvency and restructuring adviser with a Foxborough accounting firm.
In the first e-mail, from January, Jalbert explained that his job was to wind down what remained of Legal after its most valuable assets — the restaurants, its fish processing plant in the Seaport, and the rights to its iconic name — had been sold to PPX, which is backed by an Irish investment firm, Danu Partners.
It’s important to note that PPX/Danu didn’t assume Legal’s liabilities. Those obligations remained with the old Legal, which was basically out of money.
I am told that when the deal with PPX closed, the directors and officers of old Legal resigned and — as agreed to by lawyers for the seller, buyer, and secured creditors — Jalbert was named the sole officer and manager of the shell company.
In the e-mail, Jalbert said proceeds from the sale, which he didn’t quantify, were used to pay off a secured loan from the lender with first dibs on the old Legal’s money, which other people confirmed was Rockland Trust. Jalbert said there wasn’t enough money left to fully repay a junior secured lender. People familiar with the matter identified that second lender as the private equity firm Seacoast Capital.
That second lender then foreclosed on old Legal’s remaining assets, which Jalbert didn’t disclose.
I assume Seacoast hoped to recoup at least some of old Legal’s debt by liquidating those assets.
“At the present time,” Jalbert wrote, “it is unclear whether there will be funds available to pay unsecured creditors.”
Reached by phone, Jalbert declined to comment on how much money was owed to unsecured creditors, which are always last in line to be paid when a company is insolvent.
Seacoast Capital, which has offices in Boston and San Francisco, didn’t respond to requests for comment. Rockland declined to comment.
Kim Lapine, PPX’s chief marketing officer, said she couldn’t comment on “prior contractual relationships” with the old Legal. “We of course will and must comply with our obligations under the purchase arrangements” for Legal assets, she said in an e-mail.
So back to Berkowitz?
In December, when he inked the deal with PPX, Berkowitz told me he was left with few options after the pandemic forced him to close his restaurants for months and the government loan money he used to pay employees ran out.
He made clear then that he wanted to preserve as many jobs as he could and put Legal Sea Foods, a family business for 70 years, in the hands of a new owner who would uphold its reputation for quality.
Berkowitz declined to comment for this story, but his spokesman, George Regan, sent a statement:
“Roger chose the best option to protect jobs, safeguard the future integrity of the Legal Sea Foods brand and pay vendors. These priorities were made clear to all parties involved in the sale. Money was earmarked prior to closing specifically for vendors, but Roger’s affiliation ended when the sale was finalized and he has no knowledge of how funds were disbursed.”
I believe Berkowitz did the most he could for Legal’s vendors, but his hands were tied. A letter of intent in July designated funds for them, I am told, and Legal had established payment plans that would have made them whole. But by December there wasn’t enough money left. Rockland’s and Seacoast’s claims took priority over those from landlords and liquor distributors.
There’s always the possibility PPX will strike deals with vendors it wants to keep doing business with, which I guess is what may have happened with Martignetti. But what about others?
Earlier this month, Jalbert sent out a brief e-mail update about his efforts to wind down old Legal Sea Foods.
“Nothing has come to my attention that would likely generate assets that would benefit general unsecured creditors. I still believe patience is the best approach . . . Good luck in this new year and stay healthy.”
Yup: Don’t call us, we’ll call you.
Correction: Craig R. Jalbert is a principal at a Foxborough accounting firm. An earlier version of this story misidentified his employer.