Mike Isabella Files for Ch. 11 Bankruptcy
Disgraced restauranteur and former Top Chef contestant Mike Isabella filed for Chapter 11 bankruptcy protection for nine of his 11 restaurants, as well as parent company Mike Isabella Concepts, in U.S. Bankruptcy Court for the District of Maryland in Greenbelt on Thursday. The move comes after former Isabella Eatery general manager Chloe Caras filed a sexual harassment lawsuit against Isabella and his business partners in March. He settled for an undisclosed amount out of court in May.
“This is not a decision that we made lightly, but after months of challenges, we needed to put our business on a path to move forward. That begins by stabilizing our finances,” Isabella said in a letter to investors on Thursday. “I know it has been a challenging 6-9 months for our businesses. With this filing, we are able to now make progress to become a more financially stable organization and begin to take the steps for our successful future.”
The nine restaurants included in the bankruptcy filing are Arroz at the new Marriott Marquis beside the convention center, G by Mike Isabella, Kapnos and the shuttered Graffiato in D.C.; the closed Grafiatto Richmond, the shuttered Isabella Eatery at Tysons Galleria in McLean that closed last month after only nine months, Kapnos Taverna in College Park and Ballston, and Pepita and Yona, both in Ballston. Kapnos Kouzina in Bethesda and Requin at the Wharf on the Southwest waterfront are not included in the reorganization.
In an interview with the Washington Post, Isabella blamed the bankruptcy on slower sales following Caras’ lawsuit. “Bad press … definitely hurt us from a financial standpoint across the board,” he said. “In Washington, D.C., March, April and May are your three busiest months of the year. Unfortunately, I had some negative press toward me. I lost a lot of that business that carries me through the summer, in all my restaurants. With the being said, I went into a slow season, a slow summer.”
The bankruptcy petition notes that Isabella Eatery’s revenues sank from about $1 million per month to $300,000 following Caras’ lawsuit. At Graffiato D.C., revenue fell from $50,000 to $5,000 per week. Graffiato Richmond and Requin Brasserie also suffered similar drops, leaving them unable to pay their landlords or suppliers.
Many of the suppliers do business with all of Isabella’s restaurants. When some of the eateries closed and weren’t able to pay their bills, the suppliers tightened credit for the remaining restaurants “to the point where those restaurants are now suffering on the expense side as well,” the bankruptcy filing says.
The former Graffiato in Chinatown, Requin Brasserie in Fairfax’s Mosaic District and Kapnos Taverna in College park are all being sued by their landlords for back rent. A hearing was scheduled for Friday in Prince George’s County Circuit Court about a lawsuit the Hotel at the University of Maryland in College Park filed to evict Kapnos Taverna for more than $60,000 in back rent. Isabella told the Washington Post that he paid three months back rent and tried to negotiate a lower monthly rent, but hotel owner Southern Management Corp. wasn’t willing to negotiate. The bankruptcy filing halts the eviction process.
Court papers list EagleBank ($764,000), M&T Bank ($775,096) and American Express ($313,851) as his largest creditors. He also owes Eskridge (E&A), the Eden’s division that owns Mosaic District, more than $715,000 in back rent for Requin Brasserie, which closed in April.
In the filing, he also notes that investors have tightened their purse strings to him. “Where I could often count on these investors historically to assist with funds when needed, that source of stop gap or bridge loan revenue has also dried up for those locations that remain otherwise fiscally sound,” Isabella said in his filing.
Once numbering about 800, Isabella’s staff has shrunk to 268 people. Recently, employee checks have bounced. But the company is seeking to ensure there aren’t further interruptions in pay through the bankruptcy proceedings.