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Lawsuits Allege Cherry Pie Hospitality Stiffed Investors Before Selling Off Its Restaurants

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The restaurant group sold off its four restaurants for less than $1 million

Star Fish, formerly owned by Cherry Pie Hospitality
Ellie Sharp

Last year, formerly massive Houston restaurant group Cherry Pie Hospitality disappeared entirely from the city’s restaurant scene. Before going away, though, two new lawsuits filed against the company alleges that it sold off its much-lauded restaurants in a fire sale without paying debts it owed first.

The suit, filed in Harris County District Court in late December, alleges that Cherry Pie Hospitality failed to make good on a $1 million loan extended to the company by an investor named Max Levit. According to Levit’s lawsuit, the terms of that loan stipulated that if any “corporate transactions” occurred, meaning if the company closed or sold off its assets, Levit was entitled to immediate repayment in full. “The investor will be repaid in full the Note without having to share in proceeds with any debt held by the founders,” a provision in Levit’s financing agreement with Cherry Pie Hospitality, cited in the lawsuit, reads. “[Cherry Pie Hospitality] shall take all actions necessary to ensure that upon any corporate transaction, it will not approve or consummate a transaction in which the company’s outstanding debt is not fully repaid.”

Levit claims that the debt was never repaid, and that when Cherry Pie Hospitality sold off its restaurants, it recouped less than $1 million. The first restaurant to be sold was State Fare, which was acquired by Star Cinema Grill sister company Culinary Khancepts, Inc. in August 2018 for $550,000, according to court records. Only $264,766 of those funds were actually paid to Cherry Pie Hospitality, the remainder of which went to pay outstanding bills or costs related to the sale. Levit, though, says in the suit that he didn’t receive a dime of the proceeds from the sale. When reached for comment, Levit’s attorney Sanford Dow declined to comment further.

Also in August, Cherry Pie Hospitality sold off its three remaining restaurants — Pi Pizza, Star Fish, and Lee’s Fried Chicken and Donuts — to The Pit Room owner Michael Sambrooks’s Sambrooks Management Company. Sambrooks’s company only paid $464,994 for those four restaurants and all their recipes and intellectual property, along with pieces of restaurant equipment that were stored in a Houston warehouse. Considering that the median cost of buying an existing restaurant hovers around $250,000 not including the purchase of property, it’s likely that these restaurants were sold below their market value.

All together, the sale of State Fare, Star Fish, Pi Pizza, and Lee’s Fried Chicken and Donuts and their associated assets allegedly only netted the company $729,770, well short of what would be needed to satisfy Levit’s loan, and he alleges that none of those funds were ever paid to him. In his lawsuit, Levit seeks the original $1 million he loaned to Cherry Pie Hospitality, along with pre- and post-judgment interest on the loan, attorneys fees, and other costs. Cherry Pie Hospitality has not yet officially responded to the lawsuit in court.

A second (unrelated) lawsuit, also filed in December 2018 by former landlord 2700 Alabama Kirby LLC, claims that Cherry Pie Hospitality is liable for unpaid rent on the space that formerly housed ice cream shop Petite Sweets. That suit, filed against both Cherry Pie Hospitality and former Cherry Pie partner Lee Ellis’s company 4 Boys and a Girl, alleges that the two entities engaged in a “scheme” that involved “concealing assets and hiding money” from the building’s landlord after 4 Boys and a Girl failed to pay rent starting in February 2018. That lawsuit seeks up to $200,000 in damages, and Cherry Pie Hospitality has not filed an official response with the court.

These two new lawsuits join a third lawsuit filed against Cherry Pie Hospitality in the last year. As Eater reported back in August 2018, the now-defunct restaurant group was sued by the developer of a Heights space that was originally intended to house ice cream shop Lee’s Creamery, which never opened its doors. That litigation is still pending, and a trial date is set for June 2019.