Investors in Baltimore Eatery File $6M Claim
Daily Record (Baltimore, MD)
June 20, 2007
Byline: Liz Farmer
Former investors in Raven Ray Lewis' barbecue restaurant have filed a $6 million lawsuit accusing the Birmingham, Ala. pair who launched the Baltimore eatery of "egregious mismanagement" and of diverting money to establishments in Alabama. The investors, who sold their stakes to the middle linebacker earlier this year, claim they lost more than $2 million over a two-year period due to fraudulent use of both their original investment in the Canton restaurant and subsequent payments. Lewis himself is not named either as a plaintiff or as a defendant in the complaint. Filing suit June 14 in U.S. District Court in Baltimore under the corporate name, Our House LLC, a group of about 10 unnamed Maryland and Alabama investors have charged the operators, brothers Joseph and David Maluff, and their company, Maluff Foods LLC, with fraud, breach of fiduciary duty, negligence, unjust enrichment and concealment. According to Lewis' attorney, the NFL star was a minority owner, primarily in name only, until February, when he bought out the Our House investors' shares of the restaurant, Ray Lewis' Full Moon Bar-B-Que. The restaurant, located in Canton, still operates under the same name with a similar menu. While the Maluffs retained their original 5 percent share, Lewis' family now has complete managerial control. Lewis was aware of the other investors' suspicions about mismanaged funds, but did not get involved in the suit, according to his attorney, Marc Rosen of Shar, Rosen & Warshaw LLC. "He never personally felt comfortable concluding that the Maluffs had deliberately done anything wrong," said Rosen. "He has never personally analyzed the expense reports ... but he likes the Maluffs and they're still his partners. "Frankly, ever since the day Ray acquired control of the restaurant, it's been doing great," Rosen added. Our House and Maluff Foods teamed up in late 2003 to expand the Maluffs' Alabama barbeque restaurant chain to Maryland and eventually nationwide, according to the suit. Our House was formed as the parent of Ray Lewis' Full Moon Bar-B-Que, with the goal of taking the concept to a national level by attaching local athletes to each barbeque restaurant in the chain. Our House had the rights to develop Full Moon in every state except Alabama, while the Maluffs were in charge of all arrangements for building, designing, promoting and running the Baltimore restaurant. According to the complaint, the investors agreed to raise $1 million for the restaurant opening and for operating costs through the first few months, on top of a $20,000 franchise fee to the Maluffs if the restaurant opened on time and on budget. However, the investors contend, not only did the Maluffs open the restaurant more than six months behind schedule, but they took the franchise fee in violation of their agreement and continued to request more funds for renovations and operating costs. From the time the restaurant opened in February 2005 through the next five months, the Maluffs made three requests for funds totaling $1.1 million beyond the original investment. Each time, they said the request would be their last, since the restaurant's projected income would cover further cost overruns. However, after strong sales during the first six months, Full Moon's business decreased substantially over the next year and was deemed a "leaking ship" by its investors, the suit states. "The ultimate problem was the delay in the opening and the issue relating to where the money went, and how it was spent," said Robert B. Schulman, who, along with Andrew M. Dansicker, represent the investors. Both are with Schulman, Treem, Kaminkow, Gilden & Ravenell PA. According to the complaint, the investors routinely questioned the Maluffs about how the money was being spent. The brothers maintained the money had been used for renovation, operating costs and cash flow problems, but "repeatedly refused" to provide an accounting statement. Our House claims that some of those "missing" funds were spent on Full Moon restaurants in Alabama. When the Maluffs hired two managers and an executive chef for the Maryland restaurant and sent them to Alabama for extensive training, the complaint says, they were actually using the three men "to provide services for their Alabama restaurants while their salaries, travel costs and living expenses were being paid by Our House." In addition, the investors allege that many of the renovation and construction costs the Maluffs pointed to when requesting additional funding were not actually incurred or were exaggerated. Our House said it believes the Maluffs engaged in "sweetheart" deals, and contracted Alabama companies for services and equipment for the Maryland restaurant. The complaint notes that the Maluffs purchased "tens of thousands of dollars of restaurant supplies" from a company located next door to one of their Alabama restaurants, rather than from a Baltimore supplier, and that they spent $26,000 over three years to rent ice machines from an Alabama company that spent $20,000 to buy them. The Maluffs did not return calls for comment. According to Rosen, Ray Lewis' Full Moon Bar-B-Que is now primarily overseen by Lewis' mother and two sisters, revenue is up, and Lewis is pleased with its success.