The investor that bought Corner Bakery out of bankruptcy last year is accusing its former owner of “shocking, systemic breaches of fiduciary duties” in a lawsuit recently transferred to a federal court.
SSCP Restaurant Investors, the owner of Cici’s and a franchisee of concepts like Applebee’s, filed the lawsuit against Jay Pandya and several others, effectively accusing them of looting an increasingly insolvent Corner Bakery over a three-year period. And it accuses the company of hiding accounting in India to avoid any scrutiny.
“While they were depleting Corner Bakery’s cash to benefit Jay Pandya personally, the [defendants] neglected and impaired Corner Bakery’s critical business functions,” the lawsuit says. “These failures include a near complete dereliction of the finance, accounting and record-keeping functions that the … defendants were dutybound to perform …”
The lawsuit is one of several dozen against Pandya, who currently owns Boston Market, largely over unpaid bills.
Pandya acquired both Corner Bakery and Boston Market in 2020 and ostensibly operated them under a new entity called Engage Brands. Both brands were struggling under their former owners and those struggles worsened during the pandemic.
Yet both brands refused to pay bills without steep discounts, including what was owed to employees and vendors, according to various legal filings and interviews.
(Check out our investigation on The Demise of Boston Market.)
The lawsuit against Pandya was initially filed in a state court in Texas in May but was transferred to a federal court earlier this month.
The lawsuit also mentions Pandya’s son Ronak, who was technically listed as the CEO of Corner Bakery during the ownership period even though he was a college student at the time. It lists multiple other company officials as well as Boston Market and various other Pandya-owned entities.
It’s uncertain exactly what could come of SSCP’s lawsuit against Pandya. He and Boston Market routinely fail to properly respond to many lawsuits—or the attorneys they hire leave—and the plaintiffs often win on summary judgment. But then that judgment goes unpaid.
Several entities that have won litigation against Boston Market, for instance, are fighting over a single bank account that holds a small fraction of what is owed to them.
One of those is US Foods, which won a $15 million judgment against Boston Market earlier this year. Boston Market and Pandya later appealed the verdict. But that appeal has been suspended, and could be dismissed altogether, after Pandya failed to file proper legal documents.
The SSCP lawsuit paints a picture of just how deep Corner Bakery’s financial problems ran in the period it was owned by Pandya. The lawsuit accuses the company of worsening those problems by transferring more than $23 million to Pandya Management for management fees.
Those transfers were $20 million more than the management fees owed to Pandya Management, 4% of revenues. But SSCP says that 4% was itself inflated and in reality should have been 1% of revenues.
The lawsuit also says Corner Bakery transferred $10.65 million to Boston Market in 2021, ostensibly to repay a loan. But that loan was never made, the lawsuit says.
The transfers were made even though Corner Bakery had defaulted on its loans, the lawsuit said.
The lawsuit accuses Pandya of driving Corner Bakery into bankruptcy. The company routinely didn’t pay bills, which created disruptions as stores were closed or they lost certain products or services from vendors.
In 2022 Pandya agreed to pay back a reduced amount on the loan he assumed when he acquired the chain in 2020, only he didn’t make that payment.
Pandya later reneged on a later agreement to make a loan payment, the lawsuit says. The lender then put the loan up for auction. SSCP bought that loan at a discount in January 2023 and ultimately acquired the chain out of bankruptcy.
During Pandya’s time as owner, Corner Bakery generated negative EBITDA, or earnings before interest, taxes, depreciation and amortization; negative net income; and negative cash flow each year.
Corner Bakery was insolvent each month under Pandya’s ownership, according to the lawsuit. Despite this, the lawsuit says, “Jay Pandya continued to loot the company of its cash” while the company was mismanaged and used poor financial and accounting practices.
Corner Bakery’s entire accounting staff left shortly after Pandya acquired the chain in October 2020. Afterward, the company employed only two accountants, who reported to Krupa Patel, a longtime Pandya associate who is named in the lawsuit.
Many of Corner Bakery’s accounting and bookkeeping functions were outsourced to an India-based company known as Engage Business Services Private Ltd., the lawsuit said. The lawsuit accuses Pandya of creating that company “to shield Corner Bakery’s suspicious transfers and fraudulent accounting from scrutiny.”
With little oversight, Corner Bakery apparently didn’t file income tax returns in 2020 or 2021, according to the lawsuit, which says the company didn’t pay income taxes either of those years.
Pandya still owns Boston Market. The company is down to about two-dozen restaurants after closing most of its locations since the start of 2023. The chain’s Facebook page recently became active again. Most of the posts, however, feature comments from users lamenting closed restaurants.
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