A group of Chicago Cut Steakhouse investors are suing restaurant management, saying they’ve been blocked from the restaurant’s books.
Michael Forde, Marc Defife, John Koutopis and Frank Phillips filed a complaint April 16 in Cook County Circuit Court as individuals and on behalf of Chicago Cut Steakhouse LLC, saying Chicago Restaurant Management Group LLC, and its sole members, David Flom and Mathew Moore, “have refused without any justification” to allow investors to inspect financial books and records as a means of assessing the restaurant’s financial health and the value of their investments.
Forde, Koutopis and Phillips live in Cook County, while Defife is from Westchester County, N.Y. All have been Chicago Cut investors since 2009, the year they say Flom and Moore raised more than $3 million to open the restaurant. While recruiting investors, Flom and Moore provided a “Confidential Private Placement Memorandum” that detailed the fiduciary obligations of the designated manager as well as codifying plans to retain an independent accounting firm to prepare financial statements and furnish quarterly sales reports and an annual financial statement for investors.
Michael Forde
| Forde Law Offices
The complaint also detailed the portion of the steakhouse’s operating agreement dedicated to accounting and taxes, including the rights of members to certain financial information. According to the plaintiffs, Flom and Moore have failed to live up to their own obligations by neglecting to use an independent auditor, to provide audited statements or to issue quarterly sales reports.
Since the founding, per the complaint, investors have gotten only one-page income statements. Although prepared by an accounting firm, the statements are marked as “ ‘prepared without independent verification.’ In other words, the accounting firm has no idea as to whether the information is correct and is merely relying on management for the figures presented.”
On March 30, Forde and Koutopis requested a meeting with Flom and Moore. They say Moore told them Flom was out of town until April 18 and said he wouldn’t meet with them on his own. So on April 5, the four men, as well as other investors, sent a request for the financial records, citing a 10-day deadline under the state’s Limited Liability Company Act.
In response, the complaint says, Moore emailed Forde on April 9 to say he and Flom could meet the next day, despite earlier saying Flom was away until April 18. Forde demurred, saying Koutopis was traveling while also suggesting a meeting would be more productive after they could review the documents requested on April 5. Moore emailed again April 12, saying the managers would provide the documents, but it would take longer than requested because the accounting firm was busy trying to help clients meet income tax deadlines.
The investors said Moore and Flom should’ve had the requested materials on hand and noted the company “employs a full-time controller who should have access to all of the requested documents.” They also offered to extend the deadline to 5 p.m. April 18, but got no response.
“Defendants’ failure to produce these materials is unreasonable, unjustified, vexatious, outrageous, in bad faith and in violation of their statutory duties,” according to the complaint, which asks the court to force the managers to produce all the materials requested in the April 5 letter. They also want the court to prevent Moore and Flom from using restaurant resources to pay their legal fees for this issue.
Forde Law Offices LLP, of Chicago, is representing the investors.