Sen. Howard M. Metzenbaum (D-Ohio), one of Capitol Hill's most vociferous critics of shady and unethical business practices, is in hot water over a business deal of his own involving one of Washington's best-known fast-food chains, Little Tavern Shops.

Metzenbaum has been named as a codefendant in a lawsuit filed by Atlantic Restaurant Ventures Inc., the company that purchased the 20-unit Little Tavern hamburger restaurant chain from Metzenbaum, his daughter and a business partner three years ago.

The suit alleges that Metzenbaum and the others defrauded the purchasers of the legendary Washington greasy-spatula chain by misrepresenting its financial condition and the exclusivity of the Little Tavern trademark and by failing to pay all of the chain's taxes and other bills before it was sold.

Atlantic Restaurant Ventures, which is based in Wakefield, Mass., said in the suit that "as a result of the misrepresentations and omissions," it suffered "substantial operating losses" on the Little Tavern chain and was forced to sell the business last summer at a $500,000 loss. James T. Bacon, a Fairfax attorney for Atlantic, declined to comment further, and company officials could not be reached.

The senator, whose former part-ownership of Little Tavern was not well known here until the lawsuit was filed two weeks ago, yesterday denied the charges through his press secretary and said the suit was an attempt by Atlantic Restaurant Ventures to break a sales contract with Metzenbaum and the other Little Tavern partners.

"Metzenbaum has said the facts will speak louder than the allegations and that anybody can sue but not everybody can win," said Nancy Coffey, the senator's press secretary.

Metzenbaum has been a vocal critic of big business for years, in particular attacking debt-driven corporate mergers and consolidations.

The suit, filed in federal district court in Alexandria and reported in yesterday's Washington Times, alleges fraud, breach of contract and securities violations by Metzenbaum, who owned 37.5 percent of the company; his daughter, Barbara M. Bonner, who owned 12.5 percent; and Gerald E. Wedren, a local lawyer and investor who owned 50 percent and was chief executive. Wedren and Bonner could not be reached for comment. Metzenbaum and Wedren still own the property on which several of the Little Taverns operate, according to the chain's current owner, Roger Kisiel.

Atlantic Restaurant Ventures, which operates the local franchises of the Fuddrucker's restaurant chain and is controlled by the firm that owns Fuddrucker's, paid $1.6 million in cash, debt and stock in 1988 to purchase the Little Tavern chain from Metzenbaum, Bonner and Wedren's company, GEW Inc. Atlantic had hoped to use Little Tavern as a new vehicle for expansion by combining Fuddrucker's restaurant know-how with Little Tavern's distinctive diner-like image, which includes "Buy 'em by the Bag" fast-food burgers and small cottage-like restaurants with green roofs and white walls.

But Atlantic said in the suit that it found out that GEW did not hold the trademark on the "Little Tavern" name and that the company had a variety of hidden problems, including sloppy bookkeeping, big debts and nonpayment of some taxes and rents.

"The financial statements of GEW provided by {Wedren, Metzenbaum and Bonner} were materially inaccurate and were not prepared in accordance with generally accepted accounting principles," Atlantic said in its suit. "The financial statements were materially misleading."

The suit said Wedren misstated the company's financial condition "with wanton disregard for the truth" but also said Wedren was acting with the knowledge and consent of Metzenbaum and Bonner. "The defendants failed to disclose pertinent facts with the purpose and intent of deceiving {Atlantic} and inducing {Atlantic} to make the investment in the GEW stock," the suit said.

The suit asks $3 million in compensatory damages, plus costs, as well as $1 million in punitive damages from Wedren. It also asks that securities issued to Wedren, Metzenbaum and Bonner in the purchase, including warrants to buy Atlantic stock, be returned.