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Celebrity chef Mike Isabella declares bankruptcy in wake of sexual harassment lawsuit

Chef Mike Isabella at his Arroz restaurant in 2017. (Dayna Smith/For The Washington Post)

Mike Isabella, the celebrity chef whose company once included more than a dozen restaurants, several stands at Nationals Park and a 41,000-square-foot food hall at Tysons Galleria, filed for Chapter 11 bankruptcy protection for his businesses Thursday in federal court.

It’s a major setback to the chef and his Mike Isabella Concepts, which just a year ago could seemingly do no wrong in Washington. But a sexual harassment lawsuit, filed in March, was the first public crack in the Isabella empire, and it had an almost immediate effect on sales and led directly to the Washington Nationals cutting ties with the chef. It also affected the media coverage of Isabella restaurants, including an outright ban of his eateries on all Eater lists and maps.

Mike Isabella closes his high-profile food hall in Tysons Galleria

What’s more, the lawsuit came just months after the chef opened his most ambitious project, Isabella Eatery, a nine-concept food emporium that was designed to revitalize Tysons Galleria, a moribund luxury mall in Northern Virginia. The estimated $40 million project closed in August, less than nine months after it debuted. Before that closure, Isabella had shut down his Requin Brasserie in the Mosaic District in Northern Virginia, as well as two locations of Graffiato, including the original in Chinatown, his first restaurant after his star turns on “Top Chef” and “Top Chef All-Stars.”

Now, he said, he hopes the bankruptcy filing can help him “stop the bleeding” and avoid closing any more restaurants. “I want to stabilize what’s going on in my company, and, obviously, once I go through this, set a path for the future to get me back to where I was,” Isabella said during a sit-down interview. “The bankruptcy is a tool for me to basically restructure my finances and have an opportunity for a fresh start.”

The petition was filed in U.S. Bankruptcy Court for the District of Maryland in Greenbelt, just ahead of a Friday hearing in Prince George’s County Circuit Court, where Isabella is fighting to hold onto his Kapnos Taverna inside the Hotel at the University of Maryland in College Park. The landlord, Isabella said, is trying to evict him after suing in May for more than $60,000 in back rent. Isabella said he paid three months back rent and tried to renegotiate a lower monthly payment. “They weren’t willing to renegotiate,” he added.

An attorney for Southern Management Corp., which manages the hotel, did not return repeated calls for comment.

Isabella’s bankruptcy filing, however, immediately puts the brakes on the eviction process. A Chapter 11 reorganization automatically suspends all judgments, collection activities and repossessions so the company can enter into negotiations to settle its debts.

After surviving a slow summer when university students were on break, Kapnos Taverna has entered the fall with customers returning to its dining room, Isabella said. “We’re in our busier season now,” he said. “It’s been doing well, and we want to keep it going.”

Mike Isabella settles lawsuit with employee who alleged sexual harassment

Isabella spared two of his restaurants from the company’s financial reorganization of six other establishments. Both Kapnos Kouzina in Bethesda, Md., and Requin at the Wharf in the District are not part of the bankruptcy proceedings. Isabella said the restaurants are “the anchors to keep us afloat. Not afloat as in, taking money from one [to pay another]. Basically, those are successful ventures right now.”

And because they are the company’s anchors, Isabella did not want to penalize the restaurants by placing them at the mercy of a bankruptcy court, which could use their proceeds to pay the creditors of other underperforming restaurants in the company. When asked whether this maneuver was a lesson he learned from the messy bankruptcy of his mentor, José Garces, whose investors rebelled against the Philadelphia chef and restaurateur’s filing, Isabella said no.

“This is just a decision between me and my partners as we went through all the financials with the lawyers,” he said.

David Rosendorf, a partner with the Miami-based firm Kozyak Tropin & Throckmorton, has specialized in commercial bankruptcies for 25 years. He is not involved with Isabella’s proceedings, but he said one of the main reasons restaurant groups file for bankruptcy is overexpansion. “It’s hard enough to run one restaurant,” he said. “It’s exponentially harder to run three, five or 10 restaurants” in an industry that already has a high failure rate.

But Isabella said expansion was not the problem with his company. He blames “bad press,” a reference to the media reports about a subject that he can’t discuss outright: the lawsuit filed by former Isabella Eatery manager Chloe Caras, who accused Isabella and several other company executives of sexual harassment and retaliation against employees who tried to speak out against it. The parties reached a confidential settlement in May.

By then, the damage had been done, Isabella said.

“Bad press . . . definitely hurt us from a financial standpoint, across the board,” Isabella said. “In Washington, D.C., March, April and May are your three busiest months of the year. Unfortunately, I had some negative press toward me. I lost a lot of that business that carries me through the summer, in all my restaurants. With that being said, I went into a slow season, a slow summer.

“Not many restaurants can sustain six months of not being busy,” he added.

Rosendorf, the Miami lawyer, said it’s uncommon for restaurant groups to file for bankruptcy, because they don’t often have many assets to liquidate or reorganize. They typically don’t own property, and the equipment and fixtures they possess depreciate over time, like cars. But sometimes, as with Garces in Philadelphia, a restaurateur “can use Chapter 11 to shed the bad and extract the value out of the good,” Rosendorf said.

In other words, they can close restaurants and focus on the successful ones to try to get the company back on solid financial ground. Under most Chapter 11 filings, the existing management team maintains control of the company, Rosendorf said, unless creditors move to appoint a trustee because they think there has been fraud or mismanagement.

Isabella said he and his executives will remain in control of MIC. “Obviously the goal is to keep all of our restaurants open. I never want to close a restaurant,” he said.

Among MIC’s largest creditors, according to Isabella’s affidavit filed with the court, are Eagle Bank ($764,000), M&T Bank ($775,096), and American Express ($313,851). Isabella also owes more than $715,000 to Eskridge (E&A), a company owned primarily by executives with Edens, a giant real estate developer. Eskridge sued Isabella in May for unpaid rent at Requin Brasserie, dating to Dec. 30, 2015. Requin closed in April.

But Isabella said that employees, including ones whose checks have bounced in recent weeks, “will have priority claim” in the bankruptcy proceedings. He hopes that such news will calm his staff of 268 and prevent a minor exodus of talent from his restaurants.

“Every time an article comes out, we lose employees, because it scares people,” he said. “But I’m hoping that what we have to say to them, they understand that we’re not closing. We’re restructuring.”

But Isabella also said he has to do more than fix his company’s financial problems.

“I want to repair the relationships with my purveyors, my landlords, my staff,” he said. “I want to focus on what we do, and that’s offering great experiences. That’s part of the restructuring. Obviously, there’s a little bleeding going on. We want to stop the bleeding.”

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