Latest Restaurant.com lawsuit accuses CEO of bringing company to ‘brink of bankruptcy’
Loop North News

LEGAL

(Above) Ellen and Kenneth Chessick from a 2013 video produced by Northern Illinois University about the Chessicks receiving its NIU Foundation Award for High Impact Philanthropy.

19-Feb-18 – Whether it was intentional or just carelessly, two shareholders of Restaurant.com say their CEO has left the Chicago-based company on the brink of bankruptcy, and they will ask a Cook County Circuit Court judge to fire the CEO and force him to pay back millions of dollars in allegedly ill-gotten gains.

Adnan Adamji of Illinois and Steven Schnall of New York are suing Dr. Kenneth Chessick, a lawyer and River North resident who, along with his wife, Ellen Chessick, donated $3 million to Northern Illinois University in 2011, own 15 condominium units at Marina City, and until a year ago owned a five-bedroom $1.38 million home in Reno, Nevada.

The lawsuit, filed last October, describes a growing and profitable company that was decimated when Chessick took over. Adamji and Schnall accuse him of using company money as a slush fund to pay for first-class travel around the world. The suit accuses Chessick of intentionally mismanaging the company in a scheme to drive down its value, push out other shareholders, sell the company, and make millions for himself.

Adnan Adamji Adamji (left) was the company’s Chief Information Officer, overseeing a revamping of the Restaurant.com website that sells gift certificates for restaurants nationwide. He says the company took in $7 million in 2006, before Chessick became CEO, $14 million in 2007, $23 million in 2008, and $40 million in 2009. In 2010, still without Chessick at the helm, Restaurant.com earned $15 million in profit from revenue of $53 million. It made $15 million again the next year, from revenue of $63 million.

But in 2012, Chessick started with Restaurant.com as CEO and the company’s fortunes started to reverse. Revenue dropped from $63 million to $45 million during his first year and, say the plaintiffs, it has declined every year since.

What caused the decline, claim Adamji and Schnall, was a series of bad decisions by Chessick. He fired the company’s outside sales force and replaced them with telemarketers. He cut back on email marketing. He made changes to the company’s agreements with restaurants – allegedly without their consent – resulting in thousands of them quitting the program.

Based in Arlington Heights, Restaurant.com sells gift certificates (right) for restaurants nationwide. The certificates cost less than their face value. Restaurant.com

One campaign in particular that Chessick launched, Deals Beyond Meals, caused, according to the lawsuit, “massive losses for the company.”

Even before he took over as CEO, the lawsuit says he was not maximizing shareholder value. In 2010, as majority shareholder, he is said to have rejected an offer from a private equity firm to buy a stake in Restaurant.com for $75 million.

Company worth a fraction of what it was but Chessick still gets paid

According to the lawsuit, the total value of Restaurant.com in 2010 was $120 million. When Chessick became CEO in 2012, the “drastic” changes he made to the company’s business model, says the complaint, resulted in “dramatic losses in revenue and profit.”

“Kenneth Chessick implemented many technology and marketing programs while in possession of data showing that the programs lose money,” claim Adamji and Schnall.

They say Chessick was “vastly unqualified for the position,” did not understand the business, and did not intend to devote sufficient time to the job. He continued to practice law, say the shareholders, when he should have been focused on Restaurant.com.

By May 2013, a year and five months with Chessick as CEO, Adamji and Schnall say 6,000 restaurants had dropped out. Every day, they claim, restaurants cancelled their agreements over mandatory rules that Chessick implemented.

From 2012 through 2017, the company allegedly spent more money than it earned. While other employees were fired or had their salaries frozen, Chessick was paid more than $1 million, say the plaintiffs, every year through 2016.

The money was spent on first-class air travel around the country and around the world for him and his wife. They attended a Northern Illinois University football game in Florida, the suit says, and took a cruise vacation in Europe.

Northern Illinois University Kenneth (at podium) and Ellen Chessick on October 26, 2013, at the official unveiling of the Kenneth and Ellen Chessick Practice Center at Northern Illinois University. Photo obtained from Northern Illinois University.

Tank company, buy out shareholders, turn company around, sell, profit

The lawsuit describes an alleged scheme in which Chessick designated shares of preferred stock in the company – with him preparing the purchase agreement. Chessick supposedly set the price, created the terms, restricted information, and gave the sale a short deadline so that he ended up buying almost all the shares. His stake is said that have increased to 73 percent while the stakes of other shareholders declined.

And the $8 million he spent on the stock, according to the lawsuit, Chessick got back from the company through increased compensation.

Chessick’s plan, they believe, was to turnaround the company, sell it, and keep most of that money for himself. In 2017, they claim, he almost did just that, trying to sell the company for less than $10 million. Less money total, but he would have been able to keep almost all of the proceeds.

Restaurant.com is, they say, “in poor financial health at present and may be on the brink of bankruptcy.”

(Right) One North Arlington, the office building in Arlington Heights in which Restaurant.com is located. Photo obtained from Younan Properties. Younan Properties

Adamji and Schnall are calling it breach of fiduciary duty, failure to maximize shareholder potential, and unjust enrichment. They are asking for monetary damages they have sustained plus punitive damages. They want Chessick stripped of titles and control of the company – and a receiver appointed by the court to run the company.

And they want Chessick to be forced to give back all his compensation and expense reimbursement.

A hearing is scheduled for March 2.

Chessick, meanwhile, did not have to look far for representation. O’Hagan LLC was the law firm of his condo association from 2009 to 2013.

History of complaints, lawsuits

From 2014 through 2016, more than 250 complaints against Restaurant.com were filed with the Better Business Bureau. Most of the complaints were not from people who purchased gift certificates but from restaurant owners who said they were signed up to honor the certificates without their knowledge. On February 1, 2017, Chicago Better Business Bureau issued a warning to consumers and businesses about Restaurant.com, saying the company had “failed to alleviate the pattern of complaints.”

In 2017, in a federal lawsuit that took six years and nine months to litigate, two residents of New Jersey were awarded $1,100 over gift certificates that had fine print in violation of New Jersey law. Restaurant.com, however, was ordered to pay $190,000 to eleven attorneys at three law firms who worked on the case for Gregory Bohus and Larissa Shelton.

In 2010, a customer filed a federal lawsuit, claiming Restaurant.com was selling gift certificates with expiration dates in violation of the Illinois Consumer Fraud and Deceptive Practices Act. Mariam Munsif-Toscano sued on behalf of herself and others but was unable to get the case certified as a class action and the case was eventually dismissed.

Restaurant.com was also one of three defendants being sued by an Illinois resident who said he received spam from them on his mobile phone. That case was dismissed on December 29, 2017.

Facebook (Left) Post and reply on Chessick’s Facebook page on February 21. The post has since been deleted.

 Previous story: Restaurant.com CEO accused in lawsuit of tanking business for personal gain

By Steven Dahlman | Loop North News | sdahlman@loopnorth.com

Published 19-Feb-18 5:24 AM

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