23-Nov-19 – Two investors in Restaurant.com are alleging years of “self-interested and disloyal conduct” by the Arlington Heights company’s corporate directors – all two of them, who live in River North.

Adnan Adamji, who lives in the Chicago area and was the company’s Chief Information Officer, and Steven Schnall of New York are suing Dr. Kenneth Chessick, CEO and majority shareholder of Restaurant.com, and his wife, Ellen Chessick.

Adnan Adamji (left) and Steven Schnall (right).

The lawsuit was filed on November 20 in Delaware after being dismissed in Cook County Circuit Court last year. Judge Franklin Valderrama ruled on September 21, 2018, that Restaurant.com, though based in Illinois, was incorporated in Delaware and any lawsuit needed to be filed there.

The shareholder complaint by Adamji, who owns about 400,000 shares of stock, and Schnall, who owns about 700,000 shares, alleges breaches of fiduciary duties and wrongful conduct. In addition to unspecified damages, they want the Delaware Chancery Court to fire the Chessicks from the board of Restaurant.com, strip them of their corporate titles, and make them give back “unjustly obtained compensation, expense reimbursement, and ill-gotten gains.”

Founded in 1999, Restaurant.com sells gift certificates for restaurants nationwide. According to the complaint, the company “purportedly offers over 200,000 dining and merchant deal options nationwide at 187,000 restaurants and retailers to over 7.8 million customers.”

Revenue at Restaurant.com climbed steadily each year, says the complaint, from $6.3 million in 2005 to $63 million in 2011. Then Dr. Chessick became its CEO.

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

In 2012, according to Adamji and Schnall, Chessick “instituted drastic changes” to the company’s business model, “despite the fact that he did not understand the company’s business and never intended to devote sufficient time to the company to maintain the success of its business.”

Changes included firing the entire sales team and replacing it with telemarketers, reducing sales commissions, cutting back on email marketing, and focusing on selling $10 gift certificates instead of better-performing $25 certificates.

“All of these moves caused a significant number of restaurants to leave the company’s program,” reads the complaint. “In May 2013, a year and a half after Chessick ascended to the role of CEO, nearly 6,000 restaurants had left the program.”

Company revenue dropped from $63 million in 2011 to $44 million in 2012, $41 million in 2013, and about $30 million in 2015.

Company once had a business valuation of $120 million

In 2010, a joint venture offered to purchase a portion of Restaurant.com for $75 million, based on the company being worth $120 million at the time. Adamji and Schnall claim Kenneth Chessick, then merely the majority shareholder, rejected the offer because he would have been one of five corporate directors. Later that year, Restaurant.com received another $75 million offer, from a venture that involved Credit Suisse, but that was rejected, they say, because someone other than Chessick would have been named CEO.

The two shareholders say in 2012, Chessick was able to purchase $8 million worth of Restaurant.com stock offered in a private sale that, due to a short deadline, few investors other than Chessick knew about. It increased his stake in the company to 73 percent. Also increasing was Chessick’s salary and total compensation, but not with the blessing of other shareholders.

They suspect Chessick’s plan was to “captain the company to financial success” and sell it, keeping profits mostly for himself.

“Chessick does not, however, have the managerial and leadership abilities necessary to make the company successful,” say Adamji and Schnall in their complaint. “To the contrary, Chessick has caused further harm to the company.”

In 2015, Chessick received another offer to buy Restaurant.com, but by then, according to the complaint, the company was valued at only $2 million.

The next year, Chessick allegedly fired another 20-25 employees but gave himself a $50,000 raise and put personal expenses on the company dime – such as, according to the complaint, travel to Europe for a vacation and travel for him and his wife to attend Northern Illinois University football games.

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.

According to the complaint, Restaurant.com has been for sale since July 2019 and has a potential new owner currently thinking of buying the company for $2 million.

“That price is a mere fraction of what had been earlier offered to the company but was refused by Chessick out of an entrenchment motive,” say Adamji and Schnall. “Indeed, the company’s profitability and perceived value has lessened due to Chessick’s self-interest. The significance of the hurtful impact caused by...disloyalty and wrongdoing, in refusing to accept higher offers, and increasing Chessick’s compensation without justification, is now readily discernible.”

They say that because the company has only two directors, who are husband and wife, “Chessick has seen to it that there are no outside or independent directors that would lower the volume of his voice on the board.”

Ellen Chessick, say the shareholders, “is not known to make meaningful business decisions, certainly none [that are] contrary to her husband.”

Restaurant.com was damaged, say Adamji and Schnall, because the Chessicks “breached their primary fiduciary duty of loyalty by refusing to sell at a fair price, in order to preserve [the] longevity of [Kenneth] Chessick’s dominating control.”

Restaurant.com did not respond to a request for comment.

Kenneth Chessick is a medical doctor and an attorney. Along with a condominium unit in southwest Florida, he and his wife own 15 condo units at Marina City in Chicago.