Restaurant.com dodges class action lawsuit but served plate full of complaints
Loop North News

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Restaurant.com Restaurant.com dodges class action lawsuit but served plate full of complaints

Owned by two River North residents, the Arlington Heights, Illinois, company has hundreds of complaints against it with the Better Business Bureau. Started by tenacious entrepreneurs who wanted to “do well by doing good,” RDC, some believe, is now putting its bottom line ahead of its customers.

(Above) A Restaurant.com gift card.

19-Jul-13 – It promises the “best deal, every meal,” but a suburban Chicago company owned by two River North residents is often served complaints from customers of its website that sells gift certificates to restaurants.

Founded in 1999, Restaurant.com sells certificates for restaurants in cities throughout the United States. On its website, a buyer can select from 18,000 restaurants, select the dollar amount of the gift certificate, pay for it, and print the certificate. The company then gets a cut from each certificate sold.

According to a recent news release, RDC “is the trusted and valued source connecting restaurants and diners nationwide.” Offering more than 50,000 gift certificate options, the company claims to have saved its customers more than $1 billion.

As recently as 2008, the company had annual revenues in the range of “several million dollars,” according to a U.S. District Court document.

Complaints against the company include selling gift certificates for restaurants that have gone out of business and certificates to restaurants that had not agreed to participate.

In 2010, a customer filed a lawsuit, claiming RDC was selling gift certificates with expiration dates in violation of the Illinois Consumer Fraud and Deceptive Practices Act. Effective January 1, 2008, the act made it illegal for a business to issue a gift certificate with an expiration period of less than five years from the date of issue.

Mariam Munsif-Toscano claimed that two gift certificates she purchased on May 21, 2009, had expiration dates of one year from when they were issued. She sued the company on May 28, 2010, initially on behalf of herself and others but was unable to get the case certified as a class action lawsuit.

Continuing on her own, she logged into her RDC account one day to print a copy of an unused gift certificate, to serve as an exhibit in her lawsuit, and discovered the website had changed its terms and had made her certificate non-expiring. She says she was not notified of the change and had she not logged into her account, she would have assumed the gift certificate was unusable.

The court dismissed the case, saying Munsif-Toscano had not suffered any actual damages within the meaning of the law. She appealed but on April 26, 2012, an appellate judge upheld the decision of the trial court.

RDC is not safe yet from class action lawsuits. On July 9, 2013, New Jersey’s state Supreme Court ruled that restaurant gift certificates purchased online are written consumer contracts and subject to state law. That case was over gift certificates – purchased from RDC by two New Jersey residents – that expired in one year. Under New Jersey law, gift certificates must be valid for two years.

RDC opposed the argument, saying online transactions cannot be considered consumer contracts because they are not in writing. The ruling paves the way for a class action suit the attorney for the residents says he will file, as reported by The Star-Ledger, that could affect thousands of consumers who have purchased gift certificates from RDC since 2006.

Expiration dates an issue for RDC

Gift certificates with expiration dates were the focus of a 2005 lawsuit, eventually settled out of court, against Restaurant.com. To pay off a debt to Intagio Trading Network, RDC had agreed to give them $55,000 worth of certificates with no expiration dates. Each certificate would expire but only after one year following its sale by Intagio to a consumer.

Intagio claimed that when they received from RDC a spreadsheet containing Internet links to the certificates, the links worked but expired one year later even if they had not yet been sold.

The more than 40 restaurants in the deal included MK and Pizzeria Ora in River North and Exchequer Restaurant & Pub in the Loop.

That is not the extent of complaints against the company. In the past three years, the Better Business Bureau has received 584 complaints against RDC – including 66 complaints in the past 12 months. According to the BBB, the complaints are mostly about advertising and sales issues related to the company’s product.

“In the complaints, consumers allege that various restaurants featured on Restaurant.com will not honor coupons they had purchased from your company,” reads the BBB review. “Additionally, consumers allege that the company has refused to provide refunds for coupons that were not honored by these restaurants. Restaurant owners have also alleged that the company’s sales staff has misrepresented the frequency of discounts offered by Restaurant.com and that the company has sold coupons for higher amounts than they had agreed upon with the company’s sales staff.”

Photo by Mason Signs

Photo by Mason Signs

On July 7, 2013, a St. Louis television station reported that one of its city’s restaurants had said that “several” customers showed up with gift certificates from RDC that were not valid. KMOV News 4 reported that RDC had advertised and sold coupons for Miami Grill (left) without the permission of the restaurant’s owners. The next day, RDC removed Miami Grill from its site and an unnamed spokesperson for the company told KMOV it was a “communication error.”

Started by entrepreneurs, taken over by a lawyer

According to the RDC website, Dr. Kenneth Chessick, a lawyer and board-certified general surgeon, is a “prime creator of the company.” On his LinkedIn page, Kenneth describes himself as “one of the founding entrepreneurs of Restaurant.com.”

“We have provided millions of dollars in savings for restaurant customers, created thousands of jobs in our company, saved or created tens of thousands of jobs in restaurants, and helped build the American economy.”

Likewise, his wife, Ellen Chessick, considers herself “among the founders” of the company. When she ran this year for re-election to the condo board at Marina City, Ellen described her occupation as “Vice President of Strategic Growth” for RDC and claimed to have “over 24 years of business management experience.”

In a campaign letter to condo unit owners, Ellen described how she and her husband “took Restaurant.com from a new idea in the year 2000 to a company headquartered in the Chicago suburbs, with 18,000 restaurants, operating in all 50 states, with over 350 employees and 1,500 independent consultants.”

(Right) The Chessicks at the Orange Bowl on January 1, 2013, in a photo published by NIU Today. Kenneth Chessick is a 1984 graduate of Northern Illinois University and in 2011 donated $3 million to NIU, which is using the money to build the Kenneth and Ellen Chessick Practice Center. NIU Today

One of the actual original founders, who did not want to be named, disagrees with this. He says four people, none of whom are the Chessicks, founded Restaurant.com.

The initial idea for the company came from a man who was a former restaurateur and ex-advertising executive who retired, moved to Florida and later to a suburb of Denver, where he started a successful chain of New York style bagel cafés. Rather than advertise just one restaurant, he imagined a platform that would contain many restaurants. That idea evolved into Restaurant.com.

Needing money and people to help him build this vision, he got in touch with a friend of his son who owned a mortgage company. The friend in turn brought in two other men, one from New York and the other from Chicago.

The Chicago native had a friend whose uncle was Kenneth Chessick. With several million dollars, Kenneth became one of the company’s first investors. Over time, he bought out other shareholders and eventually owned more than 50 percent of RDC.

Working with Kenneth, says one of the founders, was at times “very difficult.”

“The guys who took their life savings and invested themselves 100 percent to start this thing and went without paychecks for a year and a half,” he says, “that was not the Chessicks.”

Conflict over ideology

In the early years, as RDC was still trying to find a business model and was not profitable, the founder we spoke with says they were given “full rein” by Kenneth Chessick to run the company as they needed. Chessick was described as “largely uninvolved on a daily basis” and probably knew that the company he had invested in might fail.

That changed when the company started making money. “The team managed to pull it off and we did turn a corner. We did invoke some very interesting and creative ideas. We worked tenaciously and we…turned this thing into a profitable business.”

When that happened, Kenneth suddenly became “a very interested, active investor who wanted to take on more involvement, further invest, and acquire the shares of others.”

Newly married, he assigned his wife to a seat on the company’s board of directors and promoted his nephew to president.

Did that benefit the company? No, says the founder. “There was a lack of full understanding of the business and a lack of real pride and love for what the company was doing for the consumer and for the industry. It wasn’t about how we can help the merchant, how can we help millions of people save money on dining out, and more toward ‘how can we make more at the bottom line?’”

As for Ellen Chessick, “She didn’t have a specific role or much involvement. She held a board seat but short of showing up to a quarterly board meeting she had very little, in fact, almost no involvement in the business. In fact, at that point, Ken had little involvement as well.”

“Are you aligned with your consumers? Are you aligned with the merchants who are your partners, the lifeblood? Or are you aligned with simply generating a bottom line? Sometimes, unfortunately in business, you have to make a choice, which one is the right one to adhere to. I regret to say that the Chessicks, I think, unfortunately, put in the order of priority, the bottom line first.”

It is a reality that every business owner faces, he says, but the original RDC founders “were more inclined to focus on the obligation to their partners, the restaurants, and to the customers, the people buying the gift certificates. The generally held belief was that if we do right by each of those constituents, the money on the bottom line would happen.”

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The company, “growing with an incredible trajectory,” says the founder, did do well enough to eventually attract outside interest. While the founders had always believed the right acquisition would allow the company to further develop, Kenneth, he says, “was always very much opposed.”

Restauarant.com is based in Suite 200 of One North Arlington (left) in the Chicago suburb of Arlington Heights.

How to fix RDC? Original founder has suggestions.

The short answer is to “go right back to the roots and stay true to them,” but the original founder of RDC who we spoke with says it is more complicated than that.

“The conundrum they fall into is that in order for the model to work, you need lots of restaurants. In order to get lots of restaurants you sometimes have to flex and give them terms that make it more favorable for the restaurateur.”

Flexibility, he says, could include agreeing to restrictions on the gift certificate to get the merchant on board. “The more restrictions on a certificate, the less attractive it is to the customer and so the less valuable it is when trying to sell it.”

It is a careful balancing act. “You want to make it compelling enough that the merchant sees the benefit of being part of the program but at the same time, hold your ground so they don’t push you too far on the restrictions such that the consumer still has an appetite – no pun intended – to want to buy the certificate.”

Ellen Chessick did not respond to multiple requests for comment.

• Contact Steven Dahlman at sdahlman@loopnorth.com

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