• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Bills, Lawsuits Pile Up for Fhima: Restaurateur, With Two St. Paul Locations, Owes More Than $900,000

Posted on: Saturday, 3 June 2006, 00:00 CDT

By Nancy Ngo and Jason Hoppin, Pioneer Press, St. Paul, Minn.

Jun. 1--Embattled Twin Cities restaurateur David Fhima faces more than $900,000 in civil claims, judgments, liens and unpaid bills for everything from electricity to overdue federal employment tax payments.

The businessman, who owns the trendy Fhima's and LoTo restaurants in downtown St. Paul and the upscale Louis XIII in Edina, admits he's facing a financially troubling time but says he doesn't plan to close any of the restaurants.

He also rejected the idea of seeking bankruptcy protection.

"Absolutely not. I would want to pay everybody off," Fhima said.

The Internal Revenue Service has filed five liens against Fhima's restaurants in the past several months, according to records on file with the secretary of state. They state that he is overdue on payment of federal employment taxes, which includes withholdings from employees' paychecks and Social Security deductions. Ramsey County also has a personal property lien against Fhima's for $28,695, but no details about it were available.

Together, those liens total more than $207,000. The IRS does not disclose payment plans, so it's unclear how much, if any, of the taxes he has paid.

Also, Fhima, 45, said that in January he refinanced a mortgage for $989,655 on his Minneapolis home, which he has owned since 1994. The funds were needed to pay off construction costs at LoTo in Galtier Plaza after an original investor dropped out. Now that he has a new investor, Fhima said he expects to pay $500,000 on the mortgage within the next week.

But those aren't the end of his financial woes.

On May 19, Fhima made a frantic round of phone calls to City Hall when Xcel Energy shut off power to LoTo, saying he owed about $48,000 to the utility, according to a City Hall source close to the situation.

"The rumor is not completely true," Fhima said. "It was not as simple as the bill not being paid," he said, declining to elaborate.

LoTo was closed for six days, until City Council Member Jay Benanav brokered a deal between Fhima and Xcel to turn the lights back on.

The call prompted rumors about the financial health of Fhima's restaurants.

Benanav said Fhima's and LoTo are crucial to St. Paul's vitality.

"That's a terrible blow for downtown" if they were to close, he said.

In some ways, the fates of David Fhima and downtown St. Paul are intertwined. In 2001, the city dangled $700,000 in improvements to entice Fhima to open a restaurant in Lawson Commons, a project that brought thousands of jobs to downtown but was criticized for its heavy public subsidy.

As part of the deal, the city was to earn 6 percent of Fhima's gross sales above $1.5 million. Initially, the city profited from the deal, said interim Planning and Economic Development Director Tony Schertler.

At first, the restaurant at Sixth and Wabasha streets lent some much-needed cool to St. Paul nightlife. But after the buzz wore off, and with competition from other nearby white-tablecloth restaurants -- Pazzaluna, the St. Paul Grill, Kincaid's and the recently opened Matty B's -- the number of customers dwindled.

Schertler said Fhima has paid rent on time in the city-owned space and the city now is "working with David to reposition the restaurant." It is common for landlords to work with commercial tenants to improve spaces to their liking, and Schertler said the city does not want to see Fhima's close because finding a replacement would be extremely difficult.

Downtown businessman John Mannillo, a critic of the 2001 deal, said the city is trying to make Lawson Commons into a commercial success whether or not the marketplace supports it.

"What we were doing was hiding a problem," Mannillo said. "Basically, we paid someone a lot of money to come here and open a restaurant."

Fhima blames much of his financial problems for the loss of "a major investor at LoTo" and to underperforming results at Louis XIII. "We have great business at Fhima's and great business at LoTo. We have to decide what we need to do to move on."

Fhima said he's doing everything he can to turn things around. He said he recently found another investor for LoTo, businessman Robert Nelson, and is now focusing on making changes at Louis XIII. He's waiting for his landlord to sign off on a plan to remodel the Edina restaurant at Southdale Mall as well as change the concept to a more casual style like LoTo.

"Louis and fine dining at the mall just doesn't work," he said.

In April, Louis XIII's liquor license was briefly suspended when Fhima failed to renew it on time, according to Edina officials. The renewal carries an $8,500 fee.

Last year, paychecks bounced on several occasions and supplies sometimes ran low, according to a former employee who asked not to be identified because she still works in the hospitality industry.

"Around the time I was leaving, there were problems like that," the employee said.

But Fhima's financial problems predate the 2004 opening of Louis XIII and LoTo a year later. According to Hennepin County court records, Fhima has had five lawsuits filed against him, including two that are pending.

His trial started today in a counterclaim against Laurel Village Tower, where Fhima ran the Mpls. Cafe for 12 years until closing the restaurant at the end of 2004. In February, a judge awarded the downtown complex $320,000 for back rent, other bills and attorneys' fees. However, the order is pending and hinges on the outcome of Fhima's countersuit that argues the landlord failed to maintain common areas.

Last week, a woman filed a Hennepin County District Court claim for money owed to her from a 1994 court settlement in Los Angeles. The nature of that case is unclear from limited court records, but Fhima said the matter involved a $10,000 wrongful termination lawsuit that had ballooned to $223,926. She asked to recover that amount plus interest and filing fees amounting to $365,746.

Fhima, who owned a California restaurant before moving to Minnesota, saidhe was unaware of the lawsuit until two months ago. "We're working with Hennepin and the California legal system to get it dismissed. There is no merit to it."

According to court records, three suits in Hennepin County have cost Fhima more than $115,000 in money owed for services at his restaurants:

-- The Fish Guys Inc. of Minneapolis sued Fhima for $38,900 he owed for seafood sold at his restaurants. Hennepin County dismissed the case after the parties reached an out-of-court settlement in which Fhima will pay $33,000 through monthly installments. Fish Guys Inc. owner Mike Higgins declined to comment.

-- In November 2004, Minnesota architecture and engineering firm Hammel, Green and Abrahamson Inc. sued Fhima for $66,658 for work on Louis XIII and $49,000 for LoTo. According to court records, Fhima posted an $80,000 bond to pay off the debt and release a lien.

-- In February 2000, Ashanti Eaton, a Minneapolis multimedia company, sought $3,472 for unpaid work setting up a Web site for the Mpls. Cafe. The court ordered Fhima to pay $3,551.

In addition, the state last year issued two tax liens totaling $74,374 on Louis XIII. The two liens were released earlier this year.

Also, the Mpls. Cafe had a federal tax lien placed on it in 1999. It was released in 2001.

Fhima isn't the only Twin Cities restaurateur to have encountered financial trouble.

The Sidney's restaurant chain no longer exists after the federal government seized the Edina restaurant from Kenny Plunkett and Dan Peterson in April, and the Minnetonka location closed a week later. IRS records showed the Edina spot owed $205,000 in back taxes, and the Minnetonka location had a debt of $179,000.

"I think a lot of people would have folded a long time ago … but we have an obligation to take care of our guests, our employees and vendors," Fhima said of his troubles. "The hard thing about this is it isn't only affecting me. There are a lot of people that have put their heart and soul into these restaurants."

-----

Copyright (c) 2006, Pioneer Press, St. Paul, Minn.

Distributed by Knight Ridder/Tribune Business News.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NYSE:XEL,

Source: Saint Paul Pioneer Press (St. Paul, Minn.)

More News in this Category