Scotty’s Brewhouse founder Scott M. Wise, along with Indianapolis-based Scotty’s Holdings LLC and two Arizona-based parties, are facing a lawsuit from a former business partner of Wise’s who claims he was defrauded out of his $300,000 investment in the restaurant chain.
The suit was filed late last month in U.S. District Court for the Northern District of Indiana in Fort Wayne. Plaintiff Nairamat Investments LLC, whose sole member is Florida resident Steve Cibor, is also suing PRP Scotty’s Holdings LLC and Berekk A. Blackwell.
Blackwell is the vice president of Scottsdale, Arizona-based Due North Holdings LLC, which acquired the Scotty’s chain in December 2016. Blackwell is also listed as the manager of Scotty’s Holdings LLC, according to Indiana Secretary of State records.
Cibor invested $300,000 in the Carmel location of Scotty’s Brewhouse in 2014, in exchange for a 25 percent ownership stake in that restaurant, according to the suit.
Cibor alleges that Wise solicited his investment as part of a plan to open new restaurants and grow Scotty’s Holdings at the expense of those who invested in individual restaurants.
“Wise’s inducement to Plaintiff to invest $300,000 in Brewhouse was part of a scheme to defraud Plaintiff by soliciting such investment without any intention or possibility of return,” the suit alleges.
Wise disputed the allegations in a statement issued to IBJ through his attorneys at the Indianapolis law firm of Hoover Hull Turner LLP.
“Mr. Wise denies that he misled Nairamat Investments or any other investor in any Scotty’s Brewhouse location or its parent company, Scotty’s Holdings, LLC,” the statement says. “Nairamat Investments voluntarily invested in Scotty’s Brewhouse and acknowledged that it was offered access to all company information prior to investing and that the investment came with risk.
“Unfortunately, the Scotty’s Brewhouse chain experienced financial difficulties that adversely impacted its investors, including Mr. Wise. Mr. Wise has had no involvement in the operations of Scotty’s Holdings since at least January 2018. He intends to vigorously defend against Nairamat Investments’ false allegations.”
The Carmel restaurant, which opened in 2014, performed poorly, and Cibor saw a loss of $44,154 that year, the lawsuit alleges. Wise told Cibor that he could convert the investor’s ownership interest in the Carmel restaurant into a 2 percent stake in Scotty’s Holdings as a way to protect Cibor’s investment, the lawsuit alleges.
Then, in January 2017, Cibor alleges, Wise told him that PRP Scotty’s Holdings had become the majority owner of Scotty’s Holdings and that Cibor needed to sign an amendment to the Scotty’s Holdings agreement.
Cibor claims that he was not presented with complete information at the time he agreed to the amendment, and was unaware that signing the agreement would trigger a call option for his Scotty’s Holdings ownership units.
The call option specified that Scotty’s Holdings would “purchase” Cibor’s ownership units in exchange for a share of net earnings, if any, for five years, as calculated using a specific formula set out in the agreement.
As of last month, Cibor said, he had not received any payments, and the lawsuit described the call option security as “worthless.”
Scotty’s Holdings filed for Chapter 11 bankruptcy protection last week, and the company announced it would close its Carmel restaurant and three other locations by the end of the year.
The bankruptcy puts an automatic stay on Cibor’s case against Scotty’s Holdings, but the other three defendants are not affected by this stay since they are not part of the bankruptcy.
Blackwell did not immediately respond to a phone message from IBJ on Wednesday morning.