The New York-based private equity firm that once owned Buffets Holdings "bilked" hundreds of millions of dollars from the ailing restaurant company as it spiraled into insolvency, according to a suit filed Thursday by Buffets' bankruptcy trustee.
Filed in federal court in Minneapolis, the suit accuses Caxton-Iseman of unjustly enriching itself at the expense of Eagan-based Buffets and its creditors.
Buffets, which operates about 520 restaurants primarily under the Old Country Buffet, HomeTown Buffet and Ryan's banners, filed Chapter 11 bankruptcy in January 2008 and emerged from those proceedings a year ago. But its court-appointed bankruptcy trustee, JLL Consultants, remains active in trying to recover money for Buffets' creditors.
Buffets was a publicly traded company in 2000 when it was taken private in a debt-fueled $643 million deal by Caxton-Iseman, now known as CI Capital Partners. Immediately after the 2000 deal, Buffets inked advisory agreements with Caxton-Iseman and Roe H. Hatlen, its longtime CEO, that provided for "exorbitant compensation" to each, but no benefit or value to Buffets, the suit claims.
Hatlen received at least $2.2 million in payments from 2000 through 2007, even though his fee agreements said he didn't have to work more than two calendar days per month, the suit says.
"That's ridiculous," Hatlen said about the notion he was paid for doing little work, adding that at one point, he came back to run the company.
The former CEO declined to comment further, saying he hadn't yet read the lawsuit.
Hatlen, who had been a minority shareholder in Buffets, was also named as defendant in the suit, as was Caxton-Iseman's founding partner, Frederick Iseman.
Caxton-Iseman received $39.2 million in fees from 2000 through 2007, the suit says. The trustee took particular umbrage at a $16.8 million fee it got in conjunction with Buffets' $876 million merger in 2006 with Ryan's Restaurant Group of South Carolina.
The suit says Caxton-Iseman retroactively doubled the transaction fee that applied to the merger, even though Buffets was under financial duress at the time. This action is "a particularly egregious example of defendants' fraud and self-dealing to the detriment of Buffets and its creditors," the bankruptcy trustee asserted.
Equity firm responds
In an e-mail statement, a spokesman for Caxton-Iseman said "the allegations made in the complaint are frivolous and entirely without merit."
The bankruptcy trustee also accused Caxton-Iseman and other defendants of unjustly taking money from Buffets through "dividend recapitalizations." The defendants justified the dividend transactions by saying they were needed to refinance Buffets' pre-existing debt, the suit says.
"The reality is that the principal purpose of these transactions was to pay huge dividends to defendants by borrowing huge amounts of money that left Buffets insolvent and on a path to bankruptcy," the suit alleges.
The dividends received allegedly totaled more than $225 million, according to the suit.
Caxton-Iseman eventually lost its equity interests in Buffets during the bankruptcy.
Mike Hughlett • 612-673-7003
