# NY AG James in Spotlight & Restaurant Chain Bankruptcies

An episode of [Bloomberg Law](https://invisiblenetwork.ai/podcast/277975394), 8 Oct 2026, 24 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/7c892d84-801f-4c0b-b0e9-ae2b0012ff5f/0a5dc61f-b658-46f1-a428-b4dd017b2f1e/audio.mp3?utm_source=Podcast&in_playlist=91224201-26a6-429d-ac3c-ae2b0012ff6d

Bloomberg legal reporter Erik Larson discusses New York Attorney General Letitia James returning to the national spotlight as she is appointed special prosecutor in the Cornell University sexual assault investigation. Then James Menton Jr., partner and chair of the restructuring and bankruptcy group at Robins Kaplan, discusses the uptick in popular restaurant chains filing for bankruptcy. June Grasso hosts. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.
[0:09] Speaker 2: I don't really spend a lot of time focused on
[0:12] Speaker 2: this campaign of retribution. I've got a lot of work
[0:17] Speaker 2: on my hands, standing up and defending the rights of
[0:21] Speaker 2: New Yorkers, protecting them from harms coming from Washington, D.C.
[0:25] Speaker 3: As New York's attorney general since 2019, Letitia James has
[0:29] Speaker 3: taken on many powerful targets, But it may be her
[0:33] Speaker 3: suit against Donald Trump and the Trump Organization for fraud
[0:37] Speaker 3: that brought her firmly into the national spotlight as the
[0:41] Speaker 3: two traded barbs during a trial that resulted in a
[0:44] Speaker 3: nearly $ 500 million penalty. Now James is back in the
[0:49] Speaker 3: national spotlight after the governor of New York appointed her
[0:53] Speaker 3: a week ago to be a special prosecutor in the
[0:56] Speaker 3: Cornell University sexual assault investigation.
[1:01] Speaker 2: We will review the facts, gather evidence, interview witnesses, and
[1:08] Speaker 2: if warranted, pursue prosecutions.
[1:13] Speaker 3: There's already controversy as one of the accused men has
[1:17] Speaker 3: filed a petition in court to have James removed from
[1:20] Speaker 3: the investigation, alleging that her public statements call her independence
[1:25] Speaker 3: into question. Joining me is Bloomberg legal reporter Eric Larson. Eric,
[1:30] Speaker 3: so explain why Letitia James is back in the national spotlight.
[1:34] Speaker 4: She is back in the national spotlight because New York's
[1:37] Speaker 4: governor appointed her as a special prosecutor in a really
[1:42] Speaker 4: high-profile rape case at Cornell University that has really captured
[1:46] Speaker 4: national attention. And this is because the governor essentially lost
[1:51] Speaker 4: faith in the local DA after the alleged victim in
[1:56] Speaker 4: this gang rape at a fraternity at Cornell was filed
[1:59] Speaker 4: a civil suit that brought some allegations to light that
[2:03] Speaker 4: allegedly the local DA had failed to look into properly.
[2:08] Speaker 4: And as a result, the governor has appointed James. Special
[2:13] Speaker 4: counsel is kind of an unusual step to take. It
[2:16] Speaker 4: shows that the state is pretty serious about it. And obviously,
[2:20] Speaker 4: this is a very contentious issue that now the attorney
[2:23] Speaker 4: general is going to be dealing with for a while.
[2:25] Speaker 3: Is it unusual? I mean, the attorney general of a
[2:28] Speaker 3: state handles civil matters, not criminal matters. He or she's
[2:32] Speaker 3: investigating whether to prosecute people.
[2:34] Speaker 4: Well, actually, the New York attorney general does have some
[2:38] Speaker 4: criminal authority. There's a criminal division. It is more common
[2:42] Speaker 4: for the attorney general to handle civil cases.
[2:45] Speaker 5: That's mostly what she is in the news for.
[2:48] Speaker 4: The criminal cases are more local, gun crimes and things
[2:52] Speaker 4: like that, if they.
[2:53] Speaker 5: Involve state law.
[2:55] Speaker 4: So her office does handle some criminal cases. But this
[2:57] Speaker 4: is different because in this case, she's a special prosecutor.
[3:01] Speaker 4: So it's not like the typical criminal cases that her
[3:05] Speaker 4: office might handle.
[3:07] Speaker 3: One of the accused men filed a petition today to
[3:10] Speaker 3: remove James as special prosecutor in the Cornell case, saying
[3:15] Speaker 3: she unequivocally demonstrated a bias and presumption of guilt against
[3:20] Speaker 3: the defendants. And this stems from her social media post
[3:24] Speaker 3: before she was appointed. She said, quote, what this young
[3:27] Speaker 3: woman has been forced to endure is horrific and unacceptable.
[3:31] Speaker 3: I'm holding her in my heart and in my prayers
[3:33] Speaker 3: to her and to all survivors. You're not alone. We
[3:36] Speaker 3: stand with you. So there are accusations of bias because
[3:41] Speaker 3: she made that statement.
[3:43] Speaker 5: That's right.
[3:44] Speaker 4: That was before she was appointed. Of course, President Trump
[3:47] Speaker 4: was one of the people who pounced on that statement.
[3:51] Speaker 4: said that he did not think that the accused, the
[3:54] Speaker 4: seven men accused in this case, will get a, quote,
[3:58] Speaker 4: fair shake because she's looking at it. The president said
[4:00] Speaker 4: he feels bad for them. And others have made similar remarks.
[4:06] Speaker 4: Of course, Trump has clashed in court with Letitia James's office,
[4:11] Speaker 4: and he's made similar claims against her that she was
[4:14] Speaker 4: singling him out and prejudged him in her big civil
[4:18] Speaker 4: fraud case that she successfully brought against him and his company.
[4:22] Speaker 4: But other people are jumping on that statement as well.
[4:25] Speaker 4: She responded saying that she is going to, you know,
[4:28] Speaker 4: follow the facts and the evidence and the law. And,
[4:31] Speaker 4: you know, spoken with, you know, one of her close allies,
[4:34] Speaker 4: the Connecticut Attorney General William Tong, for example, said that
[4:38] Speaker 4: he didn't think that it was terribly unusual for the
[4:42] Speaker 4: Attorney General to make a comment like that. after these
[4:46] Speaker 4: allegations were made and that people expect a prosecutor to
[4:52] Speaker 4: be aggressive like this. Of course, she hasn't made any
[4:57] Speaker 4: decisions yet. It's possible that they won't be charged with anything.
[5:01] Speaker 4: The investigation is in its early stages. We'll see if
[5:05] Speaker 4: these allegations of bias result in any significant setbacks for
[5:10] Speaker 4: the case.
[5:11] Speaker 3: I mean, this isn't the first time she's overseen an
[5:15] Speaker 3: investigation like this. She oversaw the allegations of sexual harassment
[5:20] Speaker 3: against former Governor Andrew Cuomo.
[5:24] Speaker 2: Right.
[5:24] Speaker 4: And in that case, she wasn't a special prosecutor. She
[5:28] Speaker 4: issued a report. She did an investigation to sort of
[5:31] Speaker 4: get to the bottom of the allegations that were made
[5:33] Speaker 4: against Cuomo.
[5:34] Speaker 5: She issued a really long report. It's very detailed.
[5:37] Speaker 4: It ultimately led to Cuomo resigning, although he continues to
[5:42] Speaker 4: deny any wrongdoing.
[5:44] Speaker 3: And also, none of the local prosecutors, I think there
[5:47] Speaker 3: were four, ended up bringing charges against Cuomo over those allegations.
[5:53] Speaker 3: As you mentioned, there were accusations, there are continuing accusations
[5:57] Speaker 3: against her by Trump. One of the reasons is that
[6:00] Speaker 3: when she was campaigning, she promised to investigate him. She
[6:06] Speaker 3: won the court case. And then when Trump returned to
[6:09] Speaker 3: the White House, the investigations against her for mortgage fraud began.
[6:14] Speaker 4: So, well, first of all, Trump raised those concerns during
[6:17] Speaker 4: the case against him. And a judge looked into his
[6:21] Speaker 4: claims of political animus and claiming that he was being
[6:25] Speaker 4: targeted based on those campaign comments that she made when
[6:28] Speaker 4: she was running for attorney general. And a judge looked
[6:31] Speaker 4: into them in detail and concluded that Regardless of what
[6:35] Speaker 4: she had said, the evidence showed that her office had
[6:39] Speaker 4: a legitimate reason for opening the civil fraud investigation and
[6:43] Speaker 4: ultimately filing the lawsuit.
[6:45] Speaker 5: And that was upheld on appeal.
[6:48] Speaker 4: So we know that even though she made those comments,
[6:51] Speaker 4: they didn't really result in anything helping him out in
[6:53] Speaker 4: court because the idea is that she was able to
[6:56] Speaker 4: show that there was evidence to justify the investigation being opened.
[7:01] Speaker 4: So she claims that the Justice Department's investigation into her
[7:06] Speaker 4: after Trump took office was a weaponization of the government
[7:10] Speaker 4: against her and that it was retaliation for her case.
[7:14] Speaker 4: That case was dismissed. A judge ruled that Trump had
[7:17] Speaker 4: appointed the U.S. attorney who brought the case, had appointed
[7:20] Speaker 4: that U.S. attorney improperly, and a grand jury declined to
[7:25] Speaker 4: re-indict her. So that case really fizzled and is one
[7:30] Speaker 4: of Many cases, of course, in which individuals have claimed
[7:34] Speaker 4: that Trump is weaponizing the government against them.
[7:37] Speaker 3: So during the Trump administration, there's been this coalition of
[7:41] Speaker 3: Democratic state attorneys general. bringing cases against Trump. And I
[7:46] Speaker 3: was interested, she told you, this is a time when
[7:49] Speaker 3: you've got to push back. You have to litigate, legislate, agitate. Oftentimes,
[7:54] Speaker 3: New York and California AGs are leaders in those coalitions.
[7:57] Speaker 3: Has she been acting as a leader pushing things?
[8:01] Speaker 2: Yes.
[8:01] Speaker 4: We sat down with Attorney General James over the summer
[8:04] Speaker 4: and had an interview with her in which she really
[8:07] Speaker 4: opened up about her record and what motivates her and
[8:10] Speaker 4: And she really has spent a lot of energy, as
[8:14] Speaker 4: have a lot of other state Democratic AGs, challenging various
[8:17] Speaker 4: Trump administration policies in court. They've really banded together really
[8:22] Speaker 4: since Trump's first term to become more organized to fight
[8:25] Speaker 4: these policies. And in the second term, especially in light
[8:28] Speaker 4: of the so-called Project 2025, where Trump supporters really signaled
[8:33] Speaker 4: what their plans were for broad and sweeping changes of
[8:37] Speaker 4: American society. So they really have been quite organized. They
[8:41] Speaker 4: file a lot of joint lawsuits. California and New York
[8:45] Speaker 4: are the most well-funded and biggest offices. They frequently lead
[8:48] Speaker 4: lawsuits or co-lead them.
[8:50] Speaker 5: Other states also sometimes lead them.
[8:53] Speaker 4: But she is widely seen as a sort of de
[8:55] Speaker 4: facto leader of this group of Democratic AGs. And that's
[8:58] Speaker 4: according to the president of the Democratic Attorneys General's Association,
[9:02] Speaker 4: who we also interviewed, and.
[9:04] Speaker 5: Other AGs who see her that way as a leader
[9:06] Speaker 5: who organizes.
[9:08] Speaker 3: Was there anything that she said in the interview that
[9:10] Speaker 3: surprised you? She's been in New York politics for, what,
[9:14] Speaker 3: 25 years? I wonder if there's anything surprising left.
[9:18] Speaker 4: Yeah, you know, she did give some strong comments. You know,
[9:23] Speaker 4: not all of them made them into our story. But
[9:25] Speaker 4: I asked her, for example, about the fact that she
[9:27] Speaker 4: was the first Black woman to be elected to statewide
[9:30] Speaker 4: office and how that is still highlighted on her website
[9:33] Speaker 4: at a time when the federal government and Trump were
[9:36] Speaker 4: sort of attacking things like that. not wanting those sort
[9:39] Speaker 4: of distinctions to be made, saying they're improper, they don't matter. And,
[9:43] Speaker 4: you know, she told us that, you know, she has
[9:47] Speaker 4: a grandniece who's eight or so who asked her what
[9:50] Speaker 4: slavery was recently and that she, you know, had to
[9:54] Speaker 4: sort of explain to her what it was.
[9:56] Speaker 5: And the girl, you know, understood that it was because
[9:59] Speaker 5: of the color. of her skin.
[10:00] Speaker 4: And Tish James says that she told her, you know,
[10:04] Speaker 4: that's why you have to know your history and fight
[10:07] Speaker 4: for yourself.
[10:08] Speaker 3: So now she's up for reelection a third time. I mean,
[10:13] Speaker 3: she's going to sail through, it seems like, right? Has
[10:16] Speaker 3: she ever had a close race for AG?
[10:20] Speaker 4: She's won comfortably every time. The first time with 62%
[10:22] Speaker 4: of the vote. She's widely expected to win this time.
[10:27] Speaker 5: Around as well.
[10:28] Speaker 4: She has been in New York politics, as you said,
[10:30] Speaker 4: for a long time. She's garnered a lot of support
[10:33] Speaker 4: in the city of New York and in the States.
[10:36] Speaker 4: She's been representing different groups in New York for a
[10:39] Speaker 4: long time. She was on city council for a decade.
[10:42] Speaker 4: She was also the elected public advocate for New York City,
[10:46] Speaker 4: the second highest elected official in New York City.
[10:49] Speaker 5: That allowed her to sue the city, actually.
[10:52] Speaker 4: It's a position that can allow the city to be
[10:56] Speaker 4: sued on behalf of residents, which she did for very
[10:59] Speaker 4: different groups. You know, children in foster care, challenging the
[11:03] Speaker 4: way the city was treated. them, disabled kids, the way
[11:07] Speaker 4: that they were transported on buses that didn't have air conditioning,
[11:10] Speaker 4: you know, all kinds of things like that. So the
[11:12] Speaker 4: way she sees it, she's been fighting for these New
[11:14] Speaker 4: Yorkers for a long time.
[11:16] Speaker 3: And that's... Does she have any plans for what she's
[11:20] Speaker 3: going to target in her third term?
[11:23] Speaker 4: Not too surprisingly, she said that she's going to continue
[11:25] Speaker 4: to challenge the Trump administration. She expects that we'll continue
[11:31] Speaker 4: to see policies come out of the White House that
[11:34] Speaker 4: they will argue are unconstitutional. And they have a lot
[11:38] Speaker 4: of concerns about what could happen in terms of voting
[11:42] Speaker 4: rights and the environment pretty much across the board, as
[11:46] Speaker 4: we've already seen, they expect these fights to continue. She's
[11:49] Speaker 4: also increasingly focusing on big tech, AI, antitrust. So we
[11:55] Speaker 4: can expect to see a lot more of that.
[11:58] Speaker 3: Thanks so much, Eric. It's a great profile of James.
[12:01] Speaker 3: That's Bloomberg Legal Reporter Eric Larson. Coming up next, have
[12:05] Speaker 3: you noticed a lot of restaurant chains are shrinking and
[12:09] Speaker 3: others are out and out filing for bankruptcy? I'm June Grosso,
[12:13] Speaker 3: and you're listening to Bloomberg. Have you noticed that a
[12:18] Speaker 3: lot of restaurant chains are shrinking? Wendy's, Pizza Hut, Red Lobster,
[12:23] Speaker 3: TGI Fridays, Papa John's, Outback Steakhouse, the list goes on
[12:29] Speaker 3: and on. They're closing locations or planning to. It's been
[12:33] Speaker 3: a challenging time for restaurant chains, with the rising costs
[12:37] Speaker 3: of rent, labor, and food products on the one hand,
[12:41] Speaker 3: and more consumers unwilling to spend money on dining out
[12:45] Speaker 3: on the other. While several chains have announced plans to
[12:48] Speaker 3: close locations, others have filed for bankruptcy. Joining me is
[12:53] Speaker 3: James Menton, Jr., partner and chair of the Restructuring and
[12:56] Speaker 3: Bankruptcy Group at Robbins Kaplan. So tell us what you've
[13:00] Speaker 3: seen as far as popular restaurant chains filing for bankruptcy.
[13:05] Speaker 1: Yeah, what I've seen is there's more of it happening
[13:08] Speaker 1: given the economics the way it is. I think the
[13:10] Speaker 1: most recent example would be True Food Kitchen, which filed
[13:13] Speaker 1: on October 4th in Texas. And the reason they filed,
[13:17] Speaker 1: they had come up with a couple of reasons for that.
[13:20] Speaker 6: In terms of internally what was going on.
[13:22] Speaker 1: But they had a liquidity problem and they couldn't resolve
[13:25] Speaker 1: those issues in kind of an orderly wind down.
[13:28] Speaker 6: And so what they did is they ended up filing.
[13:30] Speaker 1: And what they're looking to do is essentially restructure things
[13:34] Speaker 1: in a period of about six months. What they're looking
[13:37] Speaker 1: to do is potentially sell their assets in what's called
[13:40] Speaker 1: a 363 sale. And if that doesn't work, which is
[13:43] Speaker 1: a much more timely, more expeditious manner in which you
[13:47] Speaker 1: dispose of assets and that requires court approval. Alternatively, they're
[13:51] Speaker 1: potentially seeking to have those assets sold in the context
[13:55] Speaker 1: of a plan, which is a much kind of longer
[13:56] Speaker 1: process and requires credit or approval and all of that.
[13:59] Speaker 1: The third option, if that isn't gaining any traction or
[14:02] Speaker 1: interest among people out there, investors, is they're looking for
[14:05] Speaker 1: an investor to come in to be a plan sponsor,
[14:07] Speaker 1: to essentially take the equity of the debtor or of
[14:10] Speaker 1: the reorganized debtor and basically kind of go forward. So
[14:13] Speaker 1: I don't think that True Food Kitchen is unique. And
[14:16] Speaker 1: I think we have seen more of it in the
[14:17] Speaker 1: last couple of years, given COVID and among other liquidity issues.
[14:22] Speaker 6: Village Inn is another. It's a longstanding diner chain in Florida.
[14:26] Speaker 1: And I've noticed that a lot of franchisees have now
[14:28] Speaker 1: filed bankruptcy and dealing with increased business expenses. And they're
[14:32] Speaker 1: trying to pass on the cost, as they all do,
[14:35] Speaker 1: to consumers. And given this particular environment economically, there's a
[14:40] Speaker 1: lot going on in terms of gas prices and whatever.
[14:42] Speaker 6: And so if you're raising prices at restaurants.
[14:45] Speaker 1: It may cause consumers to be less inclined to go
[14:48] Speaker 1: out as much as they did in the past. And
[14:50] Speaker 1: when that happens, that means you don't have as much
[14:52] Speaker 1: in the way of sales. And then that affects kind
[14:55] Speaker 1: of what revenues you have going forward. And that affects
[14:58] Speaker 1: your ability to pay whatever debt structure you have.
[15:01] Speaker 6: So those are some of the things that I've been seeing.
[15:03] Speaker 3: Is it harder for franchisees because they can't raise prices
[15:07] Speaker 3: as they'd like to? They have to stay within certain parameters.
[15:12] Speaker 1: I think that's right. So they have certain kind of
[15:13] Speaker 1: limitations as to what they can do. working with the
[15:16] Speaker 1: overall structure, and sometimes it doesn't quite work. And so
[15:20] Speaker 1: that inhibits them in terms of what options they have
[15:22] Speaker 1: available to them. And sometimes the bankruptcy just becomes the
[15:26] Speaker 1: only option in terms of being able to essentially monetize
[15:30] Speaker 1: things rather than just go chapter 11, which I've been
[15:32] Speaker 1: kind of talking about chapter 11, which is kind of reorganization.
[15:35] Speaker 1: The other option potentially is to go chapter 7, but
[15:37] Speaker 1: that's more of a fire sale kind of concept, and
[15:39] Speaker 1: you're just liquidating everything. And so you kind of lose...
[15:42] Speaker 1: potentially going concern value and whatever. And so franchisees are
[15:45] Speaker 1: in a particularly tough spot.
[15:47] Speaker 4: Yeah.
[15:48] Speaker 3: I was going to ask you whether most of these
[15:50] Speaker 3: that you've seen with the restaurant chains are Chapter 11
[15:54] Speaker 3: reorganization or liquidation.
[15:58] Speaker 1: I've seen more Chapter 11 stuff, but that also requires
[16:02] Speaker 1: for a Chapter 11 case, you really need to have
[16:03] Speaker 1: a brand, right?
[16:04] Speaker 6: And a brand that kind of works. You may need
[16:06] Speaker 6: to tweak it. You may need to restructure your debt
[16:08] Speaker 6: to maybe pare back stores or whatever.
[16:11] Speaker 1: But what you need is an appetite for someone to
[16:13] Speaker 1: invest because you need dip financing, right? And so no matter,
[16:16] Speaker 1: sometimes you have these pre-packed plans where it's all kind
[16:19] Speaker 1: of set up and you have a sponsor essentially before
[16:21] Speaker 1: you file the Chapter 11. But in the absence of that,
[16:24] Speaker 1: you do need someone to come in who's willing to
[16:26] Speaker 1: fund that whole process. So for instance, in the True
[16:28] Speaker 1: Food Kitchen case, they have $ 20 million of dip financing
[16:32] Speaker 1: to help through this process. And there are milestones in
[16:35] Speaker 1: terms of that funding, in terms of how the case progresses.
[16:39] Speaker 1: So they're moving expeditiously through that.
[16:42] Speaker 3: The economy is what it is. You said there are
[16:44] Speaker 3: rising costs of rent, labor, food, and then people not
[16:48] Speaker 3: wanting to go out because of the rising costs. So
[16:52] Speaker 3: is it harder to find somebody who wants to invest?
[16:55] Speaker 1: Yes and no. Again, it depends on the brand. It
[16:57] Speaker 1: depends on kind of what's the growth model or what's
[16:59] Speaker 1: the plan kind of going forward coming out of that.
[17:01] Speaker 1: And so you can have in bankruptcy, it can kind
[17:04] Speaker 1: of put a pause on that. So in other words,
[17:05] Speaker 1: you can use that as an opportunity to kind of
[17:08] Speaker 1: restructure your debt. If you have contracts that are problematic
[17:12] Speaker 1: or that are causing a financial burden, you can deal
[17:15] Speaker 1: with them in the context of a bankruptcy.
[17:17] Speaker 6: You can pair back stores. In other words, if you've.
[17:20] Speaker 1: Got 500 stores, then in the context of bankruptcy, maybe
[17:24] Speaker 1: you pair that back. So for instance, in the context
[17:27] Speaker 1: of the True Food Kitchen case, as part of doing
[17:30] Speaker 1: the bankruptcy, they closed 12 locations. And so it's a
[17:33] Speaker 1: way of kind of pairing things back and streamlining things
[17:35] Speaker 1: a little bit and getting operations under control. So if
[17:38] Speaker 1: those kinds of things look positive, there's certainly money to
[17:42] Speaker 1: be made. It's a tough industry, right? And you're dealing with,
[17:45] Speaker 1: you know, intense competition. You're dealing with different consumer preferences
[17:48] Speaker 1: and whatever. But there's still, I think, opportunities, you know,
[17:51] Speaker 1: for the right brand, for the right company, you know,
[17:53] Speaker 1: kind of on a going forward basis, if you can
[17:56] Speaker 1: do those kinds of restructuring things in the context.
[17:58] Speaker 6: Of a bankruptcy.
[17:59] Speaker 3: How often do you see Chapter 11s, you know, where
[18:03] Speaker 3: it results in company coming out of bankruptcy and how
[18:08] Speaker 3: often do they go into liquidation? I mean, I know
[18:12] Speaker 3: you don't have exact numbers, but is it more often
[18:14] Speaker 3: that the Chapter 11s are successful?
[18:17] Speaker 6: Yeah, that's my sense.
[18:18] Speaker 1: For the most part, they are successful with kind of
[18:21] Speaker 1: the pare down, what you're able to do in the
[18:22] Speaker 1: context of the bankruptcy. And it's also the case that
[18:26] Speaker 1: in a bankruptcy, we deal with a lot of Companies,
[18:29] Speaker 1: sometimes they sell them off to different constituents. In other words,
[18:32] Speaker 1: you're not selling everything to one person. And so it
[18:34] Speaker 1: really kind of depends on the economy, depends on the regions.
[18:37] Speaker 1: But I'd say for the most part, my sense is
[18:38] Speaker 1: things do end up being successful.
[18:41] Speaker 3: What are some of the factors that lead to bankruptcy,
[18:45] Speaker 3: some of the causes in the restaurant industry?
[18:48] Speaker 1: Sometimes there's financial mismanagement. In other words, you may have
[18:51] Speaker 1: cash flow issues or problems. You may have high operating
[18:54] Speaker 1: costs or excessive debt burden. You may have poor accounting
[18:58] Speaker 1: practices that could kind of impact or provide the groundwork
[19:03] Speaker 1: to cause some issues or challenges that need to be addressed.
[19:06] Speaker 1: The bankruptcy may be in response to that. You're also
[19:08] Speaker 1: dealing with kind of, generally speaking, external market forces that
[19:11] Speaker 1: I've alluded to. Again, you've got this intense competition. You
[19:14] Speaker 1: have shifting consumer preferences we've talked about, all kinds of
[19:18] Speaker 1: economic factors that play in that we've talked about. You
[19:21] Speaker 1: have rising operational costs that can include labor, food ingredients,
[19:27] Speaker 1: supply chain, rent, utilities, tightening of the margins and whatnot.
[19:32] Speaker 1: And then you've got just internal operational challenges. In other words,
[19:36] Speaker 1: location selection. Are you in the right place? Some locations
[19:40] Speaker 1: may be very, very good, but others may not be.
[19:43] Speaker 1: There may not be the kind of foot or driving
[19:46] Speaker 1: traffic that you anticipated, or maybe the demographics have changed.
[19:50] Speaker 1: such that those are no longer kind of desirable places
[19:53] Speaker 1: to be, or it's not really kind of profitable. And
[19:55] Speaker 1: what do you do about that? You also have quality
[19:59] Speaker 1: control issues, right? So that could potentially impact the experience
[20:02] Speaker 1: that you have. And then you've got this concept of adaptability.
[20:06] Speaker 1: How able is the particular company able to adapt to,
[20:10] Speaker 1: you know, consumer preferences and technology and desires for this
[20:17] Speaker 1: or that? You know, and some of this is coming
[20:19] Speaker 1: from other external factors like, you know, COVID or hurricanes
[20:22] Speaker 1: in Florida that certainly impact or cause financial damage.
[20:25] Speaker 6: Distress. True Food Kitchen will argue or they have.
[20:28] Speaker 1: Said that COVID caused a problem because, you know, everyone
[20:31] Speaker 1: was closed and they ghosted some kitchens and then they
[20:34] Speaker 1: had this kind of delivery only service, you know, in
[20:37] Speaker 1: one location. And so that impacts the consumer experience. So
[20:40] Speaker 1: there's many factors that can play in, you know, for
[20:43] Speaker 1: the restaurant business generally, which is very tough to begin with.
[20:46] Speaker 6: Right. And all of these factors play.
[20:48] Speaker 1: In on or can impact the options going forward in
[20:51] Speaker 1: how to address these things. Like many other industries, what
[20:55] Speaker 1: True Food did and others do is they, before they
[20:57] Speaker 1: file bankruptcy, they try to work it out, right? They
[20:59] Speaker 1: try to restructure their debt. They try to come up
[21:02] Speaker 1: with some strategies that work. And a lot of times
[21:05] Speaker 1: it doesn't. In other words, they'll bring in financial advisors.
[21:07] Speaker 1: They'll bring in M & A folks to market it
[21:11] Speaker 1: to see kind of what that's like. And if they're
[21:13] Speaker 1: getting some interest, but not the kind of interest that
[21:16] Speaker 1: they think they need or want, then they can use
[21:18] Speaker 1: the bankruptcy as a process to kind of move forward
[21:21] Speaker 1: with that. And also the bankruptcy, if there's litigation, a
[21:24] Speaker 1: lot of times that if they're running into liquidity issues,
[21:27] Speaker 1: maybe they're not paying the vendors. You know, there's lawsuits
[21:29] Speaker 1: that are out there. And so the bankruptcy allows that
[21:32] Speaker 1: to get halted.
[21:33] Speaker 6: Right.
[21:33] Speaker 1: There's an automatic stay in place. And so the litigation stops.
[21:37] Speaker 1: And so that provides a breathing room. So it's kind
[21:40] Speaker 1: of complex. It's all the reasons as to what each
[21:42] Speaker 1: particular restaurant is chain or franchise is facing. what the
[21:47] Speaker 1: options are and whether bankruptcy makes sense. And for many,
[21:51] Speaker 1: obviously it does, but it's not an inexpensive proposition, as
[21:54] Speaker 1: I've indicated.
[21:55] Speaker 3: People say that having a restaurant is one of the
[21:57] Speaker 3: toughest businesses to make a go of. I know in
[22:01] Speaker 3: New York City, you see restaurants opening and closing all
[22:04] Speaker 3: the time. Is it any tougher for chains?
[22:08] Speaker 1: One thing is I read a statistic where in terms
[22:09] Speaker 1: of restaurants, in terms of the competitiveness, I read a
[22:12] Speaker 1: statistic that said something like 30% of new restaurants failed
[22:15] Speaker 1: in the first year. But putting that aside, to go
[22:17] Speaker 1: to your chain issue, it really kind of potentially could
[22:20] Speaker 1: depend on the growth model and the growth strategy, right,
[22:23] Speaker 1: in terms of chains and whether they're successful or not.
[22:25] Speaker 1: Do they grow too quickly? Or in the True Food Kitchen,
[22:28] Speaker 1: they talked about they had significant management turnover. So that
[22:32] Speaker 1: kind of affected, you know, their expansion strategy and their
[22:36] Speaker 1: capital investments. And did they go down paths of investment
[22:39] Speaker 1: that maybe were kind of off-brand or that didn't really
[22:42] Speaker 1: kind of pan out? So in terms of chains, you
[22:45] Speaker 1: can have issues about growth and what does that growth
[22:47] Speaker 1: look like and how can you stay the course? And
[22:50] Speaker 1: sometimes things just don't work out, right?
[22:51] Speaker 6: I mean, just because of the economics.
[22:53] Speaker 1: So notwithstanding all of the best planning that you can
[22:55] Speaker 1: do and all the financing you may have, sometimes, as
[22:58] Speaker 1: I said, these other factors we talked about create some
[23:00] Speaker 1: challenges that sometimes bankruptcy becomes the only legitimate or reasonable solution.
[23:07] Speaker 3: Sad but true. But as you said, Chapter 11 gives
[23:10] Speaker 3: you a chance to turn things around. Thanks so much
[23:13] Speaker 3: for joining me. That's James Menton, Jr., chair of the
[23:17] Speaker 3: Restructuring and Bankruptcy Group at Robbins Kaplan. And that's it
[23:22] Speaker 3: for this edition of the Bloomberg Law Show. Remember, you
[23:24] Speaker 3: can always get the latest legal news on our Bloomberg
[23:27] Speaker 3: Law Podcast. You can find them on Apple Podcasts, Spotify,
[23:31] Speaker 3: and at www.bloomberg.com slash podcast slash law. And remember to
[23:37] Speaker 3: tune into the Bloomberg Law Show every weeknight at 10 p.m.
[23:40] Speaker 3: Wall Street time. I'm June Grosso, and you're listening to Bloomberg.

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