Howard DuBosar, left, is managing shareholder at The DuBosar Law Group and Jeff Ostrow is managing partner at Kopelowitz Ostrow.
The owners of South Florida bars and eateries, including American cuisine restaurant ROK:BRGR and cocktail bar Apothecary 330, are accused of duping two investors into putting $1 million into a Delray Beach venture by misrepresentation.
Marc Falsetto and Charles Hazlett, through their JEY Hospitality Group LLC, operate restaurants including Henry’s Sandwich Station in Fort Lauderdale, Taco Craft in Fort Lauderdale and South Miami, and Mercado Negro in South Miami, according to JEY Hospitality's website.
They wanted to expand to Palm Beach County and opened a ROK:BRGR on Delray Beach's popular Atlantic Avenue with help from two South African investors, who put money into the restaurant-bar under the federal EB-5 visa program that gives foreigners legal residency in exchange for placing at least $500,000 in a U.S. commercial enterprise that creates 10 or more jobs.
South Africans Dean Wallace and Mark Minnaar, who are in the freight-forwarding business, say they put $1 million into the ROK:BRGR restaurant in Delray Beach with the understanding that the lease included a 1,000-square-foot patio. They considered the outdoor dining a key to success, according to the Palm Beach Circuit Court complaint.
Instead, the lease signed after Wallace and Minnaar added their funds in November 2016 didn't include a patio. Rather, Falsetto and the landlord verbally agreed on a month-to-month patio lease, according to the Oct. 18 complaint.
"Unfortunately, that is not something that was represented to our clients before they put in their $1 million investment," said Howard DuBosar, Minnaar and Wallace's attorney.
DuBosar is managing shareholder at The DuBosar Law Group in Boca Raton. He filed the lawsuit along with firm associate Harrison DuBosar.
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The month-to-month lease meant the landlord could withdraw the east-side patio at anytime, and that's what the landlord did, according to the complaint.
"When you give up 17 tables, which is what was on that patio, it has a material impact on the projections and obviously results in a tremendous decrease in the gross revenue," DuBosar said.
Fort Lauderdale attorney Jeff Ostrow, who represents Falsetto and Hazlett, said there were no misrepresentations made to Minnaar and Wallace, who knew that the side patio wasn't part of the lease as early as the day before they invested. He said they are "sour" the business didn't do as well as they hoped.
"They are looking for the principals and unrelated entities owned by the principals to be an insurance policy for their investment," said Ostrow, managing partner at Kopelowitz Ostrow. "In this country, when you invest in a business opportunity and it doesn't go as planned, you don't get to sue the individuals that own the company that you invested in or other businesses that they have in an attempt to recoup your losses. Perhaps that is something they can do in their country, but not here in the United States."
Ostrow represents the defendants along with firm partner David Ferguson.
The loss of the patio meant the projected profit decreased by 80 percent to $84,852 for this year, according to the complaint.
Wallace and Minnaar also accused JEY Hospitality (short for Just Enjoy Yourself) of mismanaging the Delray Beach restaurant, which wasn't doing as well as its other locations. The complaint said the restaurant was used to train employees for other JEY restaurants, and equipment purchased with investors' funds was moved elsewhere.
Ostrow maintained the investors "alleged a lot of things that didn't happen."
Wallace and Minnaar, who were supposed to be silent partners in the Delray Beach venture, were given all shares of ROK BRGR International LLC, which owns Rok Delray LLC, and the responsibility for running the restaurant, according to the complaint.
In September, Wallace and Minnaar opened The Chopping Block on the Avenue on the same site at 4 E. Atlantic Ave. to mitigate some of their losses, but ultimately they expect to sell, DuBosar said.
But the corporate change and other moves leave the investors without a way to get a green card through EB-5, he added.
Wallace, Minnaar, Rok Delray and ROK BRGR International are suing Falsetto, Hazlett, JEY Hospitality and Rok Burger LLC listing fraudulent inducement by omission, breach of fiduciary duty, restatement of torts, Securities Exchange Act violation, accounting, conversion and breach of operating agreement counts. They also list an alternative negligent misrepresentation count.
The lawsuit is in line with numerous lawsuits alleging EB-5 fraud with foreign investors alleging their business partners didn't hold up their end of the deals.