Colorado Papa John’s restaurants for sale

The Baltimore company that owns 40 Papa John’s pizza restaurants in Colorado wants to sell all of its locations and already has a buyer for four in the Denver area.
PJCOMN Acquisition Corp., which is operating under bankruptcy protection, has another 32 locations in Minnesota that are also for sale.

The company is offering its restaurants in three lots, divided by location — Denver, Colorado Springs and Minnesota — and expects to reveal the successful bidders and backup bidders on March 21.
Bidders must pass muster with Louisville, Ky.-based Papa John’s International Inc.    (Nasdaq: PZZA), and the bankruptcy court judge has the final say in any sale. No one connected with PJCOMN, Papa John’s or the bankruptcy case was willing to respond to questions, but the details are spelled out in documents filed in various court cases.

Of the 32 Denver-area restaurants PJCOMN is offering to auction off, the company said it’s already found a buyer for four: 12093A W. Alameda Ave., Lakewood; 14575 W. 64th Ave., Arvada; 2420 Arapahoe Road, Boulder; and 1901 Youngfield St., No. 107, Golden.
PJCOMN has asked for bankruptcy court approval to sell those four to L&J Associates LLC for $22,000 each. An Oklahoma company, L&J Associates operates six Papa John’s restaurants in Colorado, including in Castle Rock and Brighton.

PJCOMN noted in court documents that the four stores are unprofitable and should be closed “as their continued operation will not maximize a recovery to creditors in this case.”

PJCOMN said the four locations would be closed if the judge doesn’t approve the sale.
The $88,000 L&J Associates is offering will go to an affiliate of General Electric Capital Corp., which lent the owners of PJCOMN $8.96 million to finance the 2007 purchase of the restaurants.

The General Electric affiliate, known as GECPAC Investments I LLC, holds the senior secured claim against PJCOMN, which still owes the company $7.69 million.

Brian Q. Mills of Castle Rock and H. Clifford Harris, who lives in Maryland, each own half of PJCOMN. They also borrowed $1.25 million from Capital Delivery Ltd., a subsidiary of Papa John’s International that provides financial help to franchisees.

Capital Delivery sued PJCOMN in federal court in Kentucky last August, claiming the franchisee had defaulted on its loan. The lawsuit demanded the repayment of $1 million in principal and $441,382 in interest.

GECPAC Investments I in September sued PJCOMN in Baltimore, also claiming default on a loan, and convinced a judge to appoint a receiver for PJCOMN.

PJCOMN filed for Chapter 11 bankruptcy protection in Maryland the day after the receivership order, and later blamed “financial problems caused primarily by the franchisor” for the bankruptcy filing.

Before making the filing, PJCOMN sued Papa John’s International in state court in Kentucky, claiming the purchase left them indebted for millions of dollars that they wouldn’t have borrowed had Mills and Harris had a more accurate financial picture of the restaurants.

Mills and Harris bought PJCOMN from Blackstreet Capital Management LLC, a private equity fund in Chevy Chase, Md., for $11.2 million. Their lawsuit claims neither Blackstreet nor Papa John’s International disclosed more than $1.9 million in liabilities, including unpaid taxes. PJCOMN later dropped Blackstreet as a defendant.

Papa John’s International admits to introducing buyer and seller, but not to withholding any financial information.

Papa John’s International counted 3,010 restaurants in North America at the end of last year; all but 597 are company-owned.

Mills and Harris also say they weren’t aware of potential legal trouble over how delivery drivers were paid. Rival Pizza Hut Inc. — a subsidiary of Yum Brands Inc. (NYSE: YUM) — was sued in California in 2004 over allegations the company failed to reimburse drivers for using their personal vehicles to deliver pizzas and failed to pay wages. The case was settled two years later for $5.1 million.

Shane Bass, a former delivery driver for PJCOMN in Denver and Aurora, filed a suit in federal court in Denver in 2009 and made allegations similar to those in the Pizza Hut case. The lawsuit was later certified as a class action involving more than 1,000 current and former employees. Drivers in Minnesota filed their own class-action lawsuit.

PJCOMN has agreed to settle the two lawsuits for a combined $300,000. The proposed settlement requires the approval of the bankruptcy court.