Joe's Crab Shack Owner Sues Landry's


SeafoodSource staff

Published on
March 2, 2008

A New Canaan, Conn., private equity firm has filed a lawsuit against Landry's Restaurants, claiming it was coerced into overpaying for Joe's Crab Shack. JCS Holdings, formed by J.H. Whitney Capital Partners, acquired 120 of the casual seafood restaurants from the Houston company for $192 million in October 2006.

The suit, filed in a Houston state district court on Feb. 15, alleges that Landry's misrepresented the restaurants' financials, specifically the operating expenses, which, in turn, inflated the operating income. The higher operating income led JCS to pay a higher price, and now the firm seeks the difference in value, according to the suit.

JCS also claims that Landry's said its restaurants were in compliance with all employment laws, but they're not, according to the suit.

Steve Scheinthal, Landry's general counsel, told the Houston Chronicle on Saturday that the allegations have no validity, adding that the deadline for submitting potential breach-of-contract claims was mid-February.

"I believe the lawsuit, filed one day prior to the deadline, was initiated merely as an attempt to extend any rights to make potential claims," Scheinthal said in an e-mail to the newspaper. "Given the approximate size of the transaction ($200 million), it is obvious that the claims are insignificant and that JCS is attempting to throw some issues on the wall and see what sticks. We are confident that the litigation will be resolved in our favor."

Landry's is also facing a handful of shareholder suits seeking class-action status following CEO Tilman Fertitta's Jan. 27 bid to take the company private. The $1.3 billion proposal, including debt, is being reviewed by a special committee of Landry's board of directors.

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