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As it files for bankruptcy, Kona Grill is in a legal fight with former CEO James Kuhn.
- Kona Grill, a national restaurant chain, is embroiled in a legal fight with its former CEO.
- The legal sparring kicked off in January, when ex-CEO James Kuhn filed suit against his former employer, alleging that he was owed thousands of dollars in unpaid severance.
- Kona Grill cranked up the heat a month later, accusing Kuhn of leaving the company in shambles.
- Kuhn's attorney, Jeffrey Schwaber, told Business Insider that the accusations against his client were "a bunch of nonsense." Representatives for Kona Grill did not return Business Insider's request for comment.
- Kona Grill filed for bankruptcy protection on Tuesday.
- Visit Business Insider's homepage for more stories.
Kona Grill's legal battle with its former CEO is getting hotter than a scoop of wasabi.
On January 28, ex-CEO James Kuhn filed a lawsuit in Maryland against the Arizona-based cocktails-and-sushi chain, alleging that the company had failed to pay him thousands of dollars in earned wages after firing him "without cause."
Exactly a month later, Kona Grill struck back, filing a suit in Arizona that alleged its former chief executive left the company in a "perilous financial state, one from which it may be difficult to recover."
The spat continues to unroll as the struggling restaurant chain files for bankruptcy protection and shutters locations across the country. Kona Grill did not immediately respond to Business Insider's request for comment.
Kuhn served as the company's CEO from August 9, 2018 to November 6, 2018, and he previously held the role of COO. According to Kuhn's LinkedIn profile, the former executive has experience at chains like Bertucci's, Sbarro, and Ruby Tuesday. Before he joined Kona Grill in December 2017, Kuhn was the CEO of the Chalak Mitra Group, a food services company, according to his LinkedIn page.
A press release from August 9, 2018 gave little indication of any coming discord, with Kona Grill executive chairman Berke Bakay expressing confidence that the restaurant chain would see "future success" under Kuhn.
"Jim has done a remarkable job during his tenure with us at improving the profitability of our restaurants and I'm confident that Kona will thrive under his leadership," Bakay said in the press release.
But things seemingly went sour after that. Kuhn's initial suit against the company claimed that Kona Grill's board of directors summoned him to a meeting on November 6, 2018, where he was fired "without cause."
The ousted CEO said in court filings that he was told the termination "was not reflective" of his performance, but represented the company's interest in changing things up.
Kuhn's attorney, Jeffrey Schwaber, told Business Insider that, as per the ousted CEO's employment agreement, the company was required to pay Kuhn severance. Kuhn's lawsuit alleges that Kona Grill did not fulfill this agreement, although a November 2018 Securities and Exchange Commission filing by the restaurant did state that the former CEO would receive severance.
A not-so-happy hour
Kona Grill is indeed lobbing a number of attention-grabbing accusations at its former CEO, claiming that Kuhn's decision-making effectively left the restaurant on the rocks.
The suit accused the former Kona Grill CEO of deliberately leaving restaurants "woefully understaffed," instructing company officials to stop paying for "pest control services," and demanding that employees cease "cleaning beer lines and sharpening knives" in the restaurants.
Kona Grill also accused its former chief executive of "inexplicably" ordering restaurants to remove wasabi - a pricey commodity - from its dishes. The suit asserted that this move was "astounding given the ubiquitous nature of wasabi in virtually every sushi restaurant and the expectation of virtually every customer that sushi dishes would be accompanied by wasabi."
Read more: These 12 retailers have filed for bankruptcy or liquidation in 2019
Kuhn is also accused of bringing "poor quality food items to the menu," failing to pay $2.5 million worth of invoices to different food vendors, and killing the chain's "wildly successful" happy-hour promotion, all without informing the chain's board of directors.
The quashed happy hours weren't Kona Grill's only booze-themed allegation: the chain also claimed that Kuhn shut down Kona Grill locations early "so that he could drink at the restaurant bar," and accused him of driving a company catering vehicle after imbibing alcohol.
Schwaber said that the company's "scandalous accusation" represented a deliberate attempt to "torpedo" Kuhn's reputation. He dismissed Kona Grill's various claims in its countersuit as "a bunch of nonsense."
Cyrus McCrimmon/The Denver Post via Getty Images
'Offensive and laughable'
The restaurant chain claimed that its former CEO's moves resulted in lengthier wait times, a shoddier menu, and an overall diminished customer experience for its diners. The result was Kona Grill experiencing "the worst same-store sales of any publicly-traded restaurant company in the United States," according to the restaurant's lawsuit.
But Kuhn's initial suit alleged that Kona Grill was in a "precarious" financial position before he took the reins and asserted that he kept his colleagues informed of his decisions throughout his tenure.
Kuhn is asking for close to $1 million in his lawsuit, arguing that he is "entitled to collect up to three times the amount of his wages owed." That's a sum of $900,000, in his case.
After taking the helm of Kona Grill on August 9, 2018, Kuhn said in his suit, he received a $70,000 pay raise, ending up with a compensation package that featured an annual base salary of $350,000 along with the promise of a performance-based bonus.
In its lawsuit, Kona Grill speculates that the nature of its CEO's compensation gave Kuhn a motive to undertake "reckless business decisions," in a bid to cash in on boosting the company's earnings before interest, taxes, depreciation, and amortization (EBITDA).
"The suggestion that someone in the position they put him in is somehow manipulating the earnings of a public company that he is charged with making successful in a way that's designed to enhance his own bonus is both offensive and laughable," Schwaber said.
Both cases are ongoing.