Less than a year after a sexual harassment lawsuit rocked Mike Isabella‘s restaurant empire, the once $40 million company will go out of business by Dec. 27. While his restaurant group attempted to reorganize through Chapter 11 bankruptcy in September, today it filed for Chapter 7 bankruptcy, meaning it will cease operations and liquidate its assets to pay its debts. Isabella is the first big-name chef to have his company completely collapse in the wake of a #MeToo scandal.
“Under the present circumstances, I am facing the sad realization that I no longer believe that any restaurant associated with my name can recover from the negative press that has enveloped me for nearly the entirety of 2018,” Isabella says in today’s filing in US Bankruptcy Court. “Despite my efforts to move on from the past and focus on restructuring my businesses, I believe that the likelihood of the restaurants succeeding in the future after the losses they have experienced this year is, at best, remote. And, quite frankly, without a significant cash infusion, the Debtors simply do not have enough cash to continue operating.”
The Chapter 7 application was filed on behalf of the parent company, Mike Isabella Concepts, as well as still-operating restaurants Kapnos, G, Arroz, Pepita, Yona, and Kapnos Taverna in Arlington. It also includes already shuttered businesses Kapnos Taverna College Park, Requin Brasserie in Mosaic District, and Isabella Eatery. The filing doesn’t specifically mention Kapnos Kouzina in Bethesda and Requin at the Wharf, both of which were left out of the initial Chapter 11 bankruptcy filing. Through his spokesperson, Isabella declined to comment further.
“Negotiations are ongoing and I believe a clearer picture will emerge shortly after the first of the year,” says Demetry Pikrallidas, a lawyer for Isabella’s business partners, Nick and George Pagonis, who were also named in the sexual harassment lawsuit. “Despite the legal developments, Nick and George Pagonis continue to work hard to provide their clientele a first rate dining experience. I am working very hard to insure this will continue in the DC Metropolitan Area for years to come.”
Pikrallidas declined to elaborate on what negotiations he was referring to. His clients have been on the outs with Isabella for a while. In November, Pikrallidas sent a statement on behalf of the Pagonis brothers saying that George would take over the “culinary vision” of the company—a move Isabella then contested.
Isabella writes in his latest filing that he hoped the press about the sexual harassment lawsuit would “finally settle down” after his company filed for Chapter 11 bankruptcy, and that reporters would focus instead on his “culinary expertise” and “great dining experiences.” The goal, he says, was to normalize operations, restructure, and emerge with a “smaller, but stronger” group of restaurants.
But, Isabella writes, the press continued to “incessantly report on my failures as a chef and business man.” He mentions a number of recent articles, including Washingtonian‘s December story about his rise and fall, which featured an image of an egg on his face on the cover of the magazine.
“Whatever the reason, whether terrible publicity, or market factors in the restaurant industry, in general, we continue to experience unanticipated, seemingly irreversible losses. With few exceptions, our revenues have failed to meet budget week after week,” Isabella says in the statement.
Financial filings show how dire things have gotten. Kapnos on 14th Street, for example, reported more than $5 million in gross revenue last year. As of Dec. 10 this year, it had brought in about half that—just over $2.4 million. Gross revenues for Arroz dropped from nearly $3.6 million last year to $2.2 million so far this year.
Through October, Isabella says, the company was able to make rent and cash collateral payments, “and it looked as if we might be able to make it.” But November revenues dipped lower than predicted, causing shortfalls on payroll, taxes, and food and beverage purchases. Isabella says none of the restaurants have the cash available to pay December rent to any landlord. He asked the bankruptcy court to allow the remaining restaurants to continue operating until Dec. 27—through “historically profitable” holiday season—so that the businesses could pay their final employee payrolls.
Isabella started 2018 on a high note with a dozen restaurants, ballpark and airport kiosks, a massive food hall, and plans to expand to locations like Las Vegas and Dubai. Then in March, former top manager Chloe Caras filed a lawsuit against Isabella and his partners, the Pagonis brothers, Beverage Director Taha Ismail, and CFO Johannes Allender. She alleged they promoted a toxic “bro culture” that included vulgar comments, inappropriate touching, sexual advances, and other demeaning behavior. As Isabella and his partners fought back against the allegations in the lawsuit, which settled in May, the businesses started to suffer.
Landlords sued for unpaid rent, and one by one, restaurants began to close—culminating in the the demise of Isabella Eatery, a nine-concept, 41,000 square-foot food hall, and the Chapter 11 bankruptcy filing. The swift decline revealed deeper structural and financial flaws in the company that were exacerbated by the lawsuit. The restaurant group had grown too, big too fast without a solid infrastructure (they never appointed a CEO and didn’t hire an HR manager until last fall). Meanwhile, former employees and others in Isabella’s circle say his drinking could get out of control.
“The volume that he’s going to drink, we would have to basically trick him,” says a former manager at the company. “The plan was usually for his drinks to have less and less alcohol as the night went on, to the point where we’d get him down to just tonic.”
More recently, Isabella talked openly about his alcohol use. “I’m an alcoholic drug addict. You know, I am,” he told Washingtonian. “I’ll always be for the rest of my life.”
Isabella struck a combative posture for months in the aftermath of the sexual harassment scandal, blaming bad press for his troubles. A week after the bankruptcy filing, he took to social media with a meme of Robert De Niro in dark sunglasses. “Listen, I’m a nice person,” it read. “So if I’m an asshole to you, you need to ask yourself why.” But six days later—after a pummeling on Twitter—Isabella took a new tack and publicly apologized for the first time on a Fox 5 news segment. In an October interview, he expressed to Washingtonian that he wished he’d apologized from the beginning: “I should have just taken responsibility.”
Asked when he realized his drinking was too much, Isabella says: “I never want to make anyone feel uncomfortable. And obviously I did.”
Unlike other big-name chefs like John Besh and Mario Batali who’ve been accused of sexual harassment and stepped away from their companies, Isabella previously told Washingtonian he never considered it—and was never asked.
“I can’t step down from the company. I am the company,” he told Washingtonian in an October interview. “If I step away the company closes down.”
Now, Isabella appears to be getting away from DC. His most recent Instagram posts show an empty, unidentified beach. The caption on one of them:
“New horizons…actually new sunsets.”
For much more on how Isabella’s empire collapsed, check out Washingtonian’s December cover story.