Longtime partner in Chicago Joe's Stone Crab sues Lettuce Entertain You for fraud

Chicago Tribune

3 hours ago

A longtime business partner is suing Chicago-based Lettuce Entertain You and its co-founder Rich Melman for allegedly squeezing him out of his ownership interest in the chain's popular Joe's Stone Crab restaurants.
Gerard Centioli, who formed ICON with Melman in 1999 to expand restaurants such as Joe's Stone Crab in Miami to Chicago and other markets, alleges his equity interests were fraudulently transferred to Lettuce in a 'fake sale,' according to the lawsuit filed Friday in Cook County Circuit Court.
The lawsuit also alleges Centioli is owed millions of dollars in annual management fees for the Joe's restaurants dating back to 2018. Centioli had agreed to forgo most of those fees for two years in 2016 and 2017 as a 'good business partner' to help Lettuce preserve needed cash, but the payments never resumed, according to the lawsuit.
In addition to Melman and Lettuce Entertain You Enterprises, the lawsuit names R.J. Melman, the co-founder's son who became president of the family-owned restaurant group in 2017 and added the CEO role this year, among the defendants. It characterizes the actions of Chicago's most prominent restaurant family as no less than a 'corporate coup' against its outside partners.
'Richard Melman, for his part, abandoned a friend of over 40 years, betrayed a business partner, and violated a shared legacy in favor of allowing R.J. to consolidate power, resources, and influence for their family's financial gain,' the lawsuit stated. 'This is a tragic end to a proud tradition of partnership, cuisine, connection, and accomplishment.'
Lettuce Entertain You issued a statement Tuesday in response to the lawsuit.
'The allegations made by Mr. Centioli are without merit,' Lettuce Entertain You said. 'Beyond that, our policy is not to comment on pending litigation, but we look forward to sharing our side of the story.'
Founded in 1971 by Melman and Jerry Orzoff, Lettuce hit it big with its first restaurant, the quirky R.J. Grunts in Lincoln Park, and the company has continued to break new culinary ground and expand its portfolio over the decades.
While some names have come and gone, Lettuce owns, manages and licenses 60 brands in 12 states, with offerings ranging from fast casual to fine dining.
The highly successful Joe's outposts in Chicago and two other cities, however, stand apart from the restaurant group and were never fully under the Lettuce Entertain You corporate umbrella.
Launched in 2000, Joe's Seafood, Prime Steak & Stone Crab in River North was the first expansion of the legendary Miami restaurant, and the first venture for the fledgling ICON, which was composed of Centioli, Melman and a third partner, Michael Fox.
ICON struck an exclusive licensing deal with the family that owns the century-old Joe's Stone Crab in Miami to bring the concept to other cities, subsequently adding restaurants in Las Vegas and Washington. The Miami import opened to rave reviews and large crowds in Chicago, and continues to do big business 25 years later.
Centioli served as the inaugural president and CEO of ICON.
Joe's Chicago entered into a management agreement where Lettuce Entertain You received a fee for operating the restaurant, with a portion paid to ICON, according to the lawsuit. A similar management deal was set up for Joe's Las Vegas, which opened in 2004.
ICON's second venture was a January 2000 agreement to expand North Carolina-based Krispy Kreme to other markets, opening up a dozen locations of the beloved southern donut shop on the West Coast.
In 2010, in the wake of the Great Recession, Rich Melman decided to slow down ICON's search for other brands to expand, focusing instead on Joe's, Krispy Kreme and the Lettuce portfolio, according to the lawsuit.
The three partners then entered into an agreement under which Centioli sold Melman a portion of his indirect interest in the two Joe's restaurants, but continued as a manager of ICON. Centioli also ceded authority over restaurant personnel decisions, according to the lawsuit.
As part of the 2010 agreement, Centioli gained the rights to ICON's intellectual property, and the partnership with Melman and Fox changed its name to Stone Dozen. In 2012, Centioni transferred his interests in Stone Dozen to ICONcepts, a corporate entity he created.
The partnership between Stone Dozen and Lettuce began to deteriorate soon thereafter.
When Joe's opened its Washington D.C. restaurant in January 2014, Lettuce launched it as a subsidiary, cutting Stone Dozen and its non-Melman partners entirely out of the deal, according to the lawsuit.
By 2016, the disenfranchisement went one step further, excluding Centioli from all management income in the successful business partnership he helped build with Melman, according to a lawsuit.
Centioli and Fox agreed to temporarily forgo Stone Dozen's management fees in 2016 and 2017 after Melman represented that Lettuce 'needs the fees' to help cover its costs, according to the lawsuit.
'It was not until 2024 that Lettuce informed Gerard that they always intended for Lettuce to keep the entire management fee for itself, permanently,' the lawsuit stated.
Needing to raise cash to cover tax liabilities during what he believed to be a temporary cessation of management fees in 2016, Centioli's ICONcepts sold a portion of its equity in the Joe's Chicago and Las Vegas restaurants to Melman, along with some equity in Krispy Kreme, according to the lawsuit.
In 2018, with both the Joe's restaurants and Krispy Kreme doing brisk business, Centioli approached Melman about 'putting ICON back together' and finding additional brands to add to the portfolio.
Gerard and his son, Lauren Centioli, a partner in ICONcepts, began meeting with Rich and his son, R.J. Melman, to discuss the concept they dubbed ICON 2.0. In 2020, they created ICON Consulting as a subsidiary of Stone Dozen to explore new restaurant expansion opportunities.
Topping the list was an effort to take Chicago steakhouse Gene & Georgetti's to other markets, following the successful model they created 20 years earlier with Joe's Stone Crab. In 2021, they formed a development partnership with the restaurant that never came to fruition, according to the lawsuit.
Another matter for discussion with ICON 2.0 involved call rights, which allowed surviving members to buy out deceased partners' shares. With Centioli's stake vested in ICONcepts – a corporation that would never die – it became an issue for Rich Melman, who wanted to ensure he could pass his stake onto his son, according to the lawsuit.
'The Lettuce Defendants began to perceive betraying ICONcepts as a viable alternative to a good faith negotiation,' the lawsuit stated. 'They would wait, however, to act on this concern while stringing ICONcepts along.'
Lettuce did make some concessions during the ICON 2.0 negotiations, notably awarding ICONcepts a 5% stake in Joe's Washington restaurant in 2022, along with a cash payment to cover the taxes associated with the transfer, according to the lawsuit.
In December 2022, Gerard Centioli and R.J. Melman 'shook hands' on an ICON 2.0 agreement to settle back management fees and pay a fee/salary going forward to ICONcepts, according to the lawsuit.
At that point, Stone Dozen was owed more than $4.3 million dollars, according to the lawsuit, with Centioli and ICONcepts entitled to a portion of that money.
'However, in violation of the Handshake Agreement, Lettuce continues to keep all management fees for itself, effectively embezzling millions of dollars in funds that it knew it was required to remit to Stone Dozen and/or ICONcepts,' the lawsuit states.
The strained partnership went further south in 2024 with the corporate ascension of R.J. Melman at Lettuce and the expensive failure of Chicago restaurant Aba in Miami, the lawsuit alleges.
Things came to a head earlier this year when R.J. Melman made it clear that he didn't share his father's belief in the ICON model, according to the lawsuit.
'This basic philosophical difference was laid bare at a January 4, 2025 negotiation in which R.J. asked Centioli rhetorically why he would settle for any structure that required sharing 50% with ICONcepts when Lettuce could instead go it alone and take 100% of the equity for itself,' the lawsuit stated.
In February, Lettuce repudiated the handshake agreement and in March, formally 'terminated' Centioli, according to the lawsuit.
The final salvo arrived on April 15, when Rich and R.J. Melman sent 'fake sale documents' to Centioli purporting to provide notice that ICONcepts had sold its interests in the three Joe's restaurants to Lettuce, according to the lawsuit.
'This sham transaction is the opus of the fraudulent scheme that Defendants conspired to foist upon ICONcepts, Gerard, and his children,' the lawsuit states.
Accompanying the sale documents were cashier's checks payable to ICONcepts that 'grossly understated' the value of its interests in the Joe's restaurants, according to the lawsuit. The checks went uncashed and became void after 90 days.
Last month, Lettuce deposited the money from the uncashed checks into an interest-bearing account on behalf of ICONcepts, but Centioli 'has never agreed that the buyouts were legally valid or appropriately calculated,' according to the lawsuit.
On Friday, Centioli filed a 20-count breach of fiduciary duty and fraud lawsuit against Lettuce Entertain You and the Melmans seeking to declare the buyout transactions invalid, restitution for the restaurant group's unlawful gains and damages.
A hearing is set for Oct.10 in Cook County Circuit Court.