CSF Defunct After Eviction

The last Cafe Santa Fe restaurant owned by CSF Franchise Group closed on March 2, meaning the franchise company that started in Fayetteville in 1997 is basically defunct.

But three separately owned Cafe Santa Fe restaurants — in Fayetteville, Eureka Springs and Benton — are still in business.

Arkansas National Bank of Rogers has claimed CSF’s assets to help repay a $1.6 million debt. With no assets left, CSF’s Chapter 11 bankruptcy from 2002 was dismissed, and the company’s two owners — Tom Flores and Emad Damen — have switched their separate personal bankruptcy filings from Chapter 11 to Chapter 7, which usually means total liquidation of whatever is left.

Some creditors think getting any money out of CSF will be like getting blood from a chili pepper.

“It pretty well sucks,” said Phil Bronson, a former CSF franchisee who filed a $3 million lawsuit against the corporation but dropped it in January. “People got stuck for $6 million to $7 million. We decided not to prosecute it. We didn’t have a whole lot of choice.”

“He’s a dodo head,” William Gibson of Rogers, attorney for the two CFS owners, said of Bronson. “It wasn’t worth three cents. He ran his own restaurants in the ground.”

“CSF is under no control of anybody,” said Damen, who owned 32 percent of the company. “It’s pretty much going to die eventually. It has no assets.”

The majority of CSF Franchise Group, 59 percent, was owned by Tom Flores, a Texarkana native who founded the franchise company after buying the six-year-old Cafe Santa Fe in downtown Fayetteville in 1988. At that time, there was only one other Mexican restaurant in Fayetteville, but now there are 12, not counting four Taco Bell fast-food eateries. The Northwest Arkansas Business Journal was unable to reach Flores for a comment.

By changing their bankruptcy filing from Chapter 11 to Chapter 7, the two men were released personally from “all the liabilities that CSF had,” Damen said.

In 2000, CSF had 16 restaurants in Arkansas, Missouri and Oklahoma and revenue of $9 million. The company also had plans to build 25 more restaurants and to eventually unseat Chi-Chi’s as the largest chain of Tex-Mex eateries in the United States. In 1999, CSF was named Business of the Year by the Business Journal.

Since then, CSF has had a long series of problems, including heated competition, plummeting sales, lawsuits and an alleged message from God telling a Harrison franchisee to lock the doors of his Cafe Santa Fe and simply walk away.

Evicted in Springdale

CSF closed its Cafe Santa Fe at Springdale’s Ozark Center Point Place shopping center after being told by the landlord to pay up or leave by March 2. That restaurant had been open since 1995.

“They were behind in the rent. That was the reason we gave for the eviction,” said Edwin McClure of Rogers, an attorney representing Mathias Properties of Springdale, which owns the building.

Sam Mathias, owner of Mathias Properties, said he couldn’t remember how far behind CSF was in the rent but said it was at least three months.

McClure said CSF left on its own when the deadline came and legal action wasn’t necessary to physically evict the company from the building. “It wasn’t a forced deal,” McClure said.

CSF closed its Rogers restaurant last year and its restaurant on Crossover Road in Fayetteville the year before that. After the company closed all of its other restaurants in an attempt to regain its financial footing, the Springdale Cafe Santa Fe was the last one under the ownership of CSF.

Flores and Damen still own one restaurant, the original Cafe Santa Fe at 25 E. Center St. in downtown Fayetteville, which they plan to keep open. That restaurant is officially owned by Cafe Santa Fe Downtown, a limited liability company that Damen said isn’t involved in the CSF or personal bankruptcies. The downtown Cafe Santa Fe brought in $237,218 in sales for eight months of last year, according to city tax records. The restaurant owners apparently didn’t pay taxes for four months in 2003, so the $237,218 amount was the year’s total.

The only two other Cafe Santa Fes left — in Eureka Springs and Benton — are owned by franchisees and are also apparently exempt from the bankruptcies.

Flores and Damen filed separately for Chapter 11 bankruptcy protection in October 2002. Flores claimed assets of $873,199 and liabilities of $10.5 million. Damen claimed assets of $264,574 and liabilities of $11.7 million. Three days later, CSF Franchise Group filed for Chapter 11 bankruptcy listing debts of $1 million-$10 million and assets of $500,000-$1 million but not specifying the exact amounts.

Gibson said the personal bankruptcy filings each included all of the claims against CSF.

“We listed all of the debts of the corporation … just as a matter of safety,” Gibson said. “The only reason they’re filing bankruptcy was because of the debt they incurred in CSF, so we listed all of the company’s debt with the individuals. It’s very likely they didn’t owe the vast majority of that.”

Both Flores’ and Damen’s bankruptcy filings include Bronson’s “frivolous” claim for $3 million in those totals, Gibson said.

Besides the claim from Bronson and his business partner Sad Abu Haleema, the next largest claim against CSF was from Arkansas National Bank for $1.6 million.

This past October, the U.S. District Bankruptcy Court in Fayetteville granted ANB permission to take possession of stock, inventory, furniture, fixtures, equipment and the name “Cafe Santa Fe, Springdale” from CSF to help repay its debt.

ANB isn’t saying how much it lost on the loans to CSF.

“They have had and retain a good relationship with the owners of Cafe Santa Fe, and they don’t want to air anybody’s dirty laundry,” Bill Watkins, a Rogers lawyer representing ANB, said of the bank’s executives. “They don’t want to discuss it.”

Since CSF’s assets were claimed by the bank, the bankruptcy court dismissed the company’s Chapter 11 filing on Jan. 13. On March 9, the court approved the request for Flores and Damen to change their Chapter 11 filings to Chapter 7.

Sue You, Sue Me Blues

Bronson and Haleema, the two former CSF franchisees, filed a lawsuit on April 24, 2002, in Washington County Circuit Court against CSF saying the company owed them more than $3 million in damages related to breach of contract and fraud.

The suit — which also named Flores, Damen and Sherry Ingram, a CSF employee, individually as defendants — states that Bronson and Haleema are owed $1.9 million for breach of contract damages, at least $536,000 for actual fraud damages and $1 million for punitive damages.

“They have no basis,” Flores told the Business Journal at the time. “It’s unfounded.”

The lawsuit claims CSF terminated the franchise rights of the plaintiffs in violation of the franchise agreement.

Abu-Haleema Enterprises, which consisted of Haleema and his wife, Frances, both of West Fork, owned two Cafe Santa Fe restaurants in Fayetteville and one each in Rogers and Bentonville. Bronson was a partner in each of those restaurants except the one at 25 Center St. in downtown Fayetteville.

Haleema closed the restaurants on Sept. 20, 2001, one day before filing for Chapter 7 bankruptcy protection. He listed $1.65 million in total assets and $4.07 million in liabilities, which included $330,000 in debt to CSF.

CSF reopened three of the restaurants immediately afterwards.

With Abu-Haleema’s bankruptcy, the original Cafe Santa Fe at 25 E. Center St. in Fayetteville was closed for the first time since it opened in 1982. But Flores reopened that restaurant in 2002 under the new corporation name. Flores had sold that restaurant to Haleema in 1997.

Flores, Damen and Ingram filed a countersuit 21 days later asking for unspecified damages but outlining $576,116 they say the original plaintiffs owe to CSF. They also filed a motion saying the suit by Bronson and Haleema should be dismissed.

Both parties filed motions to non-suit in January, and Circuit Judge William A. Storey dismissed both lawsuits on Jan. 23.