Fontaines running Rudi’s again after new owner files Chapter 7

BOULDER Natural foods staple Rudi’s Restaurant is back under old management after a year under a new owner.

Carlos Jackson bought the business from Susan and John Fontaine in August 2002, but filed for Chapter 7 bankruptcy in October. When the Fontaines discovered he had closed the restaurant on Oct. 28, they took it back and reopened Nov. 7.

A filing under Chapter 7, called liquidation, involves the appointment of a trustee who sells the debtor’s property and distributes the proceeds to creditors.

SPONSORED CONTENT

Prioritizing mental health in hospice care

Prioritizing mental health support alongside physical comfort, Pathways hospice care aims to enhance the quality of life for patients and their families during one of life's most challenging transitions.

The Fontaines were in Florida on Oct. 28 when they got a phone call from one of the cooks saying the doors were locked and a sign was posted saying Rudi’s was closed for remodeling. The cook said he thought Jackson was filing for bankruptcy. “We had to make a big decision fast,” John Fontaine said. “We decided the best thing to do was to come back while the employees were still around.”

Another reason to return was to recoup their losses. Jackson had paid the Fontaines, who had financed the deal, only half of what he owed them, Fontaine said.

John Fontaine said the landlord and city were cooperative in allowing the restaurant to reopen under his and his wife’s ownership. The main sticking point, he said, has been getting a beer and wine license, which is still under review.

“We are trying to recover and let people know that the previous owners are back,” Fontaine said. “The employees were tickled to have their jobs back.” According to Fontaine, Jackson owes employees two weeks pay.

Despite phone calls, Jackson, who lives in Divide, about 25 miles northwest of Colorado Springs, was unavailable for comment.

Financial details of the original sale and reopening were not available.

Jackson’s lawyer, Colorado Springs-based Mike Berniger, thought there were two reasons the restaurant failed during his tenure: the Fontaines’ regular clientele who stopped coming after the sale and the general economy. When Jackson filed bankruptcy, Berniger was contacted by the Fontaine’s attorney, John Cowan of Arvada, to find out if Jackson would voluntarily transfer the business back to the Fontaines. “Whatever they asked us to sign to transfer the assets we signed,” Berniger said.

“(Jackson) had spent his last dime trying to make it go,” Berniger said. “It’s very sad for him and probably not the best news for the Fontaines either. My philosophy is that the Fontaines were at risk of losing the balance of the purchase price and Jackson had no ability to keep (the restaurant), so why not transfer it right back? Hopefully not too many people would get hurt too badly.”

Merle Northrop, managing broker of Boulder-based VR Business Brokers, represented the Fontaines when they sold and is helping them out as they recover the business. Northrop thinks the failure is due to a combination of the economic slump and Jackson changing the restaurant’s model. “It’s been a tough couple of years for businesses anyway . . . but (Jackson) made some changes that may have had a strange impact on it. With John and Susan back they are already seeing a recovery.”

According to Northrop, the IRS and state and local entities are the highest priority creditors, and Jackson’s liquidation should take care of most taxes owed. Northrop also said about 80 percent of “main street” transactions those under $500,000 — will have seller financing of some sort. Although new owner bankruptcies are rare, there’s always some risk for the sellers.

John and Susan Fontaine bought Rudi’s in January 1991, but John Fontaine been involved with the business since 1977. Rudi’s Restaurant originally opened in 1975, and a year later Rudi’s Bakery opened as a sister business. The bakery is no longer affiliated with the restaurant, has changed hands several times and is now owned by the Iowa Farm Bureau. Fontaine started at the bakery in 1977 and joined the restaurant in 1983.

Contact Caron Schwartz Ellis at (303) 440-4950 or e-mail csellis@bcbr.com