By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
Scott Melton and his onetime Deep Sushi partners are far from samurai. Melton, now owner of Sushi Nights on Main Street, is a former petroleum-industry consultant. With a couple of exceptions, his ex-partners in Deep Sushi on Elm Street are anesthesiologists. But this odd collection of professionals cum restaurateurs, owners of competing Deep Ellum sushi restaurants located a stone's throw from each other, is locked in a caustic struggle that is leaving nerves as raw as the sashimi each parcels out.
The first salvo came the morning of June 30, 1998. Melton, who was Deep Sushi's managing partner, was on his way to the restaurant when he was met at the door by a few of his partners led by Mark Bailey (Bailey refused to comment for this story) and an off-duty police officer. Melton says Bailey told him he had been voted out as general partner and the locks were being changed. "At 9:30 in the morning they were locking me out of my own property," says Melton, whose name appears on the lease for the Elm Street location.
From there, Melton claims, his former partners embarked on a calculated campaign to destroy him. They pressured him to surrender the lease. "Every check in the world that they didn't understand, they just threw it into a pile and buried under all of these fraud allegations with this mean fucking letter [that] was this beautifully prepared assignment of lease form for me to assign my rights, title, and interest to them," Melton says.
He says his partners also froze him out of the restaurant's accounts then refused to pay alcohol and sales taxes on sales incurred while he was running the restaurant. Melton says they were banking state regulators would come after him for tax payments because his name was not only on the lease, it was on the liquor license as well. Melton was stuck with more than $57,000 in tax liabilities plus another $15,000 in debt from various vendors, seriously hamstringing his efforts to open his Sushi Nights in December 1998. Melton briefly bankrupted Sushi Deep Ellum, the company he formed to operate Deep Sushi, in April 1999 to keep from getting squeezed under the crush of the debt. But he pulled it out of bankruptcy a few months later to fire the next salvo in this sushi skirmish: a lawsuit charging his former partners reneged on his management contract.
Last February, Melton's former partners sued him in turn, alleging that he bilked the Deep Sushi partnership of more than $96,000 by draining the Deep Sushi accounts and stealing restaurant equipment. They also charge he used partnership funds to, among other things, purchase personal and household items, pay housing rent, and pay the phone bills for himself and members of his family.
The root of this bitter battle was planted in 1995, when Melton says he got the idea to open a Deep Ellum sushi restaurant while working with Tetsuji Yamaguchi at Yamaguchi's in Dallas. He eventually linked up with Yamaguchi to spearhead the project: Melton would raise the capital and assemble the venture while Yamaguchi would provide the sushi expertise. By April 1996 Melton had secured his Deep Ellum sushi space in a former gun shop on Elm Street.
Melton's first partner was anesthesiologist Marc Brown, who agreed to purchase a 5 percent stake for $12,500. Between April and July of 1996, Melton secured the commitments of a dozen more partners, most of them doctors. The venture was structured so that his investors would be limited partners and Melton would be the general partner through Sushi Deep Ellum Inc. Brown, according to Melton, was pivotal in ousting him from his Deep Sushi perch.
Persuading his partners to fulfill their financial commitments proved difficult, Melton says. "They weren't even giving me any money to put the thing together. I had to borrow from Peter to pay Paul," he says. "I didn't have enough money to live on." He claims that while trying to build Deep Sushi, he was evicted from his apartment because his cash flow was diverted into the restaurant. He resorted to sleeping amongst Deep Sushi's construction rubble and recounts an instance in which he tripped over a homeless man in the kitchen after work crews punched two holes in the building's exterior.
Melton says the cash pinch grew so acute that he resorted to a series of odd financial practices to get the restaurant open before lease payments strangled him. He borrowed money from his mother in $500 increments. Records show he made several trips to Tom Thumb between late June and September 1996, cashing checks in sums of $100.75, the upper limit the store would let him cash at one time, for total outlays of $3,627. He hired his son and daughter to help with construction and paid their rent and phone bills, among other things, in lieu of wages.