A Dallas Restaurant Group Faces Five Lawsuits and Nine Tax Liens

A group of prominent Dallas restaurants is beset by legal troubles, including at least five ongoing lawsuits and unpaid tax bills from Dallas County, the state of Texas and the Internal Revenue Service.

Bolsa, Chicken Scratch and The Foundry, owned by Christopher Jeffers and Christopher Zielke with various partners and minority stakeholders, all face legal action over their mounting debts. Jeffers, Zielke and chef Tim Byres are also defendants in lawsuits brought by Preston Towne Crossing and NorthPark Center, over alleged unpaid rent after the closures of Smoke Plano and The Theodore.

“There’s money owed,” Zielke told the Observer. “We took some big chances on big places. It’s going to be something that we’ll be paying off.

"There’s been plenty of months where myself and my partners have gone five or six months without being paid to make sure all of our employees got paid. There’s going to be plenty of responsibilities that we have that are gonna have to get paid over the next few years. It’s the price of entrepreneurism and the price of opening restaurants.”

A federal tax lien dated Oct. 19 shows that Tierra Firma Hospitality Group, the company Zielke, Jeffers and Byres used to manage Smoke’s Plano location, failed to pay taxes to the IRS for the first three quarters of 2017. The restaurant closed in the third quarter, leaving behind a balance of $150,644.50 owed to the federal government.

In the last 18 months, the state of Texas has placed eight liens on Smoke, Bolsa, Bolsa Mercado, Chicken Scratch and Turn the Tables Hospitality for unpaid sales, mixed beverage sales and unemployment taxes. One of the liens, against Smoke, has been released. The other seven are ongoing and total over $32,000 in unpaid state taxes and penalties.

Asked about specific tax liens, Zielke said, “I’d have to talk to my accountant. It’s possible that there’s outstanding taxes that need to be paid.”

Additionally, Dallas County tax records show that Bolsa still owes over $3,000 in county property taxes from 2017, including interest, penalties and collection fees. At recently closed Smoke, the restaurant group still owes $3,605 in 2017 county taxes and an additional $1,759 in interest, penalties and collection fees.

The restaurants’ total unpaid tax bills and liens: at least $191,000.

“There’s a bunch of ongoing obligations that we’re in the process of trying to clear up and get paid,” Zielke says. “Opening some places that didn’t work out, you have to deal with some bills.”

TABC records show that the liquor license for “Pittman Avenue Club,” which covers both Chicken Scratch and The Foundry, was canceled on Nov. 1. According to Zielke, the old license was for a private club, at the time the only liquor license available to businesses in the neighborhood. Chicken Scratch and The Foundry will soon receive new licenses that allow them to operate like normal bars and restaurants, without the idiosyncrasy of asking each customer to become a club member before ordering.

Until then, Zielke said, the businesses are operating under Bolsa’s license.

A day before the liquor license cancellation, on Oct. 31, two different lawsuits hit in a single day, both aimed at Bolsa and Zielke. American Express claimed Bolsa had failed to pay over $50,000 in debt accrued on a business platinum credit card.

The other suit, filed in Cook County, Illinois, came from Rewards Network, a company that administers dining rewards points, including mileage awards for every major airline in the United States. Rewards Network also offers restaurants a variation on a loan, in which the company pays a restaurant cash up front in exchange for a percentage of sales the restaurant earns from rewards program customers.

In December 2017, Bolsa sold the rights to a percentage of its future sales to Rewards Network in exchange for a cash advance of $136,000. When Bolsa changed credit card processors mid-2018, Rewards Network lost the ability to collect its share of sales. The company seeks $108,000 in damages, according to court filings.

On Aug. 1, NorthPark mall sued Turn the Tables Hospitality, The Theodore’s management company, along with Jeffers, Zielke and Byres individually because The Theodore stopped paying rent after the restaurant’s closure. The restaurateurs had leased the space through May 31, 2027, and according to NorthPark, “personally guaranteed the payment and performance of Tenant’s obligations.” NorthPark seeks $334,000 and expects to increase that claim until Turn the Tables pays or NorthPark finds a new tenant for the space.

Because the litigation is ongoing, Zielke was generally unable to comment on the individual cases. About NorthPark, he said, “We have a lease. We didn’t keep it. Not a whole lot to say about that. They do a lawsuit, as does Plano.”

“Plano” refers to Preston Towne Center, which sued on Aug. 16 claiming that the defendants “continue to fail and refuse to pay” rent for the months after Smoke closed down there. The shopping center has since found new tenants — Bellagreen and Original ChopShop — but Preston Towne Center seeks around $874,000 from the Smoke owners for the period before Bellagreen and Original ChopShop began paying rent. It's not uncommon for landlords to sue owners of closed restaurants for the remainder of their contract's rent payments.

An additional owner, Karen Schultz, is named in the lawsuits over The Theodore and Smoke Plano. Schultz retained a stake in the businesses after being dismissed from her job with the restaurant group in 2014.

“I have little to absolutely no knowledge of any financial results of any of the companies with which I'm involved, even though I've asked for records from Zielke and the accounting firm,” Schultz told the Observer by email.

Finally, a personal injury lawsuit filed late in 2017 alleges that a customer at Chicken Scratch sustained a severe cut by walking into a “sharp peddle” (sic) on a “large antique popsicle/ice cream old bicycle in the middle of the room” (sic).

Zielke explained that the injured person was climbing on the bicycle.

“We have plenty of documentation on that,” he said. “I believe that is their third attorney on that one. They and their family were climbing on and off of it. That is covered by our insurance and they [the insurance company] defend it the way they feel it should be defended.”

The last few years of trials — an unsuccessful Plano location of Smoke, The Theodore’s demise at NorthPark, Smoke’s sale to the Belmont Hotel after years of friction with the hotel’s new ownership — have left Zielke and his team with lessons learned and a more realistic vision for the future.

“I don’t think I’ll be taking on massive retail rents, because that ends up being fool’s gold,” Zielke said of his group’s future plans. “I certainly will not be taking on a space at anything as expensive as NorthPark anytime soon.”

He added, “We’re not funded by any big backers and big money. We’re just a couple of guys trying to do good stuff.”

In the short term, that means paying down the thousands of dollars in bills owed to the IRS, Texas and other creditors. It also means reinvesting in the group’s most successful concepts, Bolsa and Chicken Scratch.

“I expect a lot of big things to happen at the Chicken Scratch property — the property in general, not just the businesses,” Zielke says. “We have been pushing the landlord to develop the rest of the property. We’re busy working on that, so I think that should happen very quickly.”

Zielke can’t comment yet on what’s going to be next to Chicken Scratch, but his team is involved.

“It’s something we’ve wanted to do for a long time," he says. "And it’ll get done quickly.”