The future of McMahon’s Prime Steakhouse in the foothills and Old Pueblo Grille on North Alvernon Way was uncertain Friday, a day after a U.S. Bankruptcy Court judge seized the restaurants and closed them as part of a legal tug-of-war centered on owner Bob McMahon’s 2014 Chapter 11 bankruptcy.
But McMahon’s lawyer said he hopes to know by Monday when and if they can reopen Old Pueblo Grille.
“We have our proposals on the table and we are trying to see if we can’t find a way to reopen the doors at least at Old Pueblo Grille,” Scott D. Gibson said. “They haven’t promised me anything.”
Gibson said he was in talks Friday morning with the court-appointed trustee, Gayle Eskay Mills, whom he described as cooperative.
Mills did not return phone calls Friday seeking comment, and an employee in her office referred questions to her Phoenix attorney, Adam Noch. He could not be reached Friday afternoon.
“There are two things we want to do: Pay the employees and keep the restaurants open. And that’s what we’re negotiating now,” Gibson said. “I know the employees will get paid because there’s money in the account, but I can’t say they are going to get paid today. Eventually they will get paid.”
The court action Thursday included seizing McMahon Properties LLC’s bank accounts, which had $179,000, McMahon said. Between the two restaurants he has 150 full- and part-time employees, he said.
“My first priority this morning was let’s pay the employees. We have plenty of money. This isn’t for a lack of money right now,” he said Friday.
McMahon filed for Chapter 11 bankruptcy in early 2014 after one of his biggest creditors, Alliance Bank, foreclosed on his properties and was about to auction them off.
Early this month, the court converted the bankruptcy to Chapter 7 when McMahon failed to pay $14,375 in quarterly fees, according to court documents. Chapter 7 calls for liquidating and selling the businesses and assets to recover the creditors’ losses.
McMahon appealed the conversion and lost.
The latest legal blow came last week when the court threw out McMahon’s objection to the trustee’s plans to sell Old Pueblo Grille for $1.15 million, money that “would pay the lien of Vantage West Credit Union in full, as well as past due real property taxes,” according to court documents.
Gibson contended that the trustee didn’t have the legal authority to sell the property because there were other owners besides McMahon, he said.
McMahon said he is not opposed to selling the restaurants, so long as he can continue operating them and pay his employees.
“Get me out of the whole thing,” he said Friday. “I want to keep McMahon’s open; I don’t care if the bank owns it. I don’t care who owns it.”
Gibson said that among the proposals they are discussing with the trustee is selling the restaurants to a third party which would then lease them to McMahon.
When he filed for Chapter 11, McMahon listed in court documents owing as much as $10 million to various creditors. The largest — $5.2 million — was owed to Alliance Bank of Arizona. Other debts listed in the original filing included $82,355 in back taxes to Pima County, $9,194 to CB Richard Ellis and more than $34,000 to the Arizona Department of Revenue for unpaid taxes. The amount owed to the state has since doubled with interest and penalties to nearly $85,000, according to court documents.
Gibson said he believes that once they resolve their issues with the trustee and reopen, McMahon will start paying the delinquent state taxes.
McMahon said he was “flabbergasted” that the court had closed his restaurants.
“Whether we get Old Pueblo Grille and McMahon’s open today, or we open another night, I just don’t know,” he said. “It’s just waiting and speculating because I just don’t know.”
Added his wife, Danita, “People forget that my husband has been a successful businessman in this community for 37 years and has employed thousands and thousands of people. I think the people forget all the good things that my husband has done. … We have employees who have been there 17 years, since we opened the doors.”
Meanwhile, some Old Pueblo Grille patrons left notes on the restaurant’s padlocked gate letting others know where they had moved their weekly happy hour gathering, or party.
Brad Herbert put up a handwritten note telling friends that he had moved his daughter Emery‘s Friday night graduation party to a friend’s house. He had invited as many as 40 guests to celebrate Emery’s graduation from Sabino High School.
“When they called they didn’t say why or anything, they just said the restaurant’s closed, we have to cancel your event,” Herbert told the Star. “We had to scramble and find someplace else to have it.”
