Submarina Still Docked in Bankruptcy Court
Most of Submarina's stores are on the West Coast, with headquarters in Houston.
Last September, CEO Bruce Rosenthal told Franchise Times he expected to exit the Chapter 11 bankruptcy reorganization process for Submarina, the Houston-based sandwich chain he owns, by the end of that month. Reached today by phone, he’s still waiting, with his plans to again start growing the company on indefinite hold.
In late March, Jeff Warfield, son of Submarina’s founder and Rosenthal’s chief adversary in the nearly four-year-old case, emailed to tell me the trustee for the Submarina case had put it up for sale. “It seems Mr. Rosenthal could not get his reorganization plan through. I guess the Titanic music was his own,” Warfield wrote.
That reference was to a quote Rosenthal said in a Franchise Times story last September, and shows the bad blood between the parties. Rosenthal had obtained a judgment for $1.7 million against a group of franchisees led by Warfield, who had ceased paying royalties on their stores in California.
“They’ve created their own Titanic and the music’s been playing and the music has now stopped,” Rosenthal said at the time. “They now are in a situation where I’m happy to offer them all lifeboats but they all have to get in.”
Today, Rosenthal corrected Warfield’s characterization of the sale process for Submarina as a liquidation. “The Chapter 11 trustee is engaged in soliciting bids to sell the company in the Chapter 11 process, which is not a Chapter 7 liquidation at all,” Rosenthal said. “In a sense they are apples and oranges. One is a sale of an ongoing business, in an orderly process through 11. The other is a liquidation.”
Rosenthal said there are as many as five potential buyers for Submarina, including one by an entity that he controls. “I’m one of the possible buyers,” he said, declining to name the others.
He said he doesn’t know when the next move will happen in the case, but estimated within 90 days. “The nature of litigation is that there is always an element of uncertainty,” he said, pointing to “several legal issues” that have come up, causing delays in a case that has gone on for nearly four years.
Rosenthal said he has collected part of the judgment against franchisees. “Interestingly enough we collected in full the initial judgment we had against Jeff Warfield, and we are in the midst of working to prosecute the other judgments,” he said.
In a January 17, 2017, filing in U.S. Bankruptcy Court in Nevada, Judge Mike Nakagawa outlined key issues regarding the reorganization plan that help to explain the delays, including these: “The debtors in possession,” meaning Rosenthal et al, “have abdicated their fiduciary duties to creditors,” the judge wrote. Also, the plan known as Kerensa 2 and the disclosure statement “are patently deficient,” and the plan “fails the fair and equitable requirement for cramdown,” the judge wrote. (Cramdown is a bankruptcy tactic often employed to obtain a reorganization over objections from creditors.)