MidiCi Bet Lands in Bankruptcy Court
The plan for a MidiCi restaurant.
Three years ago, Menchie's frozen yogurt CEO Amit Kleinberger gambled against conventional wisdom and started selling franchises for a new pizza concept called MidiCi before opening a single company store. He lost the bet and filed for Chapter 11 bankruptcy on September 21.
In a letter to franchisees last Friday, Eric Riess of Lathrop Gage law firm announced the bankruptcy filing and said MidiCi is placing a “full hold” starting September 21 on all royalty and marketing fees until further notice, “so that all franchised units can work towards increasing sales/profitability together.”
The letter said Riess advised MidiCi to also retain the firm of Greenberg and Bass and the firm of Roseman Law “to help develop a long-term reorganization plan, focused on solving the sales/profitability challenge. With the help of these counsel and other outside advisers, MidiCi is preparing a plan for the survival and recovery of MidiCi and its franchise system.”
The filing, in California Central bankruptcy court, lists both assets and liabilities of MidiCi ranging from $1 million to $10 million.
Starting in 2015, Kleinberger sold more than 500 franchises for MidiCi, a Neapolitan pizza brand he created, and predicted that hundreds of them would be open by now. Instead, Kleinberger peaked at 36 units early this year.
Since then two, in Houston and Fort Collins, Colorado, have closed; two others, in Ohio and Missouri, were sold to new operators; and several more stores hailed by Kleinberger's public relations team as "about to open" halted mid-construction.
"It's a rolling train wreck," said attorney Steven Greene, of Matthews & Greene, of Alpharetta, Georgia, who is preparing litigation for "pools of over 100 MidiCi's franchisees" including many that paid franchise fees and never opened.
"Kleinberger and his team did not do due diligence," Greene said. "Instead of building a company store and replicating it, they let their initial franchisees be their test cases. Their estimates on buildout costs, operating costs and expected revenue were grossly inaccurate."
Kleinberger said, "Our FDDs clearly stated that we did not have a company store until June of 2015 and that our concept had not been proven because we had no franchise units open. They did not sign their franchise agreements remotely; they were sitting in our corporate unit, in Sherman Oaks, California. But they said they loved the concept. We would have loved nothing more than for sales to be stronger."