100 Montaditos Franchise Fight Is Heating Up

In the bankruptcy case of the little Spanish sandwiches, a big fight is heating up.

During a hearing last week, a federal judge said the South Florida franchise of 100 Montaditos could shut down despite the bankruptcy filing of the Spanish restaurant’s U.S. arm.

The ruling was basically a formality—the bankruptcy code might have prevented the franchisee from shutting down his operations without the judge’s approval—but it preserved the ability of franchisees and the company to take legal action against each other in the future.

And further legal action is something that franchisees are planning, said Leon Hirzel of Hirzel Dreyfuss, a lawyer for a group of current and former franchisees. Mr. Hirzel declined to provide more details on the nature of the coming action.

“The bankruptcy is an attempt to absolve liability across the Atlantic Ocean,” he said, referring to 100 Montaditos’ Spanish parent company. Mr. Hirzel says the Spanish company never adequately capitalized the U.S. spinoff, an allegation the parent firm denies.

“We completely disagree with these baseless statements,” a lawyer for 100 Montaditos, Paul Battista said by email, adding that they plan to deal with these issues in court.

The 100 Montaditos chain opened in Spain in 2000. The company specializes in small Spanish sandwiches—montaditos—which are filled with cured meats and cheeses and sold for a few dollars each. The restaurants also serve beer and sangria. The concept spread across Spain with several hundred locations and was brought to the U.S in 2011.

The chain generated buzz in the U.S., garnering notice from some food blogs and luring customers in Florida, New York and Washington, D.C., with the affordable treats. But according to court documents, the system for franchise owners was broken from the start.

“It may appear to the public that these are thriving business,” Mr. Hirzel said referring to the franchises, “but the majority are not viable.”

The Florida franchise, owned by a company called Thinkgusto, called the U.S. expansion “an absolute fiasco,” complaining of a revolving door of managers at the U.S. arm. Thinkgusto claims the Spanish parent  “essentially abandoned its U.S. franchise system — terminating virtually all of its franchise agreements while leaving the last few remaining non-affiliate franchisees, such as Thinkgusto, to ‘die on the vine,’” according to court documents.

The 100 Montaditos model of high-rent locations and low prices on food and alcohol—especially on special discount days like Wednesdays—resulted in restaurants sometimes selling their products at a loss, Mr. Hirzel said.

By March, Thinkgusto’s West Palm Beach location was losing $30,000 a month, according to court documents, and had decided to shut down when 100 M Holdings filed for bankruptcy two days later.

Read about the 100 Montiditos bankruptcy filing in Daily Bankruptcy Review.

Write to Stephanie Gleason at [email protected]. Follow her on Twitter at @stephgleason