Foxtrot Files For Bankruptcy Even As Its Brand Founder Reportedly Mulls A Restart

The parent company of Dom's Kitchen & Market and Foxtrot Market filed for bankruptcy Tuesday, just weeks after abruptly shuttering its 35 locations and leaving employees, suppliers and customers in the lurch.

But the brand's founder might not be willing to call it quits just yet, though bankruptcy proceedings would likely make the path difficult, according to a legal expert.

Outfox Hospitality, an entity created about seven months ago after Dom's and Foxtrot merged, filed for Chapter 7 bankruptcy in a Delaware court, Crain's Chicago Business first reported. Outfox has between 5,001 and 10,000 estimated creditors, according to the filing. The estimated value of its assets and liabilities are both between $10M and $50M. 

The filing comes as Foxtrot founder Mike LaVitola aims to possibly restart the brand and reopen several shuttered stores, a source confirmed to Bisnow. 

LaVitola has also been in conversation with at least one member of management to ask them to rejoin the team, according to the source, lining up with a report from The Real Deal suggesting some Chicago landlords are considering deals to relaunch with LaVitola and the company that owns Foxtrot's intellectual property, inventory and other assets.

LaVitola could not immediately be reached for comment.

In a Chapter 7 bankruptcy filing, the goal of a company is essentially to sell off its assets and cease to exist at the end of the bankruptcy proceeding, said Omar Ochoa, founding attorney at Texas-based Omar Ochoa Law Firm. 

It's unclear how Outfox's bankruptcy proceedings would impact a potential Foxtrot brand revival, but Ochoa said LaVitola could buy the company's assets through a bankruptcy sale, whether through an entity, with a group of investors or on his own. Then he could basically start a new company, Ochoa said. 

Yet there are protections for creditors in place in the bankruptcy code to ensure they get paid out, Ochoa said. 

“To the extent the bankruptcy is being used as a way to undermine payments owed to creditors, that's not going to fly,” he said. “You can't, for example, file Chapter 7, open up a different entity, buy your assets on the cheap and then move on like nothing ever happened.”

Secured creditors will get paid first in bankruptcy proceedings in most jurisdictions, Ochoa said. Unsecured creditors are generally the second pool of people paid after secured creditors, then any stockholders, he said. Payroll and tax obligations are at the end of the chain, Ochoa said. 

That could raise a problem for former employees, who have filed at least three lawsuits against the company alleging it neglected to properly notify workers of impending closures and violated worker protection laws, Crain’s reported. Two produce suppliers have also entered the fray, suing Foxtrot for allegedly failing to pay for more than $208K in produce and other goods before the shutdown, the outlet reported.  

A class action lawsuit is a way for employees to try to get into a higher payout position, Ochoa said. By securing a judgment, they could move up the payout chain to become an unsecured creditor and receive some amount of a payout, he said. 

“Even then, it'd be very tricky,” Ochoa said. “Usually when a company is in bankruptcy, any litigation that's going on against that company will be pulled into the bankruptcy proceeding. Generally speaking, you can't have some separate lawsuit against an entity once it's in bankruptcy.”

Foxtrot's failure opened up a host of premium real estate all at once, which CRE insiders say tenants are eager to lease up. Foxtrot occupied about 51K SF of Chicago retail space, according to data provided to Bisnow by Mid-America Real Estate Corp.

The company’s average footprint across its 15 Chicago locations was 3,400 SF. It also will vacate 11 D.C.-area stores, eight in Texas and two Dom's locations in Chicago.