Inside the Closure of Blue C Sushi: Huge Debts and Mismanagement

For at the least a couple of days after Christmas, nothing appeared out of the extraordinary at Blue C Sushi, the favored conveyor-belt sushi chain in Seattle and Southern California. Diners filed in. Cooks handcrafted an array of sushi and nigiri, putting them onto color-coded plates that drifted by the restaurant’s eating space on a transferring platform, accessible for patrons to select from because the dishes crawled by. The official Blue C web site marketed a January hamachi nigiri particular, together with brand-new sake alternatives. Buyer Phil Rose went to the Blue C restaurant in downtown Seattle for lunch on New Yr’s Day and ordered three rolls and an octopus nigiri. “I noticed that the service was a little more attentive than it had been on previous visits,” he says. “Nothing else distinguished it.”

However on Monday, January 7, issues floor to a sudden halt. Kent-based seafood provider Younger Ocean Inc. tried to make a supply to one of many Seattle Blue C places, however nobody was there to obtain it — the constructing was darkish and the doorways had been locked. On the identical day on the Blue C in Westfield Southcenter Mall in Tukwila, a busser got here to work for her shift and noticed chairs upturned on the tables, with prospects unable to get in. One observer took a photo of a padlocked door at the University Village location with a hire default discover posted on the window.

At 10:45 p.m. the earlier evening, Madison Holdings Inc. — Blue C Sushi’s dad or mum firm — despatched out an electronic mail to its workers saying the closure of all seven remaining eating places in its empire and the termination of greater than 100 individuals, efficient instantly. Administration issued closing paychecks that week and knowledgeable at the least some staffers that they would want to go to a close-by Starbucks to gather their pay. The chain, which had been round since 2003, rising to 6 places in Seattle, two within the Los Angeles space, and one other in San Francisco, was successfully wiped from the map.

On the time, a Blue C consultant cited “unexpected financial and other circumstances” as the explanation for the closure. Eater reviewed chapter filings and different monetary paperwork that reveal Blue C was greater than $34 million in debt, suggesting that the circumstances across the restaurant’s closing might not have been so surprising — to at the least some inside the group. Interviews with previous workers at a number of ranges inside the firm paint an image of a company that stumbled by a sequence of poor administration choices and long-term infighting. In the meantime, workers were laid off without warning, distributors couldn’t work out who would settle up unpaid payments, and prospects who had bought reward playing cards over the vacations had been left with nugatory plastic.

Abrupt closures that go away workers, suppliers, and patrons within the lurch are all too frequent within the restaurant enterprise. What made Blue C’s sudden and full shuttering so alarming was that there have been loads of indicators that issues weren’t going effectively, stretching again greater than seven years — however the main figures concerned both selected to disregard these warnings or tried to energy by. The result’s a cautionary story about what can occur to a restaurant when inexperience, ample money circulate, and unchecked ambition collide.

A view of a blue light sensor, a bottle with soy sauce, and a pile of white plates.
Blue C Sushi integrated RFID know-how.
A view of a BLT roll from Blue C Sushi, with bacon, lettuce, and fish on top.
A BLT roll. (Each pictures: Blue C Sushi/Official)

The minds behind Blue C Sushi, James Allard and Steve Rosen, had been two ’90s dot-com entrepreneurs primarily based in Seattle who needed to depart behind the seemingly infinite fallout of the tech bubble burst to embark on a totally totally different form of challenge: a restaurant. Neither had any expertise within the enterprise, however Allard frolicked in Japan as a regulation pupil and “fell in love with conveyor-belt sushi because it was affordable,” says Rosen. After leaving a Seattle-based search engine firm referred to as InfoSpace in 2002, the duo labored with Arthur Rubinfeld, a former Starbucks govt who specialised in retailer growth and actual property. Collectively, the three males scouted current conveyor-belt sushi joints (identified in Japan as kaiten) within the Pacific Northwest, London, and Tokyo, and analyzed the market to measure the viability of what would change into Blue C.

“Scrutinizing the traffic over several days, we could calculate that [a local] kaiten restaurant was easily doing a million dollars a year in sales!” writes Rubinfeld in his ebook Constructed for Development: Increasing Your Enterprise Across the Nook or Throughout the Globe. “This and the other factors were enough to convince me of the appeal of the concept, not just in Seattle or on the West Coast but throughout the United States.” So Allard and Rosen determined to do what Starbucks had completed earlier than them: gentrify an current idea and revenue handsomely.

On the time, kaiten eating places weren’t identified for his or her atmosphere in Japan or the U.S. They typically had a cafeteria-like ambiance — fluorescent lighting, minimal decor, and fundamental menu gadgets. Sushi Land, an organization from Osaka, was already within the Seattle space, and it was gaining traction. One other Japanese-based chain, Genki Sushi, ultimately landed on the scene. For these locations, the conveyor belt wasn’t only a gimmick: It was a technique to lower down on staffing prices. Allard and Rosen noticed a chance to go upmarket, delivering higher-quality meals in an attention-grabbing area at a barely greater value level than its opponents.

Their marketing strategy solidified, Allard and Rosen wanted a cash man. Enter Russell Horowitz.

Rosen and Horowitz grew up collectively within the Seattle space, and when Horowitz based an internet listing firm referred to as Go2Net within the ’90s, he referred to as on his childhood buddy to be one of many first workers; Allard got here on as vice chairman of operations at Go2Net not lengthy after. With an inflow of cash from tech large Paul Allen, issues had been going effectively. However then Go2Net merged with InfoSpace; Horowitz left in January 2001 and bought his shares for greater than $30 million, in what firm investigators have since probed for potential insider buying and selling. Whereas neither the SEC nor the corporate filed expenses, shareholders efficiently sued InfoSpace executives. As soon as the mud settled, Horowitz used a few of his earnings to fund Allard and Rosen’s nascent sushi enterprise.

A view of a California roll from Blue C Sushi.
A California roll.
A view of the conveyor belt at Blue C Sushi, with edamame and pork gyoza displayed.
The eating places conveyor belt supplied real-time knowledge to cooks. (Each pictures: Blue C Sushi/Official)
Blue C Sushi/Official

In August 2003, the primary Blue C location opened in Seattle’s Fremont neighborhood, that includes dim lighting, an infinite film display, and decor meant to replicate the world’s bohemian vibe, together with a 15-by-3-foot mural of native landmarks. The homeowners upgraded the conveyor belt to include RFID know-how that supplied real-time knowledge to the cooks, documenting the precise second a plate was lifted from the belt and the way lengthy it had been revolving. On opening evening, the restaurant was packed, and prospects continued to flock in droves.

Over the subsequent seven years, Blue C discovered its area of interest. Whereas it by no means ended up on the highest of “best Seattle sushi” lists, it did an excellent job catering to college students on a funds, businesspeople on a lunch break, and households with kids. Allard, Rosen, and Horowitz opened six extra Blue C places within the Seattle space, together with three noodle joints referred to as Increase Noodle. Based on Rosen, the restaurant group — christened Madison Holdings Inc. — was pulling in between $15 million and $20 million in income and about $2 million in internet revenue yearly by 2011.

In April of 2012, the founding trio even landed on Seattle journal’s inaugural checklist of the “70 most powerful players in the Seattle food scene.” For 3 dot-commers with no prior restaurant expertise, it was excessive reward. Even in a metropolis crowded with sushi opponents, Blue C appeared like it will stick round.

Behind the scenes, although, issues had already begun to unravel.


Three months earlier than their look in Seattle journal, Allard and Rosen left Madison Holdings — neither would touch upon the explanations behind their departure. With the pair gone, Horowitz re-organized administration, leaning extra closely on George Christothoulou, the manager vice chairman who oversaw finance, accounting, and operations at Madison Holdings. And, for the primary time, he additionally determined to rent some high-level determination makers with restaurant expertise. In late 2011, Horowitz introduced on Richard Dalton as the corporate’s president. Dalton had been a longtime govt with the now defunct Boston-based Again Bay Restaurant Group, which was behind mega-popular high-end east coast chains like Atlantic Fish Co. and Papa Razzi. Then in June 2012, he tapped Jeffrey Lunak, an govt chef at Morimoto Napa, to be the corporate’s chief culinary officer. Horowitz tasked the brand new hires with a plan to broaden the franchise into California, opening eating places in Hollywood in November 2013, then Newport Seashore and San Francisco in July 2014. However issues didn’t precisely go easily.

Two sources with intimate data of the Blue C enlargement into California, who requested to not be recognized because of concern of litigation, cite main issues with this period of the enterprise. “The build-outs were way more expensive [than anticipated], the locations were no good, and they weren’t performing well. Every one of those had to be funded by Russ, and then on top of it, the overall revenues of the businesses were declining,” says one former high-level worker.

One other supply says, “There were times when the California restaurants were behind on rent and vendor payments. It was a constant game for them to try to get funds from us.”

A bird’s eye view from the second level of the a Blue C restaurant, showing a conveyor belt transporting plates and a group of diners in booths.
A chook’s-eye view from the second stage of the Bellevue Blue C location. (Picture courtesy of Mandy T./Yelp)
Mandy Livingston

In 2014, the behind-the-scenes chaos bubbled over into the general public realm. That 12 months, two out of the three Increase Noodles closed after an effort to rework them into high-end izakaya eating places failed.

Dalton left the corporate shortly thereafter. The Boston restaurateur filed a lawsuit in 2015 in opposition to Horowitz, alleging {that a} sample of micromanagement made it unattainable to do his job. Based on the preliminary grievance, Dalton “became increasingly frustrated as [Horowitz] … took a more active role in business decisions on behalf of Madison without [Dalton’s] knowledge or approval, and without having any business experience in the restaurant industry.” As cited within the lawsuit, Horowitz as soon as “became outraged” with Dalton in the summertime of 2014 when he found {that a} new sushi place was opening in the identical Newport Seashore mall the place a Blue C location had not too long ago arrived. Within the submitting, Dalton asserted that Horowitz misunderstood how such negotiations with the owner labored and thought an exclusivity settlement had been promised when it wasn’t.

In that very same lawsuit, Dalton claimed that he was terminated with out trigger shortly after the Newport Seashore argument. He sued Horowitz for non-compliance of termination cost that totaled 9 months of his base wage, or $180,000. The lawsuit was ultimately pressured into arbitration and settled for an unknown sum. When reached for remark concerning the lawsuit and different circumstances round his departure, Dalton mentioned, “I prefer to put that chapter of my life behind me.”

Others echoed Dalton’s points with Horowitz, as detailed within the lawsuit. “He reminds me a lot of a smart version of Donald Trump,” a one-time Madison Holdings worker says of Horowitz. “He had dreams of taking the Blue C Sushi concept public, thinking it was just like the tech companies he started and sold.” (The worker, afraid of retaliation, additionally requested for anonymity.)

For his half, Horowitz mentioned he thinks what occurred was enterprise as typical. “Over a 16-year history, I don’t believe the turnover was particularly high as compared with most other companies, particularly in the restaurant industry,” he says. “The intent was to build the infrastructure to support growth and to continue raising the quality and diversity of the Blue C Sushi product offering. Like with many other companies, some of these hires worked out as intended, and unfortunately some did not.”

With Allard, Rosen, and Dalton all gone, the problems on the high of Madison Holdings appeared to affect day-to-day operations by the top of 2014, based on workers. “Everything was harder than it needed to be,” says Theresa Tonelli, a server at Blue C’s Alderwood Mall location, in Lynwood, Washington. “We would run out of stock for things — we didn’t get new paper menus or even ingredients that we needed.”

“He reminds me a lot of a smart version of Donald Trump,” a one-time Madison Holdings worker mentioned of Horowitz. “

Buyer evaluations mirrored the disorganization. One Yelp reviewer wrote in August 2015, about the chain’s downtown Seattle location, “The on-table menu didn’t work. The call button for the waiter didn’t work. The custom delivery train didn’t work. The raw sushi on the belt stayed there the entire time we were there, over one hour.”

Another Yelp review of the same location from January 2016 said, “This place has gone way downhill over the last 4-5 years. There’s very little fresh fish in anything they make anymore, and the prices have increased. Even the sushi rice was stale.”

In August 2016, the last of the Boom Noodle shops closed down, giving its employees just two days notice. Linus Ahiru was a prep and pantry cook at Boom Noodle in Capitol Hill at the time, and was one of the few to get transferred on to a Blue C restaurant. He says that the closure of Boom came as a shock to the restaurant’s employees — but things were hardly better at the downtown Blue C where he ended up. “Managers kept quitting,” he says. “The general manager of our location also managed so many other locations. Prices of food kept going up while quality kept going down.”

Lunak left the company abruptly in February 2017. (He declined to comment for this story.) Not long after, the first Blue C Sushi restaurants closed: San Francisco and the original Seattle location in Fremont both shut down later that year. Madison Holdings tried to save the remaining seven locations, renegotiating at least a few of the contracts with suppliers and landlords. It made a final push to remain solvent in late 2018, but fell short.


All that’s left of Blue C Sushi now is a pile of debt and some restaurant equipment locked in a Seattle-area storage unit.

In November 2018, Christothoulou resigned. In statements to Eater, Horowitz and Christotholou laid the blame for the final restaurants’ closures at each other’s feet.

Through a bankruptcy filing, Eater learned that the Madison Holdings debt amounted to $34,781,565.07. When the bankruptcy ultimately finishes winding its way through the Washington court system, Madison Holdings will cease to exist. The few assets it has on record will be divvied up among the dozens of creditors it has left behind, including tax debts still owed to the state, defaulted contracts with landlords and food suppliers, and unpaid or bounced checks to the company’s one-time employees. While several former Blue C workers told Eater they’ve since gotten new jobs, according to the bankruptcy document, many other staff members, vendors, lenders, and landlords are still owed hundreds — and, in some cases, hundreds of thousands — of dollars.

As for the others who were once involved in the venture, Lunak has opened Sumo Dog, a Japanese-inspired hot dog chain in the Los Angeles area; Dalton has left the restaurant industry entirely and returned to Boston. He’s now the CFO of a regional employment board and serves as director of a Boston metro area chamber of commerce. Allard and Rosen went on to open Elemental Pizza in Seattle, which offered to help out former Blue C staff who have lost their jobs. Rosen says they have hired five people who formerly worked at Blue C. Others were less fortunate, left on their very own to navigate the method of submitting for unemployment insurance coverage and looking for new work.

Based on the chapter submitting, Madison Holdings owes about $4.6 million to Horowitz and $21 million to Francis J. Feeney, a Boston-based monetary lawyer, and Madison Holdings board member, who has labored with Horowitz for the reason that late 1990s. Neither Horowitz nor Feeney would touch upon the place these figures got here from. Nonetheless, based on a number of Seattle-based tax attorneys that Eater consulted (none of whom labored with the individuals or firms talked about on this article), each of them might probably see tax advantages from declaring such massive losses, if these tens of millions symbolize loans or investments within the firm.

Horowitz tells Eater that he has bought the mental property rights to Blue C, together with all of its emblems and proprietary software program. “The unexpected circumstances that led to it being forced to shut down were extremely disappointing to me personally and also to many others,” he says. “There will hopefully be an opportunity in the future to reintroduce Blue C Sushi in ways that we think could be very positive and exciting.”

Not everybody feels that method.

Zachary Kamel is a contract journalist primarily based in Montreal.

Extra reporting by Tim Forster

Lead illustration by Carolyn Figel

Copy edited by Emma Alpern

Edited by Matt Buchanan and Carolyn Alburger

Particular because of Megan Hill

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