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Entering City Bakery on West 18th Street in Manhattan, it was hard to imagine the popular restaurant with the best hot chocolate in New York and a famous pretzel croissant could never collapse.

The spacious and lively cafe is packed with locals and tourists every day of the week. Things got even busier over the Hot chocolate party in February.

But the Union Square bakery suddenly went closed its doors over the weekend after nearly 30 years in business, citing “too much debt… that’s like quicksand” in an Instagram goodbye Publish.

“This is not what we wanted. Not what we expected. This is where a bad road has led ”, the a message read.

The owner of the famous bakery, Maury Rubin, did not respond to requests for comment.

But a review of court documents and public records shows City Bakery had been in financial jeopardy for more than a year, damaged by growing debt and a precarious expansion that placed outposts in SoHo on the Upper West Side. and even in Tokyo.

In his quest for funds, Rubin turned to costly and risky deals to provide a significant portion of City Bakery’s revenue to finance companies.

City Bakery also bore the financial burden of a $ 75,000 legal settlement in a labor dispute earlier this year after a longtime employee alleged he was harmed by overtime, documents show of the Federal Court.

In its final months, the bakery faced nearly $ 600,000 in claims from several creditors who had started pursuing judgments for non-payment, court documents say.

Dead end affair

Last Tuesday, days before the cafe closed, a fund provider filed a lawsuit with the Manhattan State Supreme Court in a case that City Bakery had no chance of winning.

This is because Rubin had previously signed a “confession of judgment” in exchange for a financial lifeline, known as the Merchant Cash Advance – a type of high-risk, high-cost transaction that does. now the subject of several New York State investigations following a Bloomberg News exhibits.

Rubin got a $ 75,000 advance from a Financial District company called Kalamata Capital Group. He signed a document promising to repay Kalamata $ 105,000 – automatically remitting 15% of the bakery’s bank deposits each day, which is about $ 700 in daily transfers, until the full amount is reached.

By signing the confession of judgment, Rubin effectively admitted in advance that he had done wrongdoing if the company fell behind – erasing the right to “have his day in court,” according to Renée Johnson of the Main Street Alliance small business advocacy group.

“They can basically take all of your money from any account they have access to. They can basically put you out of business, ”she said. “And that’s exactly what happens to so many people.”

Kalamata first advanced funds from City Bakery in June 2018. Rubin signed a more recent agreement, including terms of $ 700 per day, on August 7, 2019.

On October 15, KCG went to court to enforce the already signed judgment, demanding $ 87,766.39. Four days later, the bakery closed.

The City Bakery on West 18th Street unexpectedly closed after nearly 30 years in business.
Ben Fractenberg / THE CITY

In a statement, Kalamata Capital Group COO Brandon Laks said the company “is very sorry that City Bakery has decided to shut down” and noted that many Kalamata Capital Group employees have loved the establishment.

He said KCG made changes to the funding agreement as City Bakery struggled and “without KCG’s capital and amendments, City Bakery would have closed and jobs would have been lost much sooner.”

“Unfortunately, a lot of small businesses are closing and that’s a risk KCG takes when we help finance and support these businesses,” he said.

Debt for New Yorkers only

Until this summer, New York was a national focal point for a booming “merchant cash advance” business, thanks to state law that allowed companies to file admissions of judgment in court. New York courts.

When Kalamata merged last year, along with another merchant cash advance company, Kings Cash Group, the new entity said it had provided $ 300 million in capital to more than 5,000 small businesses.

Bloomberg News analyzed data Last year, more than 350 lenders and cash advance companies obtained more than 25,000 judgments since 2012 for a total of approximately $ 1.5 billion, all in New York City.

The biggest player was Jersey City-based Yellowstone Capital, responsible for a quarter of those judgments, according to Bloomberg. The New York Attorney General thereafter launched an investigation industry and assigned Yellowstone.

Fed up with county courthouses being inundated with cases aimed at enforcing judgments, New York Chief Justice Janet DiFiore convinced the legislature to pass legislation that prohibited confessions signed with out-of-state companies are not enforced by New York courts. Governor Andrew Cuomo signed the bill on August 30.

But the measure, sponsored by Sen. Brad Hoylman (D-Manhattan) and Assembly Member Jeff Dinowitz (D-The Bronx), preserved the right of New York businesses like City Bakery to continue to confess to judgment as “a legitimate tool that can facilitate business transactions.”

Chris Vatter, a member of the commercial and federal litigation sector for the New York State Bar Association, explained that the admissions of judgment simplify the “procedure for obtaining a judgment if the debt is not reimbursed on time ”.

“It also ensures that the debt will be repaid and can limit the amount of legal fees and expenses incurred to resolve a debt dispute,” said Vatter, partner at Long Island-based law firm Jaspan Schlesinger.

Lak of Kalamata Capital Group said the company voluntarily stopped using judgmental admissions as Cuomo prepared to sign state reforms this summer.

Johnson of the Main Street Alliance says New York’s exemption for local businesses underscores the need for a comprehensive federal law banning denominational agreements. A bipartite bill in this direction is make his way through the house now, and was ready for discussion to the Financial Services Committee last month.

Affectionate farewell

However, any reform, if it does occur, will come too late for Manhattan’s favorite hot chocolate.

On Monday at City Bakery, New Yorkers walked up to the cafe’s floor-to-ceiling windows, shocked to see a sign with a poetic farewell.

“The town bakery is now closed. What time. What a world it was. What a loss. A loss for all of us. We will miss it forever, ”he read. “Thanks New York.”

In its Instagram post, the bakery said it had tried “for over a year” to deal with its debt situation, but found traditional financing impossible, even for “a New York favorite of two generations “.

“People think rent is the ultimate retail killer in New York City, but it’s worth saying that if a normal bank loan had been available for City Bakery a few years ago, we’d be far from danger in which we are today, ”the post read. .

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