Kru founders sue partners, claiming they drained coffers to prop up other restaurants

Kru Contemporary Japanese Cuisine executive chef Billy Ngo and co-founder Peter Kwong have sued their business partners, alleging they used the east Sacramento restaurant’s profits to financially support other businesses.

Ngo and Kwong’s Kru Inc. accused Jon Modrow and Kimio Bazett’s Modrow-Bazett Inc. of spending Kru money on liquor bills at Bottle & Barlow, staff at The Golden Bear and office space at Hook & Ladder Manufacturing Co. in a Sacramento County Superior Court lawsuit filed Nov. 24, the Sacramento Business Journal first reported Tuesday.

Kru Inc. owns 53.2% of Kru Partners LLC, Modrow-Bazett Inc. owns 22.8% and non-managing investors own the remaining 24%. Managing members can currently only be removed from Kru Partners LLC with 75% of the vote or more from investors. In the managerial division of power, Ngo and Kwong have 70% and Modrow and Bazett have 30%.

Kru Inc. wants to buy out Modrow’s and Bazett’s ownership interests, charge them for damages and expel them from Kru Partners LLC. If the court won’t do that, they want Kru Partners LLC dissolved, according to the lawsuit.

“By materially adversely affecting Plaintiffs’ business, (Kru Partners LLC) and Kru Inc. have suffered monetary and reputational damages and by engaging in the acts herein alleged, (Modrow-Bazett Inc.) has caused dissent and controversy and made it impractical to carry on business with them as a member and managing member,” the lawsuit reads.

Ngo founded Kru as a precocious 24-year-old in 2005 at 2516 J St., where The Jungle Bird now sits. It rose to the top of Sacramento’s sushi scene thanks in part to omakase dinners — priced at $120 per person prior to the pandemic — and moved to 3135 Folsom Blvd. in 2016, one year after Modrow and Bazett joined as partners. Ngo’s since gone on to open Kodaiko Ramen & Bar, Fish Face Poke Bar and Healthy Hounds Kitchen, a premium dog food producer.

Modrow and Bazett also made a major splash at 24. They were founded The Golden Bear in midtown in 2003 and went on to open New American restaurant Hook & Ladder in 2012 and Bottle & Barlow in the R Street corridor in 2015. Though their business partnership remains, their relationship has deteriorated and the lawsuit said one was on his way out.

“Modrow and Bazett are currently estranged and are undergoing a restructuring of their relationship, eliminating one of them from ownership and management of Modrow-Bazett,” the lawsuit read. “Without the involvement of both individuals, there will be serious ‘holes’ in the abilities of Modrow-Bazett to carry out its responsibilities as managing member.”

The lawsuit alleges Modrow has not been significantly involved with either Kru Partners LLC or Modrow-Bazett Inc. since at least January due to that estrangement. Yet Modrow has continued collecting a $911.92 monthly salary from Kru during the coronavirus pandemic, the suit claims.

“I’ve been a business owner for 17 years, and to think that these accusations represent part and parcel how I operate is crazy. It’s unreasonable in the very least,” Modrow said.

In an email, Bazett also denied any wrongdoing. “I do want to clarify for the record that I have personally done nothing wrong,” he said.

If the lawsuit’s contention about payments to Modrow are accurate, his 2020 salary would be slightly more than the $8,500 Modrow-Bazett Inc. once took from Kru to buy alcohol for Bottle & Barlow, according to the lawsuit. The suit says Modrow-Bazett Inc. recognized the error but didn’t pay the money back for six months as the hybrid barber shop/bar remained mostly closed throughout the pandemic.

Another dispute came after Ngo asked for specifics on administrative fees Modrow-Bazett Inc. was charging Kru Partners LLC. He learned a manager at The Golden Bear had allegedly been earning $1,416.66 per month since 2017, money that was coming from Kru Partners LLC’s coffers, according to the lawsuit. The manager has allegedly never provided Kru with significant services, and though Modrow-Bazett Inc. allegedly acknowledged the payment structure was inappropriate, the lawsuit claims no restitution has been made.

Ngo and Kwong were also apparently unaware Kru Partners LLC was being charged $1,095.11 per month for office space at 1630 S St., Suite B above Hook & Ladder, where Modrow-Bazett Inc. holds court. They discovered the rent after it was doubled in January, according to the lawsuit.

Though Modrow-Bazett Inc. has allegedly dropped the rent back to its original amount, Ngo and Kwong want their money back. They argue rent paid to fund Modrow-Bazett Inc.’s office amounts to an increased management fee, which would violate Kru Partners LLC’s operating agreement since it wasn’t voted on. That same operating agreement does list 1630 S St., Suite B as Kru’s office as well as Modrow-Bazett Inc.’s, though it was drafted before the restaurant expanded to east Sacramento.

Bazett’s attorney Dan King disputed the veracity of the lawsuit’s claim without offering specifics.

“There are clearly things that are in here that are factually incorrect,” King said. “We’re looking forward to resolving things and getting the truth out here, because to the extent this thing alleges Mr. Bazett did anything wrong, that’s simply not true.”

Modrow’s wife, who is not named in the lawsuit, served as Modrow-Bazett’s bookkeeper until being removed in November 2019, according to the lawsuit. A CPA who also serves as Modrow-Bazett Inc.’s de facto CFO took over accounting duties after Modrow’s wife was terminated, but the errors haven’t stopped, the lawsuit said.

Modrow said he and Bazett proposed adding another manager to Kru Partners LLC to serve as a deciding vote on conflicts and potentially take over human resources and accounting services. The idea was universally supported by non-managing investors, but Ngo and Kwong declined, he said.

“I think it’s unfortunate that when we came up with a plan to restructure the administration and LLC management that was supported by all the (remaining) LLC membership, the Kru founders made the unilateral decision that they didn’t want to go down that path,” Modrow said.

He added: “I don’t see the suit really ending well for anyone except for the attorneys. And I think that most of all, the people that are most undeserving of having to be dragged into this are the people that invested their hard-earned money in the company in the first place.”

This story was originally published December 23, 2020 at 1:51 PM.