Why a promising Saladworks partnership got tossed
When Vernon W. Hill II invested $7.75 million in John Scardapane's Saladworks in 2008, the two entrepreneurs made ambitious plans for dramatic growth in just a few years. Instead, they ended up in a knock-down, drag-out fight in bankruptcy court over the future of the company.
It seemed so promising in the beginning. Vernon W. Hill II, a hard-charging entrepreneur with money to spend, invested $7.75 million in Saladworks to get the franchise restaurant chain on the fast track.
"I like things to grow, and I like them to grow fast," Hill said at the time. And growth was just what John Scardapane had in mind for the company he'd started in the food court at Cherry Hill Mall in 1986.
With Hill's 2008 investment, Saladworks expanded, mostly in new markets. The deal required franchisees to use InterArch, the architecture firm owned by Hill's wife, Shirley — the same arrangement that put Commerce Bank in the regulatory crosshairs, with Hill ultimately ousted as CEO.
Scardapane had high hopes for the new Saladworks model: "It was going to be better, bigger, more beautiful, have better volume."
Existing franchisees, however, were wary of adopting Shirley Hill's more expensive design. As it turned out, they were right: The new look did not increase sales. In the end, it landed Scardapane in a battle — a classic in the annals of Philadelphia business — with Vernon Hill over the use of InterArch.
The fight lasted years and led to the June 2015 bankruptcy sale of Saladworks for $16.9 million — $10 million less than its value when Hill invested.
In recent interviews, Scardapane, 54, who had a life-threatening pancreatic illness during much of the Hill era at Saladworks, reflected on their partnership's failure.
"I was in a divorce, and because I wasn't going to be married to him anymore he didn't want me to be married to anybody else," Scardapane said.
Hill — who in a 2014 lawsuit accused Scardapane of "fraud, waste of company assets, breach of fiduciary duty, and unjust enrichment" — twice said, "No thanks," when asked by email whether he wanted to comment or be interviewed for this article.
Scardapane is not licking his wounds. Last year, he opened Eatnic, a Paoli BYOB in a former Saladworks location, with his wife and 25-year-old son. Though the sting of losing Saladworks still rings in his voice, Scardapane sometimes breaks into deep laughter over certain of his own antics, such as leaving small amounts of money in banks for Hill to freeze.
Ultimately, Scardapane said, he knew he didn't stand a chance if Saladworks stopped using Shirley Hill's architecture firm. "He gave up Commerce for Shirley. He could have remained CEO of Commerce, but he said no."
At the same time, Scardapane said, "I thought that we were such good friends that he wouldn't crush me."
What brought the two men together in late 2007 was Scardapane's need for restaurant locations. He turned to Site Development Inc. (SDI), a Mount Laurel real estate brokerage Commerce Bank used. That's where he met Vernon Hill, one of the firm's owners.
What followed, he said, were store visits, emails in bold caps from Hill, lunches, offers of money, which Scardapane said he turned down repeatedly.
Why, then, did Scardapane, who brimmed with confidence as he built Saladworks, take the $7.75 million? Because, he said, he became convinced the flamboyant Hill's success would rub off, catapulting Saladworks past years of growing pains.
In fall 2008 in Mount Laurel, as the financial world convulsed, Saladworks opened its first corporate store designed by Shirley Hill. New cutlery. Custom bowls to match her favorite square white ceramic bowl at home. Custom chairs in a custom color. Specially designed salt and pepper packages. Pricey takeout bags.
Build-out costs soared to $650,000 to $700,000, before cost overruns, from $400,000 per store.
Saladworks went to Herndon, Va., for the second new company store. It opened in March 2009 in a former Kentucky Fried Chicken and Caribou Coffee location on a commercial strip near a Commerce Bank site.
"We invested over $1 million, and it was a bomb," Scardapane said.
Eventually, new corporate stores were taken off a list where franchisees could compare sales performance.
"We knew it was because the store was doing bad," Vince Rosetti, a veteran franchisee, said of the Mount Laurel location. "Nobody would invest because the cost of the stores was way too expensive. It wasn't improving sales at all."
Scardapane said he made repeated trips to InterArch, in Mount Laurel, to plead with Shirley Hill to reduce the stores' cost. Vernon would invariably join the conversation, and they would pummel Scardapane, who said Shirley admonished him: "Don't ever get stuck in the valley between the two Hills."
During recent interviews, Scardapane sometimes was nostalgic. The couples, Vernon and Shirley and John and his wife, Gail, vacationed together repeatedly in Palm Beach, Pebble Beach, Venice, and St. Barts.
"I'm extremely happy for Shirley. I love her. I really do," Scardapane said.
After all that happened?
"I really like her," he said. "She can't build an inexpensive model."
He wonders whether Shirley would have minded if Saladworks stopped using InterArch. Maybe not, said Scardapane, who said he helped pick sites for Hill's Metro Bank in London, opened in 2010.
(Vernon Hill became chairman of Republic First Bank in Philadelphia in December 2016. Based on public filings with regulators, InterArch has been paid millions to work for Metro Bank and Republic First.)
In January 2013, after Scardapane spent three days in doctor-recommended alcohol treatment, Hill got the idea he was stealing from Saladworks. That led to a forensic audit that formed the basis of Hill's 2014 lawsuit, which alleged improper payments and benefits for members of Scardapane's family, including an $89,000 annual salary for Gail Scardapane, who worked in public relations.
The audit found nothing unusual, Scardapane said. "This is the self-proclaimed best reader of financials in the world. You know, I think he might be," he said of Hill. "He can read a statement and tell where a penny is missing. How am I, John Scardapane, going to put anything over on him?"
A year later, Wayne P. Weitz, a restructuring expert helping with the bankruptcy, gave the claims little chance of succeeding: "Mr. Hill's close personal and business relationship with Mr. Scardapane, his active and engaged position in the business, and his membership on the board […] would make it difficult for him to claim and collect damages."
The audit was hard on Saladworks. "It undermined me so badly with me and my staff," Scardapane said, and made it impossible to continue with Hill, InterArch, and SDI, the real estate broker.
Hill demanded his $7.75 million back, per the 2008 agreement. To repay it, Scardapane had to sell or refinance the business, an outcome he always knew was possible. But he never imagined the company would lose so much value.
Paul Steck, a top Saladworks executive during the Hill-Scardapane era, in 2015 described dysfunctional ownership, with Scardapane telling him to do nothing as the fight escalated.
Steck described Hill as "the smartest man I ever met," but said that "as he got more and more embattled, he lost interest with this brand. I think his interest was battling with Scardapane."
Mufson Howe Hunter, the investment bank Scardapane hired to help buy Hill out, lined up a tentative deal for $12.5 million in financing, but there was a catch in the original partnership agreement: Hill had to approve any Saladworks transaction worth more than $1 million.
Hill wouldn't, Scardapane said: "Until something goes wrong, you just don't know what one word can mean."
Moreover, Hill had taken over $2.8 million in Saladworks bank debt, giving him additional leverage. Scardapane decided bankruptcy — with a judge overseeing the sale — was the only way to give the company another chance.
When Saladworks was sold in 2015, it was hard for him to go on, Scardapane said.
"Forget about the financial loss. That was my life," he said last week. "That was what I wanted to do until I die."
Staff writer Jane M. Von Bergen contributed to this article.
A Saladworks timeline
1986: John Scardapane starts Food Works in the Cherry Hill Mall. Name is changed a year later to Saladworks.
2008: Vernon Hill invests $7.75 million in March, for a five-year term. First new store designed by Shirley Hill opens in September. Goal is to have 1,000 locations.
2011: First international franchise agreement, in Singapore, is announced.
2012: Big push signs up new franchisees in Arizona, California, Florida, Louisiana, Massachusetts, South Carolina, Texas, and Washington state.
2013: Scardapane tells Hill Saladworks will no longer use Shirley Hill's architecture design firm. Hill demands his $7.75 million back.
2014: Hill sues Saladworks and Scardapane to get his money back, alleges fraud at Saladworks.
2015: Saladworks files for bankruptcy protection to facilitate a sale. Centre Lane Partners buys Saladworks for $16.9 million.
2016: Patrick Sugrue is named chief executive.
2017: Saladworks has 92 locations, just four more than when Hill invested.
SOURCE: Inquirer research