Hackensack restaurant deal soursSunday, October 13, 2013 Last updated: Sunday October 13, 2013, 5:01 PM
BY HUGH R. MORLEY
STAFF WRITER
The Record
Five years ago, the restaurateur Robert Dinallo seemed to be on a career-defining high.
Restaurant owner Robert Dinallo agreed to a 50-50 partnership with contractor Joseph Sanzari to develop a hotel near the
Stony Hill Inn in Hackensack, but the deal fell apart amid legal battles that effectively stripped Dinallo of his stake. Dinallo in the restaurant that bears his name in River Edge. CARMINE GALASSO/STAFF PHOTOGRAPHER
Dinallo in the restaurant that bears his name in River Edge. The owner of one of Bergen County's landmark restaurants, the Stony Hill Inn in Hackensack, Dinallo had partnered with one of the state's biggest construction magnates, Joseph Sanzari, granting him half-ownership of the inn as they pursued a plan to build a 224-room upmarket hotel beside the nearly 200-year-old restaurant building.
Yet on Sept. 30, Dinallo, 70, having lost ownership of the Stony Hill Inn to Sanzari, put a company that owns his other restaurant, Dinallo's Restaurant in River Edge, into Chapter 11 bankruptcy in an effort to keep it, and himself, in business.
His descent stemmed from a bitter dispute between the partners, detailed in a lawsuit filed by Sanzari accusing Dinallo of mismanagement of Stony Hill — concealing losses, failing to pay taxes and using company money to pay personal expenses — and a countersuit by Dinallo accusing Sanzari of slander, among other things.
Sanzari largely won the legal battle. The decision by Dinallo to put his company, 259 Johnson Ave. Inc., into bankruptcy, was triggered by a court ruling in March that awarded Sanzari a judgment of $262,000. That followed an arbitrator's opinion that Dinallo should be removed from J&B Restaurant Associates, the company formed by Sanzari and Dinallo in 2007 to own and operate the Stony Hill Inn.
The court ruling made Sanzari the sole owner of the restaurant famous for power lunches, political gatherings and non-profit galas.
Dinallo's company filed for bankruptcy to halt an Oct. 2 asset auction scheduled by the Bergen County Sheriff's Department to collect on the debt to Sanzari, said Dinallo's attorney, Jeffrey R. Pocaro of Fanwood. Dinallo claimed assets of $120,000 and liabilities of $4.1 million, mostly from loans connected with the operation of Stony Hill.
Dinallo feared the auction would shut down his River Edge restaurant, the attorney said. Everything in the River Edge restaurant would have been up for sale, Pocaro said, noting that Dinallo owned only the business, not the property. He added that Dinallo's South Hackensack house is in foreclosure.
"In the long run, if we can't get the bankruptcy plan approved, he will more than likely lose the restaurant and walk away with nothing," he said.
Dinallo declined to comment for this story, though he allowed himself to be photographed at his restaurant.
Sanzari issued a statement recounting the legal case and saying he anticipates that "the name of the well-known hotel [chain], which will complement the Stony Hill Inn site, will be made known in 2014."
The seeds of the doomed Dinallo-Sanzari partnership were sewn when Dinallo, a 40-year veteran of the restaurant business, bought the Stony Hill Inn with a partner in 2005, after running the Cameo in Garfield and his own Dinallo's Restaurant, Pocaro said.
The veteran restaurateur conceived a plan to build a hotel next to the inn and tap into the overnight hospitality needs of the many guests who came there for weddings, parties and other events, Pocaro said. In preparation, Dinallo bought three properties behind the inn that would be needed to create an entrance to a hotel.
High-profile contractorDinallo, believing that he would have difficulty financing the project, partnered with Sanzari, a prominent public works contractor, political contributor, longtime member of the board of Hackensack University Medical Center — to which he has donated millions of dollars — and a former chairman of the Bergen County Economic Development Corp.
The men became acquainted through Sanzari's visits to Dinallo's River Edge restaurant, and the construction company owner was attracted by Dinallo's offer to co-own such a prominent, prestigious and historical property, a source familiar with the deal said.
Two years after buying the property, Dinallo sold half the Stony Hill Inn to Sanzari, a Ho-Ho-Kus resident who is also principal owner of the New Bridge Inn in New Milford. It's unclear what became of the former co-owner.
Under the partnership deal, Dinallo and Sanzari each agreed to put $1 million into the company, giving both a half-share, and it designated Dinallo as the restaurant's manager, according to Sanzari's suit.
The pair submitted plans to Hackensack for the hotel building, which they hoped would be run under the Marriott or Hilton brand, and by December 2008 had partial approval. But the plan foundered in the recession, as revenue fell dramatically and the company directed its financial resources to maintaining the inn, Pocaro said.
According to court papers and people familiar with the case, it took a while for the partnership to sour.
A lawsuit Sanzari filed in August 2011 argued that as a result of Dinallo's mismanagement, Sanzari had to put another $2.2 million into the inn from 2007 to 2011. The suit accused Dinallo of "gross negligence and willful misconduct," including concealing the inn's losses, failing to pay state sales tax and using company money for personal expenses that an arbitrator later totaled at more than $700,000.
It also alleged that Dinallo had Stony Hill Inn employees do work on his own businesses and took "manager's fees" for which he wouldn't have been eligible if he revealed that the company was losing money, rather than making a profit.
By June 2011, Dinallo had "abandoned his duties as manager," Sanzari's suit said, and Sanzari had to step in as interim manager.
Dinallo, who denied the claims, countersued in December 2011, accusing Sanzari of making "willfully and maliciously false and defamatory" statements in a "campaign to expel Dinallo" from the business, and hurt his reputation. Sanzari began the "slander" campaign, Dinallo's suit argued, "in light of reduced revenue in the restaurant due to a poor economy" and the failure of Sanzari to agree to "consummate" the hotel project. A judge in the case later restrained Sanzari from "disparaging the defendant."
Sent to arbitration"It was not a marriage made in heaven," said Pocaro, Dinallo's attorney.
The court referred Sanzari's suit to an arbitrator, former Chief Justice of New Jersey James R. Zazzali, who, after four hearings, found that Dinallo effectively "withdrew" as the manager of J&B Restaurant Associates, and the partnership agreement in that scenario gave Sanzari the right to buy Dinallo's half of the business.
The arbitrator valued Dinallo's half-share at $1.74 million, but found that he owed the company $1.7 million, including $725,000 he "wrongfully used" to pay for personal expenses.
With the debts removed, Sanzari owed Dinallo just $40,000, Zazzali said. And the court later ordered Dinallo to pay Sanzari's legal expenses, too. That left Dinallo owing Sanzari about $262,000.
The arbitrator said Dinallo also may owe Stony Hill Inn another $2.1 million for cash transactions that are unaccounted for during his tenure as manager, pending an accounting of the inn's books.
Email: morley@northjersey.com