For at least a few days after Christmas, nothing seemed out of the ordinary at Blue C Sushi, the popular conveyor-belt sushi chain in Seattle and Southern California. Diners filed in. Chefs handcrafted an array of sushi and nigiri, placing them onto color-coded plates that drifted through the restaurant’s dining area on a moving platform, available for patrons to pick from as the dishes crawled by. The official Blue C website advertised a January hamachi nigiri special, along with brand-new sake selections. Customer Phil Rose went to the Blue C restaurant in downtown Seattle for lunch on New Year’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.”
But on Monday, January 7, things ground to a sudden halt. Kent-based seafood supplier Young Ocean Inc. tried to make a delivery to one of the Seattle Blue C locations, but no one was there to receive it — the building was dark and the doors were locked. On the same day at the Blue C in Westfield Southcenter Mall in Tukwila, a busser came to work for her shift and saw chairs upturned on the tables, with customers unable to get in. One observer took a photo of a padlocked door at the University Village location with a rent default notice posted on the window.
At 10:45 p.m. the previous night, Madison Holdings Inc. — Blue C Sushi’s parent company — sent out an email to its employees announcing the closure of all seven remaining restaurants in its empire and the termination of more than 100 people, effective immediately. Management issued final paychecks that week and informed at least some staffers that they would need to go to a nearby Starbucks to collect their pay. The chain, which had been around since 2003, growing to six locations in Seattle, two in the Los Angeles area, and another in San Francisco, was effectively wiped from the map.
At the time, a Blue C representative cited “unexpected financial and other circumstances” as the reason for the closure. Eater reviewed bankruptcy filings and other financial documents that reveal Blue C was more than $34 million in debt, suggesting that the circumstances around the restaurant’s closing may not have been so unexpected — to at least some within the organization. Interviews with past employees at multiple levels within the company paint a picture of an organization that stumbled through a series of poor management decisions and long-term infighting. Meanwhile, workers were laid off without warning, vendors couldn’t figure out who would settle up unpaid bills, and customers who had purchased gift cards over the holidays were left with worthless plastic.
Abrupt closures that leave employees, suppliers, and patrons in the lurch are all too common in the restaurant business. What made Blue C’s sudden and complete shuttering so alarming was that there were plenty of signs that things weren’t going well, stretching back more than seven years — but the major figures involved either chose to ignore those warnings or attempted to power through. The result is a cautionary tale about what can happen to a restaurant when inexperience, ample cash flow, and unchecked ambition collide.
The minds behind Blue C Sushi, James Allard and Steve Rosen, were two ’90s dot-com entrepreneurs based in Seattle who wanted to leave behind the seemingly endless fallout of the tech bubble burst to embark on a completely different kind of project: a restaurant. Neither had any experience in the business, but Allard spent time in Japan as a law student and “fell in love with conveyor-belt sushi because it was affordable,” says Rosen. After leaving a Seattle-based search engine company called InfoSpace in 2002, the duo worked with Arthur Rubinfeld, a former Starbucks executive who specialized in store development and real estate. Together, the three men scouted existing conveyor-belt sushi joints (known in Japan as kaiten) in the Pacific Northwest, London, and Tokyo, and analyzed the market to measure the viability of what would become 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 book Built for Growth: Expanding Your Business Around the Corner or Across 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 decided to do what Starbucks had done before them: gentrify an existing concept and profit handsomely.
At the time, kaiten restaurants weren’t known for their ambience in Japan or the U.S. They often had a cafeteria-like atmosphere — fluorescent lighting, minimal decor, and basic menu items. Sushi Land, a company from Osaka, was already in the Seattle area, and it was gaining traction. Another Japanese-based chain, Genki Sushi, eventually landed on the scene. For these places, the conveyor belt wasn’t just a gimmick: It was a way to cut down on staffing costs. Allard and Rosen saw an opportunity to go upmarket, delivering higher-quality food in an eye-catching space at a slightly higher price point than its competitors.
Their business plan solidified, Allard and Rosen needed a money man. Enter Russell Horowitz.
Rosen and Horowitz grew up together in the Seattle area, and when Horowitz founded a web directory company called Go2Net in the ’90s, he called on his childhood friend to be one of the first employees; Allard came on as vice president of operations at Go2Net not long after. With an influx of money from tech giant Paul Allen, things were going well. But then Go2Net merged with InfoSpace; Horowitz left in January 2001 and sold his shares for more than $30 million, in what company investigators have since probed for potential insider trading. While neither the SEC nor the company filed charges, shareholders successfully sued InfoSpace executives. Once the dust settled, Horowitz used some of his earnings to fund Allard and Rosen’s nascent sushi enterprise.
In August 2003, the first Blue C location opened in Seattle’s Fremont neighborhood, featuring dim lighting, an enormous movie screen, and decor meant to reflect the area’s bohemian vibe, including a 15-by-3-foot mural of local landmarks. The owners upgraded the conveyor belt to incorporate RFID technology that provided real-time data to the chefs, documenting the exact moment a plate was lifted from the belt and how long it had been revolving. On opening night, the restaurant was packed, and customers continued to flock in droves.
Over the next seven years, Blue C found its niche. While it never ended up on the top of “best Seattle sushi” lists, it did a good job catering to students on a budget, businesspeople on a lunch break, and families with children. Allard, Rosen, and Horowitz opened six more Blue C locations in the Seattle area, along with three noodle joints called Boom Noodle. According to Rosen, the restaurant group — christened Madison Holdings Inc. — was pulling in between $15 million and $20 million in revenue and about $2 million in net profit annually by 2011.
In April of 2012, the founding trio even landed on Seattle magazine’s inaugural list of the “70 most powerful players in the Seattle food scene.” For three dot-commers with no prior restaurant experience, it was high praise. Even in a city crowded with sushi competitors, Blue C seemed like it would stick around.
Behind the scenes, though, things had already begun to unravel.
Three months before their appearance in Seattle magazine, Allard and Rosen left Madison Holdings — neither would comment on the reasons behind their departure. With the pair gone, Horowitz re-organized management, leaning more heavily on George Christothoulou, the executive vice president who oversaw finance, accounting, and operations at Madison Holdings. And, for the first time, he also decided to hire some high-level decision makers with restaurant experience. In late 2011, Horowitz brought on Richard Dalton as the company’s president. Dalton had been a longtime executive with the now defunct Boston-based Back 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 executive chef at Morimoto Napa, to be the company’s chief culinary officer. Horowitz tasked the new hires with a plan to expand the franchise into California, opening restaurants in Hollywood in November 2013, then Newport Beach and San Francisco in July 2014. But things did not exactly go smoothly.
Two sources with intimate knowledge of the Blue C expansion into California, who asked not to be identified due to fear of litigation, cite major problems with this era of the business. “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 employee.
Another source 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.”
In 2014, the behind-the-scenes chaos bubbled over into the public realm. That year, two out of the three Boom Noodles closed after an effort to transform them into high-end izakaya restaurants failed.
Dalton left the company shortly thereafter. The Boston restaurateur filed a lawsuit in 2015 against Horowitz, alleging that a pattern of micromanagement made it impossible to do his job. According to the initial complaint, 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 in the lawsuit, Horowitz once “became outraged” with Dalton in the summer of 2014 when he discovered that a new sushi place was opening in the same Newport Beach mall where a Blue C location had recently arrived. In the filing, Dalton asserted that Horowitz misunderstood how such negotiations with the landlord worked and thought an exclusivity agreement had been promised when it wasn’t.
In that same lawsuit, Dalton claimed that he was terminated without cause shortly after the Newport Beach argument. He sued Horowitz for non-compliance of termination payment that totaled nine months of his base salary, or $180,000. The lawsuit was eventually forced into arbitration and settled for an unknown sum. When reached for comment about the lawsuit and other circumstances around his departure, Dalton said, “I prefer to put that chapter of my life behind me.”
Others echoed Dalton’s issues with Horowitz, as detailed in the lawsuit. “He reminds me a lot of a smart version of Donald Trump,” a one-time Madison Holdings employee 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 employee, afraid of retaliation, also asked for anonymity.)
For his part, Horowitz said he thinks what happened was business as usual. “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 issues at the top of Madison Holdings appeared to impact day-to-day operations by the end of 2014, according to employees. “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.”
Customer reviews reflected 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 own to navigate the process of filing for unemployment insurance and attempting to find new work.
According to the bankruptcy filing, Madison Holdings owes about $4.6 million to Horowitz and $21 million to Francis J. Feeney, a Boston-based financial attorney, and Madison Holdings board member, who has worked with Horowitz since the late 1990s. Neither Horowitz nor Feeney would comment on where those figures came from. However, according to several Seattle-based tax attorneys that Eater consulted (none of whom worked with the people or companies mentioned in this article), both of them could potentially see tax benefits from declaring such large losses, if those millions represent loans or investments in the company.
Horowitz tells Eater that he has purchased the intellectual property rights to Blue C, including all of its trademarks and proprietary software. “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 everyone feels that way.
Sounds like you got blue c sushi’d https://t.co/0iK2M8pyDk— michael (@MykeyMercado) March 5, 2019
Zachary Kamel is a freelance journalist based in Montreal.
Additional reporting by Tim Forster
Lead illustration by Carolyn Figel
Copy edited by Emma Alpern
Edited by Matt Buchanan and Carolyn Alburger
Special thanks to Megan Hill