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In May of this year, owners of a Pacific Beach restaurant decided to rebrand their business, changing its name. By October, the restaurant faced an eviction notice. But the name-change row might have been just a side drama. The closure is another consequence of the skyrocketing value of liquor licenses in Pacific Beach.
This is Part Two in a two-part series. Catch up on Part One here.
In May, Dan and Peggy Mazzella and Jorge Gaytan changed their Pacific Beach restaurant’s name from Tony Roma’s to Beachtown BBQ.
Name changes are common in the strip mall along Mission Boulevard, where Tony Roma’s had been for decades, and the decision was unanimous among the restaurant management.
Their landlord, Michael Katz, did not like it, though. He said the name change violated their lease agreement.
The lease reads:
“The Premises shall be used by Tenant only for the purpose of operating a restaurant with bar and any purposes incidental thereto, under the name ‘Tony Roma’s.’”
And now, Beachtown BBQ will close its doors. But the name change row might have been just a side drama. The closure is another consequence of the skyrocketing value of liquor licenses in Pacific Beach, which has soured relationships between tenants and landlords throughout the neighborhood.
As a mainstay in San Diego’s drinking scene, more Pacific Beach restaurants are converting into bars. Due to state regulations, local protest, high crime rates and heavy concentration of pre-existing licenses, however, new liquor licenses in Pacific Beach are scarce and difficult to obtain. But demand remains high.
This leaves businesses looking among themselves for pre-existing liquor licenses. The scarcity has made the pre-existing liquor licenses an expensive commodity. One Realtor, Tony Franco, told me he has seen a liquor license sell in Pacific Beach for $1 million.
The stipulation is seemingly straightforward, but after evaluating the economic landscape of Tony Roma’s, changing the name seemed like a smart business move to the Mazzellas.
Tony Roma’s is not what it used to be back in 1986 when Peggy Mazzella’s father signed the original lease. Today, Tony Roma’s is a dying chain with 19 restaurants in the United States, down from more than 160 in 2002. After the name change, the business’ ratings on Yelp rose from 3.2 stars to 4.3 stars, a significant difference in the unforgiving crowd-sourced review community. But to the landlord, it did not matter.
On Aug. 31, after Katz’ attorney sent a letter to the Mazzellas, warning about the name change, Katz filed a complaint against Beachtown BBQ, or in Katz’s eyes, Tony Roma’s.
“The landlord is using an aggressive interpretation of the lease,” Dan Mazzella told me several days before the trial. His attorney planned to argue that within a broader interpretation, the Mazzella’s were still meeting the terms of their lease, operating as “a restaurant with a bar.”
Although liquor licenses are private property of the tenant, landlords have taken measures to acquire the licenses from the tenant.
If a business manages to get a liquor license, the value of the property rises, Franco said. Some landlords have taken advantage of this, hiking rents for their alcohol-serving tenants, at times to the point of pushing businesses out.
Sara Berns, executive director of Discover PB, the local business improvement district, said the expensive pre-existing liquor licenses often leave tenants victim to predatory behavior.
The Mazzellas are also engaged in a separate lawsuit with Katz in which he is seeking payment for a leaky grease trap. The suit was filed in June 2015 and the Mazzellas later filed a cross-complaint, which adds context to Katz’s aggressive behavior.
“Cross-Defendant (Katz) has intentionally and, in bad faith, engaged in a series of harassing tactics in an effort to find any pretext to terminate the tenancy and gain control of the liquor license,” the court documents read. “PB Roma’s alleges that landlord has an intent to bring in a new business as tenant and or owner or partner to utilize the license for purposes of a bar or nightclub generating more revenue than PB Roma’s family restaurant.”
Based on Katz’s history with tenants, along with what Dan Mazzella described as “The wild, wild west predatory nature of landlords” in Pacific Beach, the Mazzellas felt their allegations were legitimate. The omens within the strip mall – all of which included businesses closing and the movement of liquor licenses – were clear.
I was able to obtain a copy of a lease modification, made between Katz and another one of his tenants. Signed on Dec. 12, 2012, the modification extended the tenant’s lease until 2020 under the condition that “This lease would not have been modified without tenant expressly understanding that the Demolition Clause with the right to Purchase Liquor License being included in this modification.”
Based on a typical reading of demolition clauses, the modification would allow Katz to terminate the lease, demolish the building and afterward, buy the liquor license from the tenant, perhaps to develop a new business. The only thing Katz is required to do is give the tenant a heads up beforehand.
Records from Alcoholic Beverage Control, the state department that regulates alcohol manufacturing and sales, also show that Katz has obtained a liquor license from tenants before. McCormick and Schmick’s, a steak and seafood chain, ran a restaurant in Katz’s strip mall from 1988 to 1995. After McCormick and Schmick’s closed down for unknown reasons, records show the liquor license was transferred to Katz, who used it for a restaurant and bar that he had opened in the vacant space. Katz’ restaurant, Diego’s Café y Cantina, operated with his new liquor license from 1996 to 2000, eventually selling it to a new Hooters that took over the space in 2000.
Most recently, The Eggery, a neighboring breakfast and brunch restaurant with a liquor license, closed in the summer of 2013 after a dispute with Katz. Dan Mazzella told me that Katz denied The Eggery’s request for a lease extension, despite 25 years of operation. Katz went on to increase the rent each month until a final breaking point. In the summer of 2013, the owners of The Eggery closed shop, leaving behind their tables, chairs, silverware, plates, bowls and glasses.
Alcoholic Beverage Control records also show that its liquor license may have also been left behind. It was transferred the following April to a new business, Truckstop, which now sells barbecue and craft beers along with breakfast.
“Liquor licenses are personal property, but if the owner doesn’t have a place to go, what good is it?” Dan Mazzella said.
Truckstop’s owners also operate multiple bars throughout Pacific Beach, including a three-story bar in Katz’s strip mall, El Prez, which opened as The Beachwood when Hooters closed in 2010.
Trecia Steen is a regular patron of the strip mall. In 2014, Steen was eating breakfast at Truckstop when she got into a conversation with the chef, who asked if she was a local. Steen said she was, and as they talked, one of the owners of Truckstop and El Prez joined the conversation.
“The owner got into the conversation stating they were going to rake over Tony Roma’s and have a monopoly” in the strip mall, Steen told me. They then mentioned to Steen that they planned to sell venison meat at their new place.
This made Steen uncomfortable, so before finishing her eggs, she boxed her meal, walked to the neighboring Tony Roma’s and asked Peggy Mazzella when she planned to close the restaurant. In 2014, the idea of closing was foreign to the Mazzellas. Steen never returned to Truckstop, and for the Mazzellas, the troubling thought lingered.
Such a maneuver by Truckstop owners would require information and approval from their landlord, Katz. The two parties had worked on expanding within the strip mall before. In a 2013 story about Truckstop’s opening, Beach & Bay Press reported that it was the landlord of the same strip mall that approached the owners of El Prez about the opportunity of starting a business in the space vacated by The Eggery. Katz, whose name was left out of the 2013 article, was the landlord of the strip mall during that offer.
I reached out to Katz, who said he was traveling out of the country, “through the jungle.” After exchanging several emails, Katz cited “spotty” email access and declined to comment.
As the Mazzellas sat in the courthouse for their name change feud, waiting to be assigned to a judge and courtroom, I asked Dan how he felt as he hugged his briefcase, pressing it against his chest. “Aside from nervous? I’m optimistic,” he said.
Despite the worrisome signs that revealed themselves to the Mazzellas for the past decade, Dan and Peggy were hopeful because their business was doing well, because they felt they had a compelling case to defend and because they were unaware that a day later, on Oct. 26, Judge Timothy B. Taylor would deliver a decision that called for the eviction of Beachtown BBQ.
Dan Mazzella is a lawyer himself. For 34 years he has represented insurance companies. The name change trial was a reversal of roles.
He is usually on his feet, speaking to the judge or in front of jurors, grilling a witness, defending his clients who sat down in relative silence. This time, while opposing lawyers spewed allegations against him, Dan was the one sitting and listening. He was in the witness box, speaking only when asked.
Taylor later wrote in his decision: “The court found Mr. Mazzella generally credible, but he could not put aside his ‘advocate’ hat arising from his long career as a lawyer.”
“This has humbled me,” Dan told me. “I can now feel their pain.”
On Oct. 31, three days after Dan expected to receive the decision, I called him for an update.
“We lost,” he said, and then read the decision:
“Plaintiff [Katz] is entitled to a judgment for immediate possession. The remaining term of the lease is forfeited, and holdover damages are awarded in the amount of $32,925.69 … The court finds that paragraph 11 of the lease clearly and explicitly requires the restaurant and bar to be operate under the name ‘Tony Roma’s.’”
When its doors opened in 1987, Peggy’s father was the owner of the restaurant. After he passed away, Peggy’s brother assumed ownership. Since 1988, when Peggy had her second child, Peggy divided her time between helping with the restaurant, working as a licensed architect building homes, retail businesses and office spaces and raising her boys with Dan. In 2009 Peggy’s brother wanted to retire.
People were still crawling out from the worst of the recession, and with more than 40 employees under the restaurant’s payroll, Dan and Peggy decided it was not right to sell the business away. They bought the rights of the business and assumed ownership.
Peggy told me that the support from local families throughout the past few years has been extremely rewarding. She said Beachtown BBQ continues to host events like birthdays, family reunions and weddings. But one event still resonates with the Mazzellas. Each year, on one night near Christmas, the restaurant, adorned in holiday décor, would host a party for the employees. It was held after hours, and employees past and present would bring friends and family, packing in to celebrate at a place that usually meant hours of work.
“The restaurant was just for us on those nights, and it felt like home,” Dan recalled.
In the decision, Taylor was aware of the sting the eviction would leave. “The court takes no pleasure in ruling in this fashion, as it seems clear two families will lose their hard-won investment and several workers will lose their livelihoods,” Taylor wrote, recognizing the employees of Beachtown BBQ, the Mazzellas and Gaytan, who started working at Tony Roma’s 28 years ago as a dishwasher.
Attorneys from both sides are still working on the language of the decision, which is only prolonging the inevitable closure of the restaurant. The Mazzellas decided that Beachtown BBQ would close its doors after Thanksgiving.
Despite the eviction, Katz is still seeking payment for the leaky grease trap through the ongoing suit that began in 2015. By the time the court will hear the case in January, Beachtown BBQ will be a vacant property. Katz is asking for $113,693.
On Nov. 14, more than 20 employees gathered around the Mazzellas for a staff meeting at Beachtown BBQ.
As Dan broke the news of the eviction, some began to cry. Several had been working at the restaurant since it opened in 1987. After the meeting, one employee came up to Dan and told him, “Let us know wherever you reopen. We will come work with you.” This struck Dan as a high compliment of loyalty, but also a humbling truth: A lot of people are going to be jobless.
A few moments after the meeting, Beachtown BBQ opened its doors, and business resumed as usual. Hosts greeted customers, chefs seared the ahi tuna and grilled steaks, and waiters served the dishes and cleaned tables, except now, everybody knew their days working there were few.
I called Dan one week after the court’s decision. He was preparing an appeal.
As we talked, Dan said they’ve been receiving calls from other businesses, asking about potential partnerships or relocation. Although Dan admits the situation is sympathetic – landlord evicts a tenant of 30 years for changing name, dozens lose their jobs – businesses are not calling to offer consolation.
Dan said they are mainly calling because he and Peggy still own a framed certificate that is smaller than standard printing paper, nailed to the wall of their restaurant: a liquor license.