Pontillo v. Pontillo opens window on finances of legendary family business

Staggering debts -- to the government, bankers and suppliers -- appear to be what led to the closing of Batavia's most legendary pizzeria in November 2008.

At the time the restaurant closed, suppliers were possibly owed in the neighborhood of $220,000, according to a document obtained by The Batavian. In addition to those debts, there were unpaid mortgages exceeding $354,000 and taxes of more than $250,000 due. 

Many of these debts, outside of the mortgage, which was amply paid off in foreclosure proceedings, appear to be unsettled to this day, including more than $10,000 owed to a local funeral home that handled arrangements for Elizabeth "Betty" Pontillo following her death on Aug. 5, 2008.

In total, debts associated either with Pontillo's Pizzeria at 500 E. Main St., Batavia, or with Betty's estate, exceeded $850,000.

Disputes over those debts -- how they occurred, who is responsible, and who allegedly stole what or lied to whom -- has pitted brother against brother in the Pontillo family.

John and Paul have harsh words for Sam, and Sam isn't talking, but in previous news articles, he hasn't necessarily been kind to his siblings.

John, Paul and Sam are the sole surviving children of Salvatore ("Sam" Sr.) and Betty Pontillo (Daniel Pontillo died in 1957 and Elizabeth Mullen died in 2003; her son, John Mullen, is an heir to the estate).

Salvatore founded Pontillo's Pizzeria in Batavia with his brothers in 1947. It inspired scores of other pizzerias, including a chain founded by Salvatore's brother, Anthony, in Rochester that bears the Pontillo's name.  

Last week, Sam, working with business associates from Rochester, opened a Pontillo's Pizzeria at the old Batavia location.

Both John and Paul say they resent how Sam is being seen as some kind of hero in Batavia when he's the one who brought down, according to them, the original Pontillo's, especially when, according to John, Sam cheated a number of local business owners out of tens of thousands of dollars.

Even as Sam enjoys a busy opening week, he faces the possible loss of the Le Roy location. Genesee County records show property taxes on those parcels haven't been paid in nearly three years. According to County Treasurer Scott German, foreclosure procedures could start on July 1 if the debts remain outstanding.

It's also not clear if the new owners of Pontillo's Pizzeria in Batavia can legally operate a restaurant under that name. The federal trademark for "Pontillo's" is owned by the estate of Anthony Pontillo, but both John and Paul contend that rights to the name in Batavia are still owned by the estate of Betty Pontillo. 

Whether Sam is part owner in the new business is also unclear. John said Sam has represented himself as a part owner; Paul is convinced Sam is nothing more than a salaried employee.

Tom Masaschi, a Rochester developer who purchased the Batavia Pontillo's location for $400,000 last December, and is reportedly one of the investors in the new business, has not returned calls to The Batavian.

On Sunday, when told John and Paul had spoken with The Batavian, Sam declined an interview request for the third time.

"It's been a long 15 months," said a broadly smiling Sam as he stood at the walk-in counter of the Batavia Pontillo's, which was packed with customers. "I'm only looking forward now."

The Debt
Kathy Pettinella inherited her business from her late husband, Dave, who died after a lengthy illness in July 2007. Dave Pettinella, the founder of Dave's Produce, grew up on Vernon Avenue, just 10 doors down from the Pontillo boys.

When The Batavian called her to ask about the nearly $70,000 in debt Pontillo's Pizzeria seems to have rung up against Dave's Produce, she was surprised anybody knew about it.

"It's not something I've talked about," said Pettinella, whose son died in an automobile accident on Route 98 at Daws Corner in August 2005. "It's a very sore subject. It nearly put me out of business."

Pettinella is not the only vendor who was apparently left hanging when Pontillo's in Batavia was shut down. A document which John says Sam prepared early in the settlement process for Betty's estate, lists more than 30 vendors who were owed money (the document is not included in the probate file).

Some of the debts are only a few hundred dollars, such as $385 to the Batavia Daily News and $462 to Southern Wine Distributors. A handful of debts, however, reach into the thousands, with the $68,421.75 possibly owed to Dave's Produce being the largest.

Kathy Pettinella did not confirm the precise amount, but it was clear from our conversation that she felt Pontillo's closed owing Dave's Produce a substantial amount of money. After agreeing to a follow-up interview the day after our conversation, Pettinella has not returned calls from The Batavian.

Paul doesn't dispute most of the debts listed on the two-page document, but he does say there is no way Pontillo's Pizzeria owed Dave's Produce tens of thousands of dollars.

"I don't care what she confirmed, she's lying," Paul Pontillo said. "Ly-ing. Lying. OK? It's nonsense. We spent three hundred bucks a week with her. (On) Produce. How many weeks would she let us go to come up with this number?"

When John stopped working for Pontillo's Pizzeria, Batavia, in February 2008 (more on that later), he says the restaurant owed very little to its vendors, including Dave's Produce.

He doesn't have a hard time believing, though, that eight months later, the amount of money Pontillo's owed to Kathy Pettinella was approaching $70,000.

John said after several suppliers stopped sending product to Pontillo's, Kathy stepped in to help, going to the Clinton Bailey Farmers Market in Buffalo, buying cash-and-carry produce for Pontillo's and delivering it back to Batavia. She became the shop's main supplier.

When asked how she could allow one client to run up such a debt, Pettinella said she thought she was doing a favor for a fellow local business owner.

For Donald Will, owner of Will Poultry Co. in Buffalo, it wasn't a favor, it was an oversight.

When asked how Pontillo's allegedly rung up more than $40,000 in unpaid bills with his company, Will said, "I'm embrassed to say, poor controls on our part."

The Will Poultry Co. company ended up writing off $32,000 of unpaid bills from its Pontillo's account.

Another vendor, Dave Genecco, of Genecco Produce in Canandaigua, said the $8,000 listed on the debt document as unpaid bills owed to his company is wrong. Pontillo's actually owes him $12,000, he said.

His response to the prospect of never getting paid, "I'm f__ked." And after a long pause. "I'm the f__kee." He then hung up the phone.

"A lot of hard-working people got screwed," said John Pontillo, blaming Sam for the financial mess. "What bothers me is, he comes back to Batavia with no shame."

"But," John adds, "he won’t ever use any of those distributors again."

Paul is sanguine about the vendor debts. First, he says, the debts on the estate document are just the normal operational float of Pontillo's on a monthly basis (excluding the amount allegedly owed to Dave's Produce). Second, none of the debts really attach to the estate under corporate law, so they're not much to worry about.

"That's corporate debt," Paul said. "It has nothing to do with the estate matter. The corporation doesn't survive (in a legal sense). The only way that could be attached to the corporation is through trust taxes, such as sales taxes if the state wants to make a claim on the estate, meaning my mother, which it never did, because she hadn't been in the restaurant in years.

"She wasn't an officer. She wasn't an operator. She was just an owner. Personal guarantees. There were none that I know of on any of those debts. Any type of fraud -- there was none. An alternate identity -- there wasn't (one). The business has been around in some form or another since 1947, and well funded.

"The four ways to pierce that corporate barrier were nonexistant here. At least no one has ever come to court and made a claim on any of this. So none of this matters, otherwise they would have judgements against us, and none of them do."

Taxes
Unpaid taxes seems to be a family tradition with the Pontillos.

There have been tax liens filed against Pontillo's business interests going back to the 1990s, well before Salvatore died in 2006, though most of the public record points to tax problems beginning after his death.

A search for tax liens on the New York state database turns up liens of $83,671 and $21,944 from 1996 against Paul J. Pontillo and a pizzeria he operated in Brockport. There is another lien from 1998 for $29,276.

The initial $112,000 in back taxes that The Batavian first reported in November 2008 are still listed there (here, here, here, here and here). So is a new lien against Paul and Pontillo's Pizzeria from March 2009 for $60,699, and one against Sam and Pontillo's Pizzeria from June 2009 for $25,999. Sam Pontillo and his wife, Karen, have a recent lien, March 23, 2010, not attached to any of the business entities, for $3,832.

Also of recent vintage is a $97,009 federal tax lien against Sam's Tomato Pies, Inc., filed Jan. 26, 2010. (Available through the "other debtor" search on this page.)

Old liens listed as satisfied include $35,112 from 2005, plus two totalling about $9,000 from 2005. This page shows two liens satisfied in 2005 for $67,700. The Le Roy Pontillo's had a tax lien filed in March 2009 with a satisfied date of May 2009, but the same page lists another lien for about the same amount, filed on the same date, that is not shown as satisfied. This page shows satisfied liens against the Le Roy Pontillo's for $33,000.

In total, if the government Web sites are accurate regarding the unpaid liens, the various Pontillo's entities still owe the feds more than $322,000. John said he doesn't believe any of these back-tax issues shown as outstanding have been settled.

Among the other unpaid taxes related to the Pontillo's empire in Genesee County are property taxes owed on the Le Roy Pontillo's location. The past three years of unpaid taxes now exceed $23,000, according to County Treasurer German.

Tax indebtedness is exactly what seems to have led to the eventual loss of the family business in Batavia.

In October 2007, with Betty's blessing, the corporation took out a $350,000 loan (a figure provided by John) from New York Income Partners/Monroe Title, with the majority of the funds being used to pay off back taxes.

According to a document in the Pontillo v. Pontillo lawsuit, checks were written against the loan to the U.S. Treasury for $116,120, $28,073 and $62,417. There were also checks paid out for various document and legal fees and $30,000 in loans to Betty. Otherwise, John said, nobody knows what happened to the remaining balance of the loan.

The loan was taken out against three parcels: The two parcels that comprise the Batavia Pontillo's location on East Main Street, and a residence at 64 Vernon Ave., as well as the equipment inside the Batavia pizzeria.

Probate records say the Pontillo's location, which comprises a handful of tax parcels, is worth $687,000. The most recent assessment of the  Vernon Avenue residence is for $114,000.

Monroe Title's parent company foreclosed on these properties last summer and bought them back at auction for $490,000 (a purely paper transaction, since the company was paying itself for the real estate). The Batavia Pontillo's location was then sold at the end of December to developer Tom Masaschi for $400,000 and the Vernon Avenue home recently sold for just under $100,000.

“When they foreclosed on those two properties, that was my inheritance," John Pontillo said. "It’s gone. They borrowed the money and mortgaged my future inheritance and they walked away from the note. I was out."

Corporate Structure
In November 2008, the Batavia Daily News published a story about the Pontillo's Pizzeria in Batavia being closed for renovations.

A day later, The Batavian broke the story that there were more than $112,000 in tax warrants against Pontillo's. The follow-up story by Joanne Beck labeled The Batavian's story as "rumor" and asked Sam to respond (note: Sam never responded to an interview request from The Batavian for the November 2008 story).

"I do not own that one," Sam said, pointing west toward Batavia from the Le Roy Pontillo's. "I own this one. We're settling the estate."

Sam declaimed any responsibility for the Pontillo's in Batavia.

The business is still owned by his mother's estate and was not run by (me), Sam said.

"I was locked out of the whole operation," he said. "John and Paul worked there. John was operations manager."

However, John didn't work there. He had been fired in February 2008. Paul was involved in the daily operations of the Batavia Pontillo's -- he certainly wrote the checks -- and was president of Sam's Tomato Pies, the corporate entity operating the restaurant for the Pontillo's Family Partnership.

But John points out, Sam was the treasurer.

"Sam will say, ‘I was in Le Roy. I didn’t know what was going on,’" John said in an interview last week. "Sam was the treasurer. He didn’t do his job. He didn’t know what was going on. He was warned repeatedly by people in that building, telling him that people were coming in looking for money.

"Sam was the treasurer. It was his responsibility to make sure these bills got paid. He didn’t do his job and he knew exactly what was going on. He can claim ignorance all he wants. It’s not a defense in this case."

Sam's Tomato Pies was incorporated in April 2007 with a corporate address of 3 Mohawk Trail, Slingerlands, N.Y., where Sam and Karen own a home. In September, LeRoy Dough Boy's was incorporated with the same corporate address.

Both of these corporations were then filed as DBAs (Doing Business As) at the Genesee County Clerk's office for the Pontillo's Family Partnership.

According to court documents, the Pontillo's Family Partnership is owned primarily by Betty's estate, at 64 percent. Sam, John and Paul each own 12 percent.

The sole shareholder of Sam's Tomato Pies was Betty. Paul was president and Sam was treasurer.

The ownership structure of LeRoy Dough Boys is one of the contested points of the Pontillo v. Pontillo lawsuit. The complaint contends that Sam set up LeRoy Dough Boys to operate the Le Roy pizzeria with Sam as the sole shareholder and president. Paul is listed as the treasurer (Paul says he never agreed to be a corporate officer in LeRoy Dough Boys).

John says he was never an officer in any of the companies, only an employee. He was operations manager in Batavia until February 2008.

Why was John fired?

Paul says it was a family dispute he won't discuss. John says it's because he was cracking down on some of the loose spending going on -- Paul was drawing a salary without working in the business, Betty was demanding $2,000 a month in payments and, according to both John and Paul, Sam was taking paper products and produce from the Batavia operation for the Le Roy location without paying for it.

The real break came, John said, when Paul tried to use starter checks from M&T Bank and he intervened; however, there have been persistent rumors that John was accused of stealing.

"(Paul) flipped out," John said. "He convinced my brother Sam to join forces with him and that’s when they got rid of me. That’s the truth. I never stole a dime from that restaurant."

Bad Checks and Big Debts
Talk with Paul about the debts and there seems to be only one villian in the case: brother Sam.

"My brother Sam is a crook from day one until now," Paul said. "He's never had an honest day in between. He's a glad-handing, back-patting, son-of-a-bitch. It's all he is. I hate to say that about flesh and blood, but you gotta say enough is enough. I'm not saying I'm an alterboy, but I don't screw my family over like this."

John doesn't put all of the blame on Sam for the debts; mainly, he says, he knows that most of the bills that had piled up prior to him taking control of the finances, were paid down by the time he departed Batavia for a job at a country club in Minnesota.

"I have a packet that I’ve been holding, in case I need to use it," John said. "In it, are statements from all of the distributors from the time when I was let go, about just where we were financially. We were pretty much right on the money. We were almost current. Then it was Pauly and Sam who drove that thing up in just eight months to about a half-million dollars in unpaid debts."

The degree to which Pontillo's in Batavia was operated in debt prior to John's employment as operations manager is not clear, but interestingly, in the probate records for his father's estate, there is mention of a judgement against Salvatore Pontillo out of Erie County for $48,000. The record also shows U.S. Food Services was eventually paid in full.

Both John and Paul say Sam wasn't paying rent for the Le Roy location and that he would regularly show up at the Batavia location with his red Pontillo's delivery fan, stuff it full of paper and product and head back down Route 5 to Le Roy.

All told, between rent and supplies, Paul estimates Betty's estate is out about $1.1 million.

"Ouch!" Paul says. "We do OK, but that's a big nut. That's why there's this number (pointing to the estate's debt memo). That's why after every time Sam takes over a business, two years later, here come the tax people."

From the time Salvatore died, Paul says he was at the Vernon Avenue residence taking care of his mother. He said he was in the restaurant so infrequently that employees didn't even recognize him when he did show up. He said after John left, Sam was in Batavia regularly.

But it was Paul, still president of Sam's Tomato Pies, writing the checks and paying the bills.

Two of those checks led to criminal charges against Paul.

Willowbrook Farms, listed on the Pontillo's Pizzeria debt document as being owed more than $10,000, turned over two bounced checks allegedly signed by Paul to Genesee County prosecutors. Each check is for more than $3,500. (A manager for Willowbrook declined an interview request for this article.)

The case is still open and attorney Jerry Ader has filed a motion for dismissal on the grounds that charges were not filed quickly enough under provisions of "speedy trial" rules.

Paul says he will accept whatever consequences come his way for the bad checks, but he blames Sam for the situation.

"I’ll take my licks because of any checks I’m accused of writing and signing, OK," Paul said. "I did it? Fine, my responsibility. But why? I wasn’t putting that money in my pocket. And 'the why' came from the theft of my brother."

According to available public documents, Willowbrook Farms is only one of three suppliers to take legal action based on apparently unpaid debts.

Turnbull Heating and Plumbing has an active mechanic's lien against the estate for $1,100 and Gilmartin Funeral Home has a pending lawsuit against Paul and Sam for more than $10,000 in alleged unpaid bills for Betty's funeral. (John said he believes $8,000 of that bill has been paid from the proceeds of sale of property the estate owned at Richmond Avenue and Oak Street, however there's no record of payment either in the court case or the probate file.)

Meanwhile, Paul, who teaches economics at GCC, says he's splitting time living with two friends. On the day we talked, he said he only had enough money for two more days of meals and payday was at least five days away. Though he once owned a home at 11 Lewis Ave., there's no indication that he owns any property in Genesee County now. Without a car, Paul said he walks everywhere he goes, including to the college.

"(Sam) went to Italy last summer," Paul said “He’ll get on a plane like you get in your car. He’s got a big $300,000 home in Albany. I don’t even have a bike."

The Pontillo's Name
The ads on WBTA radio say, "Pontillo's Pizzeria is now open," but Paul says it's not really Pontillo's.

He said he doesn't believe Sam buys quality ingredients, and with apparent plans to include a full bar -- beer, wine and hard liquor -- it won't sustain its family friendly tradition.

"It’s not Pontillo’s any more," Paul said. "It’s really not. The people should know that. The family isn’t there any more."

And unless Sam has a significant ownership interest, it's not clear that the current ownership can legally operate as "Pontillo's" anything in Batavia.

The federally registered trademark is owned by Anthony Pontillo's estate and is licensed to 22 pizzerias in the Rochester area.

Paul said Anthony and Salvatore had an agreement allowing the Batavia family exclusive rights to the Pontillo's trademark in Genesee County.

Those rights are retained, according to both John and Paul, and it's a point in the Pontillo v. Pontillo lawsuit by Betty's estate.

“What they’re doing up the street right now is illegal. It’s illegal," John said. "They cannot show you anywhere on paper their right to operate under the Pontillo’s name in Batavia. We’ve got an e-mail out to the lawyers right now. We’re hoping that they’ll get something in court to take that name away from them.”

Paul thinks that the Rochester investors are angling to establish "Pontillo's" as a common-law name, which would allow them to open additional Pontillo's pizzerias in Monroe County. He said it's the responsibility of the estate to fight to retain ownership of the name, but he isn't convinced the estate administrator, John L. Forsyth, is ready to do that.

Anthony's son, Dave Pontillo, called the situation with his cousins unfortunate, but said he had no comment on the trademark issue other than "we're evaluating it."

While John Pontillo says that Sam has indicated he has an ownership stake in the new Pontillo's, Paul doesn't believe so. Paul said he believes there's an employment contract between Sam and the Rochester partners clearly defining Sam as a manager and nothing more than an employee.

"When these guys (the Rochester partners) have had enough of my brother, when they have the name, if they get the legal rights to the name, they’ll wave goodbye to him," Paul said. "They won’t need him any more. They won’t need him at all."

As for the future of Pontillo's in Genesee County, John clearly wants to operate a Pontillo's Pizzeria locally. He has scouted for locations in Batavia. 

In 2009, according to probate records, John offered $400,000 to the estate for the Vernon Avenue residence, property on Oak Street and the Batavia location. Attorney Brian P. Degnan expressed concern in a motion filed with the court that the $400,000 would not cover all of the estate's debts (which included the mortgages on the property at the time), and because Betty's final tax returns had not been settled yet, that would leave the heirs personally responsible for an unknown, possible tax burden.

The offer was not accepted and eventually Monroe Title foreclosed on the property.

However, John Pontillo may also soon gain control of the Le Roy pizzeria. Paul said, and John confirmed, that John has a signed purchase agreement with Forsyth for the 64-percent interest of the estate in the Le Roy land and building. If the court evicts LeRoy Dough Boys and Sam Pontillo from the location, John hopes to take over operations of a Le Roy Pontillo's.

Pontillo v. Pontillo
It's more than a war of words between the Pontillo brothers. It's also a legal battle.

Sam and Paul are defendants in a lawsuit filed April 1 by the estate of Elizabeth Pontillo.

Estate administrator Forsyth is a CPA in Batavia. Local attorney Degnan is representing Forsyth and the estate.

John Pontillo is not directly a party to this lawsuit, but he filed a suit against Sam in 2008 and says he may yet pursue further legal action against Sam.

While Paul is a co-defendent in the new lawsuit, most of the accusations in the complaint are aimed at Sam.

The suit accuses Sam of unjust enrichment, breach of partnership fiduciary duties, breach of duty of loyalty, corporate waste, self dealing and unpaid rents, among other items.

There will be a hearing on April 30 on an order to show cause, asking the court: to prevent Sam from removing equipment from the Le Roy location for the Batavia location (already granted by Judge Robert C. Noonan according to John and Paul); that Sam not be allowed to enter the Le Roy location: that Sam and LeRoy Dough Boys be evicted from the Le Roy location; that Sam be ordered to return any equipment removed from the Batavia location (prior to foreclosure) to the estate; and that Sam be required to pay back rent and 64 percent of the profits accrued since August 2008 to the estate.

The suit also asks that Paul be ordered to provide an accounting for antiques from the Vernon Avenue residence that he allegedly sold and that he pay rent for the time he lived there after his mother's death.

In an affidavit filed by John Forsyth, Forsyth makes the following claims:

• That Sam Pontillo fraudulently took control of the Le Roy location, with the creation of LeRoy Dough Boys with him as sole shareholder, because Sam did not pay Pontillo's Family Partnership for the business. Forsyth calls the deal creating LeRoy Dough Boys and making Sam the sole owner of the Le Roy business "a sham, fraudulent, and not an arm's length transaction and must be undone by the court."
• That the Le Roy pizzeria sold its equipment to LeRoy Dough Boys as part of a settlement agreement with the IRS. The equipment, Forsyth contends, was not Sam's to sell and rightfully belongs to the estate of Elizabeth Pontillo.
• Sam, according to the affidavit, admits to removing equipment from the Batavia location (in an attached e-mail purportedly from Sam, Sam says he took the equipment for safekeeping). Forsyth contends Sam did not have permission to remove the equpment.
• That Sam Pontillo is a partner in the new LLC operating the new Pontillo's Pizzeria at 500 E. Main St., Batavia.
• That Sam Pontillo has not paid rent for the Le Roy location since the death of Elizabeth Pontillo. The lease, according to Forsyth, calls for $30,000 a year in rent payments. Sam owes the estate, according to Forsyth, $50,000 in back rent.
• That the new business is in direct competition with the Pontillo's Family Partnership.
• While the affidavit claims that Sam Pontillo signed the mortgage that Monroe Capital (U.S. Income Partners) eventually foreclosed on, the copy of the mortgage on file with the Genesee County Clerk's Office was signed by Elizabeth Pontillo.
• That Sam and Paul were responsible for ensuring the mortgage was paid but did not, leading to the foreclosure. 
• "As a result of Defendant's actions," Forsyth writes, "the Estate lost this (the Pontillo's Batavia location) due to breach of the Defendant's duties."
• Forsyth accuses Paul of illegally residing at 64 Vernon Ave. after the death of Elizabeth Pontillo, and of selling, without permission, various items from the home and also of allowing third parties to live in the house without paying rent.

While John is not a party to this particular lawsuit, he said there's really only one question he wants answered: What happened to all the money?

"When you ask that question, they run like mice," John said.

"When I talked with my brothers, I said, ‘where’s the money?’ And they were like this. They were like (shrugs)? Nothing. Not a word. I said, ‘Guys, you understand somebody has got to be held responsible for this.'"

Photos: Top, Pontillo's at 500 E. Main St.  Picture taken the day of publication of this article; Inset right, John Pontillo; inset left, police mug shot of Paul Pontillo; inset right, the Pontillo's location this winter when Sam was preparing the location to be reopened and the sign was uncovered; inset left, 64 Vernon Ave.