Colonie eatery co-owner sues partners for fraud
Filing alleges financial deception, seeks dissolution of partnership
COLONIE — One of three co-owners of Koto Japanese Restaurant has sued his two partners for fraud, among other claims of financial deception, and is seeking a trial to decide compensation and asking a judge to legally dissolve the restaurant corporation. Koto remains open.
The suit alleges that the two partners froze out the plaintiff and misrepresented their authority as Koto shareholders to obtain more than $2.8 million in a loan and two mortgages to finance the opening last fall of a similar, competing business, Haru Japanese Steak House in Wilton.
In the suit, filed March 18 in state Supreme Court in Albany, Yilu Lin of Watervliet says that he and the partners, You Chen of Latham and Tehen Yu of Watervliet, have been roughly equal partners since they bought Koto in 2013 from its founder. It first opened at 260 Wolf Road in 2004, taking over a 5,300-squarefoot building that previously had been Peony Restaurant, offering Chinese and Japanese fare. The suit says that Lin and Chen were each issued 33 shares of stock and Yu 34 shares, representing corresponding percentage ownership in Koto Hibachi Sushi Restaurant Inc., doing business as Koto Japanese Restaurant. They are the only shareholders.
Over the next decade, according to the narrative in Lin’s filing, he was “induced” by his partners through unspecified means to step away from day-to-day restaurant operations and was repeatedly denied access to financial records. In recent years, although the corporation never elected board officers or held a board meeting as called for in its bylaws, Chen and Yu represented themselves as the company’s secretary and
respectively, to fraudulently obtain a loan and two mortgages with methods that included forging Lin’s signature, according to court documents.
The loan was for $1.995 million from the federal Small Business Administration; the mortgages on Koto were obtained from Chemung Canal Trust Co. for $500,000 and, for $350,000, a second mortgage from the Capital Region Chamber of Commerce, records show. The suit says the money was used to buy a building at 15 Old Gick Road in Wilton that was home to a Golden Corral Buffet & Grill until it closed during the beginning of the pandemic in 2020. Haru opened in October of last year.
“Ultimately,” says the lawsuit, “Defendants did not disclose anything to Plaintiff, and Plaintiff did not have actual or constructive notice of any of the foregoing conduct on
or before the transaction occurred.”
Chen and Yu tried to buy out Lin’s stake in Koto for “far below fair market value” and refused to give him access to business records to better gauge what his shares were worth, the suit alleges. It further asserts that Chen and Yu “paid themselves unfair and unapproved wages as well as dividends greater than their proportionate shares at the exclusion of (Lin).”
Among the suit’s nine causes of action are breach of fiduciary duty, fraud and usurpation of business opportunities. The filing seeks a trial to determine damages, the appointment of a receiver to supervise the dissolution of the business, liqpresident,
uidation of assets, payment of debts, proportional dispersal of any remaining funds and payment of attorney and court costs.
Kenneth M. Schwartz, a business and real estate expert with the Latham law firm of Sciocchetti Taber, said Tuesday that he represents Chen and Yu in most matters but is not a litigator and has referred them to another attorney for the Koto lawsuit. He said it was his understanding that a meeting was scheduled for later this week. Chen and Yun could not be reached for comment.
Matthew D. Wagoner of The Wagoner Firm in Albany, who filed the lawsuit on behalf of Lin, said Tuesday, “We spent
months… negotiating with their attorneys in an attempt to bring this to a resolution. The lawsuit could have been avoided.” Lin could not be reached.
Although the suit says “any working relationship among the shareholders has become impossible,” Koto continues to serve lunch and dinner daily.