Mother-son duo behind Tavern restaurants battle in court over $8M

Denver restaurateur Frank Schultz has been sued by the co-owner of his various businesses, accused of pilfering hundreds of thousands of dollars from their companies, cutting his partner out of real estate deals that she financed, and owing her at least $7.75 million.

That co-owner is also his mother.

“I’m disappointed that Ms. Papay, my mother, has made a years-long family dispute open to the public,” Schultz told BusinessDen. “Her lawsuit mischaracterizes the facts and omits key information.”

Terry Papay, who will turn 70 next month, and her husband Albert sued Schultz on March 15 in Denver District Court. Also listed as plaintiffs are nine companies representing the family’s considerable restaurant and real estate holdings in Denver and the south metro.

Since 1997, when they turned a warehouse at 20th and Market into The Soiled Dove music venue, the Papays and Schultz have operated Tavern Hospitality Group. It later included restaurants and venues in Uptown, Lowry, Littleton and the Denver Tech Center.

“Frank Schultz and Terry Papay have found their niche in the Denver community. The Tavern Hospitality Group has become a vital piece of Denver’s personality,” its website states.

But more recently there has been a falling out, culminating in last week’s lawsuit.

The dispute has its origins in Albert Papay’s decision to divest from Tavern in 2012. He gave some of his shares in the company to his wife and sold the rest to Schultz, his stepson, according to the lawsuit. The split made Schultz and Terry Papay 50-50 partners.

Schultz paid for the shares with promissory notes but “has not made a single payment” on those notes, according to the Papays. With interest, he’ll owe $3.7 million by March 31.

In 2018, the Papays also loaned Schultz money for real estate purchases with the expectation that they would share in the profits, their lawsuit claims. But after Schultz bought and sold a $1.3 million unit at 1539 Boulder St. in Denver, he kept the money. That also happened after he sold a waterfront home in Florida and “a doggie daycare business,” the lawsuit alleges.

Then came financial malfeasance, according to the Papays. Despite their 50-50 partnership, Schultz “funneled corporate assets for his personal use” without his mother’s knowledge. There was a $49,000 withdrawal in September, a $65,000 withdrawal later in the fall, three last month totaling $93,000 and three more in early March worth $370,000, the lawsuit claims.

“Schultz has refused to comply with his legal obligations, telling the Papays that if they chose to pursue any legal remedy, ‘it would get ugly,’” according to the lawsuit.

Schultz, meanwhile, said his mother is the one who made questionable financial decisions.

“She was the person running the finances of the companies and provided almost no visibility to me about them,” he said. “Only after several concerning facts about our joint enterprises did I make an effort to segregate and protect certain of their funds, which seems to have prompted her lawsuit.”

“I intend to aggressively pursue my own counterclaims against her, including to obtain a full accounting of the finances of the companies,” he said, “and look forward to responding to her lawsuit in short order.”