Zarza and Baldazo allegedly depleted the company’s funds on personal expenses
The former owners of Alibi Drinkery in Lakeville are facing new allegations in Dakota County civil court that they used the Limited Liability Company’s bank account for personal expenses, driving the account balance to zero in less than four months.
A lawsuit was filed against Alibi on Dec. 17 for violating Executive Order 20-99, which prohibited indoor food and beverage service, as the Lakeville bar and restaurant openly defied the Nov. 18, 2020, to Jan. 10, 2021, order by opening for indoor service for 14 days between Dec. 16, 2020, and Jan. 10, 2021.
During the course of the court’s discovery, the state in July obtained financial records for Lionheart LLC, which Zarza and Baldazo initially attempted to conceal by providing “heavily redacted” bank statements.
With the help of third parties, the state found that the company’s bank account was overdrawn as owners Lisa Zarza and Ricardo Baldazo allegedly dispersed $177,944 from mid-December 2020 to March 2021 for personal expenses, such as for jewelry, cosmetic surgery, airline tickets and motorcycle rental, along with making cash payments to themselves.
The state says the alleged activity, which occurred as their case was being litigated, violates the Uniform Voidable Transfers Act.
The state alleges that Zarza and Baldazo knew depleting the account would “adversely impact the State’s ability to both secure and collect assets necessary to collect on any potential judgment obtained in the litigation.”
For the insolvency of the company, the state said Zarza and Baldazo breached their fiduciary duty and had an obligation to preserve assets for any creditor, which included the state of Minnesota.
The state claims that Zarza and Baldazo were aware that they had to maintain funds equal to the value of their legal liabilities.
The state has collected $672 from Lionheart in the active case and said it could impose a fine up to $25,000, but whether or not it would or the amount had not been determined since there was no judgment yet in the case.
The state said the court should require Zarza and Baldazo to return all unlawfully dissipated assets in an account controlled by the court.
After the account was depleted, Zarza said in May that she would be selling Lionheart’s largest assets – the Alibi Drinkery and Froggy Bottoms at Alibi in Northfield, the restaurants and their equipment and furnishings.
By the end of May, Alibi in Lakeville was closed and the state said Zarza and Baldazo attempted to enter into a sham sale of the Alibi Drinkery to Jose Colon III, the second cousin of Baldazo.
The sale was abandoned, the state said, after Colon rescinded his liquor license application during the July 6 Lakeville City Council meeting when it was apparent that the council would deny the license.
Lakeville city staff recommended denial due to what its report said that some of Colon’s statements and application information were false, inconsistent or misleading based on the provisions of the lease that required Zarza and Baldazo to “operate” the business and contemplated the future ability of Zarza to become a 50%-plus owner without landlord consent.
It said his deceptive explanation of the roles of himself, Zarza and Baldazo suggested Colon is not the real person in interest for purposes of operating Alibi, but it merely a means to obtain a liquor license for Zarza and Baldazo, who are not eligible for the license.
In voting for the denial, council members also factored in the felony charges filed against Baldazo in September 2020 with two counts of first-degree attempted murder and two counts of first-degree assault after shooting several gun shots at Burnsville police officers in a Sept. 2 incident.
Lionheart’s attorney Michael Padden withdrew as the company’s counsel on Aug. 12, noting that Lionheart didn’t have the ability to pay for his services.
Richard Dahl was retained on Sept. 12 as Lionheart’s counsel. Dahl is also representing the Iron Waffle in Nisswa, which was sued for defying the Executive Order 20-99. The Iron Waffle is facing up to $120,000 in fines after it was warned it would face daily fines if it continued to remain open. A similar warning was given to Alibi, but Alibi did not open for indoor service after the warning.
Dahl filed a motion to dismiss both cases saying that the state didn’t have jurisdiction to revoke the businesses’ food, alcohol and beverage licenses and impose penalties.
Dahl says the state did not submit evidence, scientific or otherwise, to demonstrate the Executive Orders were justified, and the orders also ignored the rights of businesses.
The validity of Executive Order 20-99 has previously been upheld by rulings of the Office of Administrative Hearings.
The state said the executive orders were needed to protect the health and safety of public during the November 2020 height of the pandemic when COVID-19 case rates, deaths, and hospital admissions rose dramatically.
After Dahl and his clients did not appear for a Nov. 10 hearing, a new hearing date was set for Dec. 15.
Froggy Bottoms at Alibi in Northfield had its liquor license renewal denied by that City Council’s split vote in April 2021. The decision meant the business could not legally serve alcohol. Council action came after Northfield Police Chief Mark Elliott recommended not renewing the license based on Zarza’s noncompliance with the governor’s order and because of the then-preliminary suspension of her Lakeville liquor license.
Froggy Bottoms has since reopened under new management.
Tad Johnson can be reached at firstname.lastname@example.org.