Papaya King vs. the pretender: Iconic hot dog chain in ownership dispute

The Upper East Side eatery’s lease was terminated in April amid mounting losses, and a former contractor soon began operating there illegally, the landlord alleges

New York /
Jun.June 02, 2020 12:00 PM
The Papaya King at 179 East 86th Street (Google Maps)

The Papaya King at 179 East 86th Street (Google Maps)

UPDATED, June 3, 1:12 p.m.: A Papaya King pretender has made off with the throne, according the landlord at its Upper East Side location.

Grab & Go Convenience has taken over the iconic but struggling hot dog and tropical drink vendor’s flagship store, where it has operated for nearly 90 years. But simply calling yourself a Papaya King doesn’t make you one.

A lawsuit alleges Grab & Go, a former Papaya King management company, broke into the store at 179 East 86th Street after the lease was terminated at the end of April, and continued to operate without permission. Landlord Imperial Sterling filed the suit last week, noting that Papaya King’s lease had been canceled after the eatery racked up more than $122,000 in unpaid rent.

Grab & Go — run by Sajid Sohail — is also battling another landlord in a separate legal filing at a former Papaya King Midtown location. Sohail has sued to prevent getting thrown out of that location, but the landlord says Grab & Go was operating that property as a convenience store without approval and did not have a valid lease.

At the Upper East Side store, Grab & Go, still using the Papaya King name, has already caused a sewage backup and flood in the basement of a neighboring pizzeria, according to the Imperial Sterling suit. The complaint alleges the new occupant is “using utility services such as gas, electric, and water, without any contractual right to receive such services and without any contractual obligation to pay for them.”

Imperial Sterling remains on the hook for fire risks and other third-party liabilities, and is trying to kick out the alleged squatter.

But Sohail claims to be the legitimate owner of Papaya King. He contends he took over the business from Wayne Rosenbaum last fall, and that the attempt to evict him was improper. Rosenbaum says that Sohail had only been brought in to manage the store.

Although the coronavirus pandemic has devastated retailers throughout the city, Papaya King was already in major financial straits by late 2019, court documents show. The Upper East Side flagship is the only store from a once thriving chain that remains in operation; the former Midtown location has fallen into disrepair.

Rosenbaum, Sohail and representatives for other parties in the two lawsuits did not respond to requests for comment.

 

Mo’ Papaya mo’ problems

Papaya King’s storied history dates back to 1932, when Greek immigrant Constantine “Gus” Poulos opened what was then called Hawaiian Tropical Drinks at the corner of 86th Street and 3rd Avenue. Poulos died in 1988, and his sons sold the Papaya King brand to a private equity firm in 1997.

The new ownership opened several Papaya King stores across the East Coast in the 2000s, only to close them all and sell the business — and the lone flagship store — to Rosenbaum and a group of investors in 2010. Rosenbaum had ambitious expansion plans of his own for the brand, including locations in Los Angeles, Nevada and Arizona, but those had shriveled away a decade later.

In 2019, Rosenbaum says in an affidavit, the two remaining Papaya King stores were both operating at a loss. The owner selected a manager to operate the remaining locations, “and hopefully improve profitability” to position it for a future sale.

Papaya King’s prospective savior was Sid Sohail’s Grab & Go, with whom Rosenbaum entered into a management agreement last November. The agreement stipulated that once Papaya King was back on its feet, the parties would negotiate a sale or transfer to Grab & Go, according to the affidavit.

The bills had been piling up prior to the deal. Employees at Papaya King’s two stores weren’t getting paid and the company owed Imperial Sterling nearly $53,000 in back rent, as well as $60,000 to a third party.

Grab & Go was to take over these obligations, and to “hire Wayne Rosenbaum as an employee supervisor for the business” with a compensation of $1,000 per week. Sohail appears to have interpreted that part of the agreement, and some of its other terms, to mean that he was already the new owner of Papaya King — and had the authority to fire Rosenbaum.

For his part, Rosenbaum says that by March it had become “painfully obvious” that Sohail could not turn around the business, a failure that predated the coronavirus crisis. So Rosenbaum terminated the management agreement and the lease — which cost his backers $100,000 and a $120,000 security deposit.

Rosenbaum vacated the building April 30 and had a locksmith change the locks. But a day later, he received a call from the neighboring pizzeria saying Sohail was operating as a Papaya King eatery, according to the affidavit.

Sohail claims that he considered Rosenbaum an employee, but had to lay him off about a month earlier because of Covid-19. That made Rosenbaum’s lease termination invalid, Sohail said.

Midtown mix-up

A month before New York City was hit with the full force of Covid-19, the landlord at Papaya King’s location at 200 West 40th Street — Ironstone Partners — took issue with the recent change in management.

Ironstone issued a notice of default on Feb. 4, claiming Papaya King had assigned or sublet the lease without its approval, had failed to operate the store for a minimum of 12 hours per day, and was operating a “Grab and Go Convenience Store” at the location instead of a Papaya King.

Sohail, acting in Papaya King’s name, sued Ironstone to fend off an eviction. He insisted that he was still operating the location as a Papaya King, and that the store had simply had to be closed temporarily due to issues with the fryer.

On March 16, a judge granted Sohail’s motion blocking an eviction, a decision that Ironstone is appealing. The pandemic has made matters worse and the landlord claims the tenant now owes more than $130,500 in rent.

Ironstone and its attorneys said they recently discovered that Sohail was not authorized to commence a lawsuit on Papaya King’s behalf.

Landlord liabilities

Papaya King’s struggles have put both of its landlords in a tough spot, they say.

At the West 40th Street location, Ironstone notes that a $19.75 million CMBS loan may fall into default because of the lost Papaya King rent payment.

The East 86th Street flagship store, which is owned free and clear of debt, presents other problems. Imperial Sterling says Sohail has not allowed it access to the premises, even during the recent sewage backup and flood.

Grab & Go’s “wrongful trespass and conversion are particularly egregious during [this time] of a global health pandemic and economic crises where businesses and entities are trying to make the best use of their property to weather this storm,” wrote Peter Metas, a property manager for Imperial.


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