Musso & Frank's Kept 84 Employees on Payroll as the Restaurant Took 'Six-Figure' Losses

Musso & Frank's Kept 84 Employees on Payroll as the Restaurant Took 'Six-Figure' Losses

Musso & Frank's Grill, a restaurant known for its star-studded regulars, hearty comfort food and killer martinis, first opened its doors 100 years ago as the Spanish Flu was ravaging large portions of the world's populations. It survived Prohibition and kept its doors open through the Great Depression, World War II, and the challenges of the 2008 financial crisis and recession.

Then this novel coronavirus hit.

In March, it was forced to temporarily close its doors for the first time, ever. And now Musso & Frank's is being closely watched by the Los Angeles small-business community as a harbinger of what could happen to their own insurance claims, after dot.LA reported the restaurant filed a federal lawsuit against its insurer, alleging breach of contract and bad faith for not covering losses due to the COVID-19 pandemic.

A day after the iconic L.A. restaurant filed suit against Mitsui Sumitomo Insurance Company USA Inc., which is in New York, the Echeverrias spoke with dot.LA in a candid interview about their hopes and concerns for the famed Hollywood spot during and after the pandemic.

The father-and-son owners John and Mark Echeverria just want to keep the business running, to support their staff and survive.

"We will make it through this, we've been able to learn from our generations before this how to handle difficult situations (but) a case could be made that this is the most difficult situation the restaurant has had to go through," said Mark Echeverria, the chief financial and operating officer for the restaurant and fourth generation of the family-owned restaurant. He said it was devastating to walk through the restaurant and see everything packaged up and shut down.

The restaurant has vowed to keep its employees — "the family" — on payroll, but has also sustained massive financial losses, been denied its insurance claim, and is pondering how it will pivot to deal with an uncertain future for the sit-down restaurant industry as a whole.

Unlike many restaurants and businesses throughout the country that have had to furlough or layoff their staff, Musso's has kept its entire 84 person staff on payroll, without any cuts to salary since L.A. Mayor Eric Garcetti ordered restaurants and bars to not serve patrons on their premises a little over a month ago.

In doing so, the restaurant has sustained losses that "exceed six figures," said John Echeverria, who is Mark's father, Musso's president as well as an attorney. John Echeverria was reluctant to detail the exact amount of losses the restaurant has sustained because it is still being determined and also due to the pending lawsuit.

"We didn't want anybody to go on unemployment because I was afraid people were going to get lost (amid the surge of applicants), so we wanted to do everything we could to keep them on our payroll and really support themselves in this process," Mark Echeverria said. "The decision to do it was easy, the logistics of how to get it done was far more complicated."

Early last week, the restaurant started getting funding through the U.S. Small Business Administration's Paycheck Protection Program, Mark Echeverria said, which guarantees forgivable loans of up to $10 million to eligible businesses. Such loans can be forgiven if businesses maintain staffing and employee salary levels for eight weeks and use loan proceeds for only qualifying expenses.

The Echeverrias said they consider their staff to be family. John, the father, noted that some have worked at the restaurant longer than Mark has been alive.

For a restaurant that is built on an in-person, sit-down experience, the Echeverrias have been trying to figure out what comes next in an uncertain future. Musso's has never done takeout or delivery and when the closures came, they said they came so quickly that there was no way to put the infrastructure in place to do something like that and also maintain the experience of being at the restaurant.

"It's hard to say what the future is going to look like, the only certainty is it's gonna change," Mark Echeverria said. The restaurant is working on creating contingency plans, depending on what the county's health department requires for sit-down service restaurants. But whatever happens, a key lesson from generations past is that maintaining the core experience is crucial for survival.

"We're not changing anything conceptually, we're not changing the menu or anything like that," Mark Echeverria said. "We're going to really keep the consistency of the experience as intact as we can."

Despite the lengthy history of the restaurant that goes back to the era of the Spanish Flu, their company minutes only go back to 1928.

"We've got some pretty good documentation on how our generations before us handled some really difficult times," Mark Echeverria said. They've tried to stay true to those lessons, which include taking care of the family, keeping the business going and staying consistent.

The Echeverrias say they're disappointed by their insurance company, to which they have paid premiums in excess of $46,000 annually for the last two years, yet denied their claim.

"It would be nice if the insurance company would honor the business operation," John Echeverria said. "We had no exposure to the coronavirus, none was found in the restaurant. Not one employee was stricken by the infection, no customer complained about an infection, so it's really not that the business suffered directly from the coronavirus. The predominant cause of why we had to close was the mayor's order. And whether he ordered it because of coronavirus or ordered it because there were rabid coyotes roaming the city, the fact is that the actual cause for the closure is…the government order."

John Echeverria said he's been in contact with other entities who have also been impacted by denials of their insurance claims for business interruption insurance as a result of the pandemic, but he declined to identify them citing confidentiality. A spokesperson for Mitsui Sumitomo said Wednesday that the company does not comment on pending litigation.

One impact of not receiving business interruption insurance, Mark Echeverria said, is that fixed costs aren't covered, which impacts partners and vendors the restaurant has dealings with.

"This does really snowball down, and it's not just the business owners…it's really the team, vendors, partners," Ecehverria said. "There's a lot at stake here."


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