Legal battle over McHenry D.C. Cobbs restaurant intensifies

A legal dispute between the men who own the corporation behind the D.C. Cobbs restaurant in McHenry is raising questions over which can use the brand’s logo, name, menus and recipes as a licensing deal between them expired Saturday, court documents show.

Since the deal lapsed, Josh Carstens and former Woodstock City Council member Dan Hart – equal shareholders of the Illinois-based corporation McHenry Cobbs that owns the establishment – are in a new phase of a disagreement that started when a lawsuit between them was filed by Carstens last year.

Now, Hart is probing whether it is legal for the restaurant to continue operations with its present name D.C. Cobbs and the brand’s intellectual property, according to court documents.

The restaurant was open Wednesday. But D.C. Cobbs’ website no longer includes references to the McHenry restaurant and a Facebook page for the McHenry store also appears to be removed from public view.

“The Carstens family is ready, willing, able and fully intending, if Mr. Hart doesn’t want to operate the business, to step in and assume 100% of the management operations of the business,” Carstens’ attorney Troy C. Owens said in an interview Tuesday.

Both Hart and Carstens declined to comment on the situation.

Hart’s attorney, Robert Hanlon, on Friday filed a motion in the lawsuit requesting an emergency hearing in McHenry County court. Its basis was over the pending expiration of the licensing agreement between the brand D.C. Cobbs, which is owned solely by Hart, and the corporation McHenry Cobbs, which Hart and Carstens own jointly. Their licensing agreement was set to terminate over the weekend.

According to Hanlon’s court filing, a new legal action alleging trademark infringement could be brought against Carstens by Hart, whose business entity 222 North Main entirely controls D.C. Cobbs’ intellectual property and, under the now-expired licensing agreement, could have charged McHenry Cobbs fees as a percentage of the restaurant’s gross sales if Hart ever owns less than a 50% share of McHenry Cobbs.

“In the absence of a license, McHenry Cobbs Inc. cannot operate as D.C. Cobbs without exposure to a trademark infringement action by the owner of the registered mark,” Hanlon’s motion on behalf of Hart said.

Hanlon did not return a voicemail requesting comment.

Owens pointed to a McHenry Cobbs filing with the Illinois Secretary of State’s Office that said the entity’s assumed name was DC Cobbs McHenry as evidence the permission to operate as D.C. Cobbs had been granted independent of the licensing agreement.

Carstens’ lawsuit initially alleged Hart improperly sold a franchise, a claim the county court has dismissed. Hart, however, filed a counterclaim over withdrawals he alleged Carstens made from the McHenry Cobbs bank account without proper permission. That claim is pending.

The disputes over the withdrawals still were awaiting a resolution when the new issue over the expired licensing agreement arose.

Judge Thomas A. Meyer denied the Friday request for an emergency hearing and set a hearing for Aug. 25.

Owens responded to Hanlon’s filing Tuesday and also requested an emergency ruling looking to block Hart from potentially closing McHenry Cobbs or terminating any of its employees. Owens also asked the court to have Hart surrender control of the keys to the restaurant building and its banking access and contact information for employees.

“Subsequent to the execution of the ‘license agreement,’ Defendant Hart used the same to begin usurping the management functions of McHenry Cobbs and oppress [Carstens],” Owens’ filing said.

The McHenry restaurant was valued at $3.3 million recently by an accounting firm, according to the filing, and the business bank account held almost $1.3 million at the end of last month. Hanlon’s filing also mentioned a recent valuation found it would cost about $500,000 to undergo rebranding and also assumed a closure of at least three months would be needed for a rebranding.

The legal matters do not affect the Woodstock or East Dundee D.C. Cobbs locations.

Carstens in court filings has said it was standard for him and Hart to take withdrawals from the business bank account when there was ample cash, and that Hart made a “unilateral” decision to cut off salaries to himself and Carstens in March 2020 as the pandemic was intensifying.

Hart has argued the business did not have enough capital on hand to support Carstens’ withdrawals, which Carstens urged Hart to match with similar withdrawals, at the time they were made during the pandemic last year.

Late last month, Carstens also filed another lawsuit alleging the Crystal Lake-based law firm Zukowski, Rogers, Flood & McArdle engaged in legal malpractice by agreeing to represent McHenry Cobbs and then also helping draft the licensing agreement between McHenry Cobbs and 222 North Main, the outfit that controls the D.C. Cobbs brand.

Carstens only signed the licensing agreement “under duress and extreme pressure,” the complaint said, and after being told that Ryan Farrell, the Zukowski lawyer working with McHenry Cobbs, had Carstens’ interests in mind as the corporate attorney for McHenry Cobbs. It also alleges Farrell was involved with 222 North Main during the licensing agreement negotiations.

“We vehemently deny the allegations,” Farrell said.

Thomas Gooch, a Wauconda-based attorney representing Carstens in that case, did not return a voicemail requesting comment.