An Irish-inspired burger chain in the US faces bitter legal wrangling, writes Sean O'Driscoll

It began as a dream partnership: Ireland's most successful fast-food entrepreneur teaming up with his US-born manager to take on the American restaurant giants on their home turf.

The agreement between Supermac's founder Pat McDonagh and his former employee, Kevin Blair, ended in a bitter falling out this month amid furious allegations of betrayal, embezzlement, stolen documents and double-dealing with creditors.

Three creditors of their restaurant chain, Claddagh, have also taken a lawsuit to have the company placed under involuntary bankruptcy, while Blair has angrily claimed that the creditors are working at McDonagh's behest.

The Claddagh story began while Blair was Supermac's Galway-based operations manager. He wanted to bring an Irish family restaurant to the US, setting up branches in Ohio and surrounding states and eventually expanding across the US.

McDonagh was in on the deal, but "in" is either as a $20 million (€15.44 million) lender (McDonagh's version) or as a committed investor (Blair's version). At a court hearing in Cincinnati, Blair's lawyers held folders full of video-tapes and magazine clippings in which McDonagh is alleged to have held himself out as the man behind Claddagh.

McDonagh, in cross-examination, said he didn't read most of the magazine clips and does not regularly watch videos of himself. He has denied that Claddagh's cash-flow problems stemmed from his decision to cut off investment capital in late 2004.

In a deposition taken in a Galway hotel, McDonagh agreed that Blair had begged him for $500,000 cash in December 2004 to keep creditors away.

"I hope you sent the wire out already," said Blair in one e-mail read to the court. "I was under the impression that, once you rectified the notice of undertaking, you could take care of sending the wire Monday morning . . . I am in desperate need of this money as I communicated to you last week."

Blair was having serious difficulties repaying US bank loans and McDonagh wasn't going to give up more cash until Blair sorted it out.

"Kevin, I hope you understand that you have not made any repayments to the bank for quite some time, which makes it difficult to get further monies," McDonagh warned in his reply e-mail.

Under cross-examination, McDonagh denied that he laughed out loud at Blair's attempts to buy out McDonagh for $31 million to end the dispute.

"This was serious business; I don't laugh," he said dryly.

Blair's strained but formally polite e-mails erupted into open hostility after February 2005. He had hoped to secure a line of credit from US lender Fifth Third Bank to open two new restaurants but claims that McDonagh refused to back him up.

In one e-mail he wrote: "You refused to sign a note with Fifth Third Bank to allow Claddagh access to a line of credit, even though you knew that we needed capital to fund the opening of two new units. I have been forced to continue operations and expansion without any funding other than cash-flow, which you know is impossible."

Blair also warned of bad publicity unless McDonagh agreed to help Claddagh. "The US papers are quick to pick up lawsuits by angry creditors and it is no secret why I cannot obtain necessary financing . . . If this continues . . . the Claddagh brand will be meaningless."

McDonagh refused to sell his share or agree to mediation, saying that Blair had not offered audited accounts "or even financial reports".

He quickly sent in his own auditors, who now claim that Blair had been using Claddagh profits for his own use, even funding a $100,000 athletic scholarship at Ohio University, in the name of Mr and Mrs Kevin Blair.

That audit is also being used in a separate bankruptcy case being taken against Claddagh by three creditors. The creditors - Great Lakes Concrete Restoration Inc, Queensgate Food Group and John F Gallagher Co - claim a "lack of disclosure and accountability" since 2004.

In court, the three companies have strongly denied that their case was deliberately timed as a tactic in the Blair v McDonagh fight and said they were not trying to aid McDonagh with the "type of agenda that Claddagh has incorrectly asserted exists".

They were motivated, they said, by the "red flags" of insolvency and the "vast amounts of evidence of self-dealing and misappropriation of Claddagh's assets" by Blair.

They did, however, call Robert Brlas, a forensic auditing expert who was hired by McDonagh to investigate Claddagh's finances. He noted Blair's own admission that the company needed $10 million in September 2005 to stay afloat.

The creditors also showed a report from a CBS news affiliate in Cleveland in which is was alleged that Claddagh had been raided by state and federal tax authorities.

Their allegations of improper spending by Blair include $40,000 paid to his personal attorneys and expert witness, letting Claddagh pay his credit card bills, the purchase of luxury Lexus SUVs that were allegedly placed in his own name and using the Claddagh trademark for his use.

Digging into his personal finances, they claim he lives in a $600,000 house, with a $450,000 mortgage, all while living on a $65,000 salary.

The forensic accountant also testified that someone had mysteriously "stolen" Claddagh accounting analysis documents and that Blair had tried to use those documents when giving evidence in the case.

"Neither I, nor anyone on my staff, provided these documents to Kevin Blair or any Claddagh employees," he said in a sworn statement.

The forensic accountant also claimed that Ray Roth, a member of his office staff, was made to wait an hour-an-a-half in the lobby of Claddagh's headquarters on August 8th last while trying to collect financial figures from the company.

When Mr Roth finally received the documents, they had allegedly been altered.

Blair strongly denies any wrongdoing, claiming that the creditors are working to McDonagh's agenda and are trying to embarrass him.

His own financial expert, Carter F Randolph, testified in the bankruptcy case that the company is "clearly solvent" and retained earnings of about $23.5 million. Randolph said that, even if there were unrecorded expenses of $2 million, they were "immaterial to a company with $50 million in sales" and that any alleged irregularities in expenses were easily remedied.

Claddagh's lawyer, Ronald S Pretekin, backed up this claim, saying that the bankruptcy case was unhelpful and unnecessary. He told The Irish Times that he wanted a solution soon and that the creditors were involved in a certain "strategy" that connected with the Blair v McDonagh fight.

"I don't want this company damaged; it's a going concern," Pretekin said. "It's time for all of this to end."