New Lawsuit Unveils Issues Behind Red Lobster’s Bankruptcy

A recent lawsuit has surfaced, claiming that Red Lobster’s infamous $20 “endless shrimp” promotion was more than just a marketing misstep; it allegedly represents a deliberate effort by executives to extract value from the company.

Before filing for bankruptcy in 2024, Thai Union, a significant seafood producer and then-owner of Red Lobster, was reportedly looking to maximize profits from the iconic chain, according to documents filed last month in Florida’s 9th Circuit Court of Appeals.

The lawsuit states, “Thai Union treated Red Lobster as a sales outlet for its products, pulling every drop of value from it, especially as the bankruptcy loomed.”

Filed by a trust representing Red Lobster’s creditors, the lawsuit claims the restaurant owed around $295 million at the time of its bankruptcy and is now seeking a jury trial to assess damages.

Neither Red Lobster nor Thai Union have provided immediate comments regarding the lawsuit.

Bloomberg had previously reported on the legal action.

The complaint notes that Thai Union made the “endless shrimp” offer a permanent fixture on the menu, a decision that seemingly contradicted economic sense and effectively derailed what had been a successful strategy for Red Lobster.

This misstep allegedly cost Red Lobster $11 million in a single quarter.

Furthermore, the lawsuit characterizes the strategy as “self-dealing and exploitation,” asserting that the demand caused Red Lobster to purchase shrimp from Thai Union at inflated prices, even as customer spending per visit declined.

In 2016, Thai Union initially acquired a minority stake in Red Lobster, and four years later, took full control of the popular American chain.

During a precarious time for Red Lobster, with the pandemic impacting operations and fierce competition in play, Thai Union reportedly sent representatives to the chain’s headquarters in Orlando, Florida, to clarify their influence over the company.

According to the complaint, once Paul Kenny, a shareholder from Thai Union, arrived, he made it clear that CEO Kelli Valade was no longer in charge. Just weeks later, Valade resigned after a brief tenure of seven months.

In August 2022, Kenny became the interim CEO, and shortly after, Thai Union began controlling Red Lobster’s shrimp sourcing by integrating its personnel into decision-making processes, the lawsuit alleges.

Kenny is said to have interfered significantly with supplier contracts and insisted that Red Lobster must exclusively buy shrimp from Thai Union.

The following year, Kenny enforced a one-year ban on a long-time shrimp supplier, leaving Thai Union as the primary source for nearly half of Red Lobster’s shrimp offerings, which allowed it to charge prices much higher than the market value.

Later in 2023, Red Lobster defaulted on a loan from Fortress Investment Group, leading to a shift in the company’s board control.

In early 2024, Thai Union announced plans to sell Red Lobster, which is now under the ownership of an investment group led by Fortress.

Fortress has yet to respond to inquiries regarding the ongoing situation.

Currently, Red Lobster is attempting to revamp its image under CEO Damola Adamolekun, who was brought on board in August 2024 following a successful stint at PF Chang’s. In April, the chain reintroduced the “Endless Shrimp” promotion, but this time, it is only available for a limited period.