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Picture Pub Pizza - Poof!

The birth of the Cerrito led to the death of the Parkway. Now, a lawsuit may be the only way out.



The marquee read "We Love You Oakland." Tickets were sold out, and a line of moviegoers wrapped well around the block. It was the Parkway Theater's busiest night in recent memory. But the mood was far from sunny. With only a few days' notice, the Parkway was closing, marking the loss of a community institution, the shuttering of a city landmark, the end of an era. Hundreds had gathered to pay their respects.

The theater at 1834 Park Boulevard fell dark the next evening, but its sister facility in El Cerrito remained aglow in blue neon. It had opened along a modest stretch of San Pablo Avenue in late 2006 as an extension of Kyle and Catherine Fischer's beloved Speakeasy Theaters brand. The couple had spent the previous five years working closely with the City of El Cerrito, which invested more than $4 million in restoring the art deco movie house and returning it to full operation in the Parkway's image. With the March 22 closure of the Oakland theater, attention turned to sparing the Cerrito from the same fate. It had been doing good business, consistently filling seats and making money month to month. Yet less than nine weeks later, it, too, shut down.

How it all happened soon became the subject of rumor and speculation. Was Speakeasy Theaters a victim of the recession? Of Netflix and multiplexes? Of a shoddy business plan? A malevolent landlord? Why had the Parkway closed so suddenly, and was the Cerrito's failure related? Each theory had its backers, but the truth wasn't so clear-cut. Behind the scenes, a more insidious game of finger-pointing was developing. While the Parkway sat empty and the Cerrito transitioned to its next stage, there emerged two very different accounts of what went wrong. Thinly veiled accusations of bureaucratic malfeasance and financial incompetence began to soil the once-productive relationship between Speakeasy Theaters and the City of El Cerrito.

While the city quickly turned its theater over to a new operator, Speakeasy CEO and former attorney Kyle Fischer began contemplating a multimillion-dollar lawsuit claiming ownership of the building's extensive improvements and equipment. The city has dismissed his claims and threatened a countersuit for millions in unpaid loan funds and future rent, which it had previously offered to forgive.

As the public eye moves on to the next act at both theaters, one thing looks certain: The birth of the Cerrito contributed to the death of the Parkway, and a protracted legal battle may be the only way out. Its outcome could have immense implications for the future of El Cerrito's newly restored theater and the legacy of Kyle and Catherine Fischer, Oakland homeowners and parents who spent thirteen years building a beloved East Bay business and a matter of months watching it crumble.

Kyle and Catherine Fischer first entered the 1920s-era Parkway Theater in August 1996. It had last shown movies in 1990 and, as a venue for raves and other parties, become a magnet for crime. It sported carpeted walls, decrepit plumbing and electrical systems, and a plywood floor with no seats.

But the then-unmarried business partners — Kyle, a passionate, emotional, shoot-from-the-hip kind of guy and Catherine a cooler, more diplomatic operator who fancies herself an eternal optimist — had big dreams for the space. They planned to turn it into California's first speakeasy theater, which would combine second-run films and adventurous, community-based programming with food and beverage service for a 21-and-over crowd. In January 1997, the Parkway opened with a showing of Fargo, which was already out on videotape, and the Speakeasy mold was cast.

"There's a group of people in the East Bay who aren't being satisfied in the multiplexes," Kyle Fischer told the Express at the time. "That's our crowd." And he was right. While the Parkway initially lost money, by the end of its first year it had begun to materialize as both a community linchpin and a destination for a certain class of moviegoer from throughout the Bay Area.

If nothing else, it offered patrons a unique night out. Comfy, stuffed chairs and couches with tables in lieu of typical theater seating; pitchers of beer and wine; and a kitchen turning out pizzas, sandwiches, and salads fostered an ambiance that mattered as much as what was playing onscreen. But the theater's bargain-price programming excelled in its own way: In addition to progressive indies, second-run Hollywood flicks, and old classics, the Parkway added B-movie horror and quirky theme nights through charismatic booker Will "the Thrill" Viharo, who often appeared onstage with fellow host and future wife Monica the Tiki Goddess. The Parkway's weekly Baby Brigade broke the mold even further by offering daytime shows where crying children wouldn't become outcasts. And that was just the beginning.

By early 2001, the Parkway Speakeasy was entrenched — and profitable. But a fortuitous occasion would forever alter its trajectory and that of its owners. Ten miles away, in the small suburb of El Cerrito, a man named Harry Kiefer decided to sell his building. He'd been using it to store furniture for 35 years, but it was no ordinary warehouse; it was the shell of an old movie palace, a fact few people around town seemed to know. It might've landed on the chopping block if not for the efforts of El Cerrito resident and historic-building buff Dave Weinstein. He alerted city officials to the building's hidden history — including the period details still intact inside — and sparked their interest in restoring the theater.

Small, independent movie theaters like the one that city administrators began to envision tend have a domino effect on the surrounding area. "The theater is a cornerstone of a shopping district," said Allen Michaan, owner of Grand Lake Theater operator Renaissance Rialto. "With it comes increased foot traffic that can revitalize an entire neighborhood." This was precisely what the City of El Cerrito had in mind for the building's nondescript block. All it needed was a knowledgeable developer and future operator to guide the process.

Of the many independent theater operators the city approached in the ensuing months, its top choice was Speakeasy. Both parties agree to this day that the city openly sought to emulate the Parkway's success in Oakland by applying the same blueprint to El Cerrito. The city first contacted Speakeasy in April 2001, shortly after it learned about the theater. The Fischers took a look at the space and thought it could be a great fit, but told city staff they lacked the funds to get it off the ground. Undeterred, El Cerrito reached out to the Fischers again a year later with a better offer: The redevelopment agency would pony up the cash if Speakeasy would oversee the restoration and later operate the theater. Still concerned about the financials but reassured by the city's support, the Fischers decided to give it a try. If the public/private partnership worked, they figured, they could continue to grow their business by bringing the Parkway model to other cities. After the El Cerrito Redevelopment Agency bought the building for $500,000 in June 2002 and issued a call for proposals, the Fischers submitted their vision in writing. They were the only people who did, and won the contract.

From the start, the deal was tinged with controversy. Some El Cerrito residents opposed using public money to buy and develop a movie theater — especially one that would be operated as a profit-generating enterprise by a private business. The unusual deal the city struck with Speakeasy Theaters sits at the heart of the tension between them today: a triple-layer scheme that first loaned Speakeasy Theaters $2.47 million of redevelopment agency money, then funneled $2.88 million of agency funds directly through Speakeasy to outside contractors for additional construction costs, and finally, once development was complete, entered into a complex lease agreement whereby Speakeasy owed $10,000 a month in rent that would be credited toward its 25-year loan.

"It is a complicated transaction," said attorney Karen Tiedemann, who represents El Cerrito's redevelopment agency. "In part it's complicated because there was a lot of work that needed to be done on the building. The agency realized that an operator couldn't afford to do all the work."

While arduous, development of the theater was ultimately a success. Efforts were made to preserve and restore as many of the original elements as possible, including murals of dancing maidens and Greek gods that framed the original screen. An entire second story was built to house another screen, while two cafes were added downstairs. The project later received a Design Award for restoration from the California Preservation Society.

Yet by the time the Cerrito opened in November 2006, the renovation had taken a heavy toll on Speakeasy Theaters. The thousands of hours Kyle and Catherine Fischer dedicated to the project meant time away from the Parkway, which they claim contributed to a decline in profits and annual growth — from as high as 13 percent before beginning work on the Cerrito down to 4 percent in 2003. Even more daunting, after starting the project in the black, the Fischers had accrued considerable debt. This was partially related to delays of nearly two years and cost run-ups from $3 million to more than $5 million. They'd also used their own money to pay for some improvements, such as $100,000 on the kitchen.

Furthermore, the Fischers say they were locked into a lease that was too severe. To get the new theater on its feet, they say they asked to not pay rent until the seventh month of operations, just as they had years before at the Parkway. But Kyle believes the redevelopment agency balked because it did not want to appear to the public that it was subsidizing a private business. Still confident that the city had Speakeasy's best interests in mind and would relax the rent requirement after the first year, the couple signed.

They did not pay rent for the first several months, and only by infusing the Parkway's modest profits into the Cerrito were they able to pay it intermittently throughout the first year. Meanwhile, a variety of other unforeseen factors undermined the Cerrito's launch, such as initially being placed in the same exhibition district as downtown Berkeley and thus not being allowed to show any of the same movies at the same time. The beginning of the recession and the ensuing Writer's Guild of America strike also hurt, the Fischers said. After finally catching up on twelve months of rent, they stopped making payments altogether.

"In the first year of the Cerrito, we told them, 'This is more rent than we can handle,'" Kyle Fischer said. "They had known we were in financial trouble from day one. We were trying to figure out how to resolve this from pretty much the middle of the first year of operation." The city's response, he claims, was to offer promises of aid that never arrived.

El Cerrito redevelopment manager Lori Treviño, who served as a liaison between the Fischers and the city, sees it a bit differently. She says the Fischers were cavalier about Speakeasy's financial position and frequently assured the city that as soon as they got situated, the theater would recover. She and city manager Scott Hanin also say that redevelopment agency staff asked the Fischers on multiple occasions to submit a formal proposal for a potential lease modification, but never received one. "I don't think we understood the full extent of the problem," Treviño said. "We had no idea what their debts were like."

Speakeasy's financial reports for 2007 — its first full year of operation in both theaters — suggest the Parkway was making nearly $12,000 in profits every month. The Cerrito, however, ran an operating loss of $465,000 for Speakeasy Theaters that year. By factoring in the increasing debt the Fischers were carrying — including $340,000 in accounts payable, $42,000 in bank overdraft, and $5,000 in accrued payroll — the picture grew even grimmer.

In May 2008, Kyle finally sent a letter to Treviño and Hanin admitting that not only couldn't Speakeasy pay its rent, but that after raiding their personal savings accounts, stock holdings, and children's college funds to grow the business at the city's preferred pace — an accelerated, all-at-once approach that differed from the Parkway's more organic development — he and Catherine didn't have enough money to pay the $60,000 they still owed to general contractor BBI Construction. The letter did not explicitly request a restructuring of the lease, but suggested it would help.

"It is truly difficult for me to write this letter to you," Kyle began. "Catherine and I take a great deal of pride in our business and our ability to run it profitably. ... In the ten-plus years that Speakeasy Theaters has been in operation, we have only experienced one other time that has been as challenging as the present time. We survived this difficult period through ingenuity, creativity and gall." But now, Kyle continued, he and his wife were backed into a corner and could no longer rely on their autonomy. "We are open to suggestions," his letter concluded. "We are going to keep fighting regardless but we have run out of our personal resources."

Both Speakeasy Theaters and El Cerrito were in a tough spot, but Kyle's announcement set in motion a concerted effort to make things better. In her reply, Treviño offered consolation: "Although we have some limitations, we want to do what we can to support you in this." It was music to the Fischers' ears.

First, the city needed a better picture of Speakeasy's position. So the city council ordered a complete financial review. This didn't begin in earnest until August and wasn't complete until the end of September, leaving a span of four months in which the Cerrito continued to lose money while nonetheless improving its business. Treviño blamed the delay on the state of the company's books. "Their record-keeping was poor," she said. "The accountants that we hired had to reconstruct a lot of it."

The audit found that operations at the Cerrito had improved so much that it lost less than $25,000 in the first nine months of 2008. It would prove profitable by the end of the year, save for the hundreds of thousands of dollars of startup debt it still carried. The Parkway's fortunes, however, had significantly worsened, and it was now losing money monthly — a fact the Fischers attributed to a declining economy; deteriorating relationships with film studios due to late payments; legal struggles and extended lease negotiations with the theater's landlord; and, ironically, business lost to the increasingly popular Cerrito Theater.

The results of the financial review were presented to the city council in October, and in November the Fischers and city staff sat down to hammer out a solution. "Everyone felt good about it," Catherine said. They simply had to present the proposal to the city council and serve notice to the public. Catherine expected an amended lease and additional funds to be approved by February.

But instead of a resolution, the Fischers got a letter from redevelopment agency chairman Bill Jones requesting more information — namely, a new business plan modeled with the proposed relief. The agency appointed a two-person subcommittee to oversee this final step. "The intention of the Agency Board is to continue the relationship possibly by revisiting the Cerrito Theater Lease Agreement," the letter closed. "We are optimistic that the relationship will be successful for years to come."

Another month put further pressure on Speakeasy, and the company was steadily incurring additional debt by paying its accountant throughout the negotiations. "At this point I was saying every other day to them that we're running out of money from a cash-flow standpoint," Kyle said. With little money available to pay movie studios for films, Speakeasy had begun to enter a death spiral as it continued to await action by the City of El Cerrito.

Meanwhile, the Parkway's situation had gone from bad to irreconcilable. On Friday, March 19, Kyle Fischer released an e-mail blast announcing the Parkway's closure that Sunday. It came with no warning, shocking fans and employees alike. Due to the company's suffocating debt and debilitating battle to save the Cerrito, Speakeasy Theaters had become so cash-poor that it couldn't pay the Parkway's new rent of $10,000, nearly doubled in July 2008 when its lease expired.

The landlord, who Kyle says was unwilling to negotiate, had issued an eviction notice. But Kyle misread the date and failed to take immediate action. "That was definitely my mistake," he said. A few weeks later, he reread the eviction notice and realized the deadline was nearly upon him. "I expected the sheriff to show up the next day and lock the place down." So he did what he felt he had to: close the theater before someone else could.

By then the El Cerrito City Council had decided not to endorse the modified Cerrito lease and loan terms that city staff and the Fischers had agreed to back in November, and began working on a draft of its own. At an April 6 joint meeting of the redevelopment agency and city council, the council finally presented its offer, a package that addressed many aspects of Speakeasy's finances, including rebates for $120,000 in previous lease payments, an additional $50,000 loan, and a laddered approach to future rent payments that began with only $2,000 per month in 2010. It was prepared to present its offer the very next day and sign it into action by May 4, a full year after the process had begun with Kyle's letter.

Tragically, just hours before its long-anticipated rescue was slated to be announced by the city council and posted for public comment, Kyle suggested to Lori Treviño in an email titled "winding up" that the theater had run out of money. "I will be sending out a press release in the next week or so indicting that Speakeasy Theaters will be leaving the Cerrito Theater," he wrote. "We have held out as long as we could."

The Fischers were quickly apprised of the council's decision and timetable. They responded that nevertheless, they'd be able to last another few weeks at the most, perhaps just a few days at the least, after which point the business would no longer be able to secure films, food, and other necessities. Kyle had decided to offer advance warning of that impending deadline in order to correct his mishandling of the Parkway's closure.

However, the premature announcement backfired — at a special April 8 meeting, the redevelopment agency voted not to offer assistance to a company teetering so near to the edge and evidently intending to close. So it withdrew the loan and lease modifications proposed by the city council just two days prior and opted to begin the process of transitioning to a new operator. According to council documentation, Treviño conveyed to Catherine Fischer via a phone conversation the following afternoon that "the Board had decided not to continue with Speakeasy." Yet evidently unaware of the ramifications of the city's about-face, the Fischers persevered six more weeks by withholding California sales tax in a last-ditch effort to keep the theater open. Nearly three weeks after the date at which the city's aid would've kicked in, Speakeasy was finally forced to withdraw from the Cerrito.

Fault for the Cerrito's failure, and likewise that of the Parkway, does not rest squarely on either party. Speakeasy Theaters may have made poor management decisions and kept inadequate financial records, but city officials coaxed the operator into the relationship and were decidedly unhurried in offering a bailout. The Fischers feel they were led on and left out to dry, while the city claims the couple was uncooperative and disorganized throughout the entire process. Whatever the reason, the same agency that took a year to deliver aid to its struggling partner was able to turn the Cerrito Theater over to an entirely new operator in less than two months.

At midnight on July 15, the Cerrito Theater presented a sold-out screening of Harry Potter and the Half-Blood Prince to celebrate its reopening under independent operator Rialto Cinemas, which also runs the Elmwood in Berkeley and the Lakeside in Santa Rosa. But the ghost of Speakeasy Theaters still hung in the building. After all, the theater had been designed in its image, and little had changed since it left. Convening in the lobby shortly after the curtain rose to a round of audience applause, Rialto employees seemed elated to have completed the mad dash toward reopening the theater. They looked forward to serving the people of El Cerrito as a family-friendly, all-ages venue.

Kyle and Catherine Fischer, for their part, are far from ready to move on. They still owe $650,000 to contractors, $250,000 to themselves, and more than $4 million to the City of El Cerrito. It's debt they plan to erase through litigation. Although they've never officially listed the theater as a company asset, they now argue that its millions of dollars of improvements belong to Speakeasy Theaters. The reasons are threefold, the Fischers say: They held the contracts for all work, they purchased the equipment through monetary gifts and an unsecured loan, and they represented to contractors and the public that it belonged to them. The Fischers also claim they are owed for serving as consultants over thousands of hours of theater development. "We're gonna sue them for a lot of stuff if this goes to court," Kyle said. Over the last few weeks he has repeatedly threatened the city with a lawsuit, and as of last week began interviewing attorneys to represent Speakeasy's case.

The city, however, believes the Fischers' claim to the theater and its equipment has no merit, largely based on a one-paragraph clause in the lease titled "Surrender." It states that anything left in the building after thirty days beyond termination of the lease becomes property of the city. The city, which still holds the deed to the building itself, also argues that because it initially paid for everything, whether through a loan or direct payments, it assumes ownership of all improvements.

El Cerrito's threatened counterclaim for unpaid loan and lease monies is disputed as well. While the Fischers signed both documents at the time, a letter drafted by their friend and practicing attorney Brian Toppila late last month argued that both the loan and the lease cannot be valid at the same time, and therefore Speakeasy Theaters cannot be liable for both debts. "It is all very confusing and hands are not clean," Toppila wrote.

The disagreement marks a bitter end to a remarkable project. The Fischers, who invested thirteen years of their lives in Speakeasy Theaters, have lost their livelihood in more ways than one. "When we think about this in real terms, we weep," Kyle said. "This hurts beyond hurt. The Parkway was our child. I can't tell you how much joy we got out of the Parkway." Without a doubt, so did its many followers. One of the theater's greatest coups, Kyle recalls, was being named the "Most Appealing Spot" in Bay Area nightlife by Zagat Surveys in 2002 and 2003.

"I regret ever having gone into the City of El Cerrito," he added. "We were having a great time at the Parkway. I wish I had never heard of the City of El Cerrito." Nevertheless, the theater will long stand as a symbol of what the Fischers' effort, expertise, and unique partnership produced. It has already become a rallying point for El Cerrito residents — a burgeoning community center, a source of civic pride, and an anchor for a growing commercial district that includes a cafe and record shop, a yoga studio, an art studio, and more. The proud "Cerrito" sign out front serves as a standing greeting to travelers along San Pablo Avenue.

"If it wasn't for the Fischers, I don't believe the theater would exist today," said Dave Weinstein, who, after notifying city officials to the theater's presence, became chairman of non-profit citizen advocacy group Friends of the Cerrito Theater. "They deserve a tremendous amount of credit."

Gary Meyer, founder of Landmark Theatres and current operator of the Balboa Theatre in San Francisco, agrees. "The City of El Cerrito, Friends of the Cerrito, and Speakeasy Theaters were visionaries," he said. "It is a beautiful theater. It's a real asset for the East Bay."

The Parkway's façade, meanwhile, has grown considerably less inviting. An accordion-like steel gate extends across the theater's front door. A series of ground-floor windows have been boarded up with what appears to be drywall. Numerous upper-floor windows contain signs reading, "Office for Lease." A single movie poster remains: Benjamin Button, out Christmas Day 2008. Yet all is not lost. The two large "PARKWAY" signs atop the building still radiate neon green light. They offer promise that the theater, currently the subject of ongoing negotiations for a new operator, will follow the Cerrito's lead and rise from the direst of circumstances to shine again.

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