Cape Gazette

Cake Break broke?

Employees stunned by closure of Rehoboth bakery
By Ryan Mavity | Dec 31, 2013
Photo by: Ryan Mavity Cake Break on First Street in Rehoboth Beach suddenly closed its doors Dec. 1, leaving employees stunned and out of work. According to former employees, money troubles ultimately sunk the bakery.

Rehoboth Beach — For more than three years, Phil and Debbie Katz appeared to be living the Rehoboth Beach dream.

They had moved to the resort from the Washington, D.C. area and opened up their own cupcake shop, Cake Break, on First Street. The Katzes were a common sight at area events such as the Cocoa Crawl, where they usually set up shop at Browseabout Books and gave away free samples of their newest treats. They had even announced plans to open a new store on Savannah Road in Lewes.

Just before Christmas, the Katzes suddenly closed Cake Break and left town.

‘”The whole thing is ridiculous,” said former baker Tom Kelch, adding his opinion that Phil Katz "screwed a lot of people before Christmas."

James Baull worked as a dishwasher for the nearly four years Cake Break was in business. He said employees were told to show up at the store Dec. 1, when the Katzes gave word the store would close. Kelch and Josada Gonzalez, who started working for Cake Break in August, also said employees were called Sunday night, just after Thanksgiving, to be told the store was closing

Cake Break went silent  Dec. 1 – the day the Katzes had announced they would open the Lewes store. Cake Break has not updated its Twitter or Facebook pages since Dec. 1, when a post went out saying the store would close at 3 p.m. that day. Calls to Debbie Katz were not returned.

Money problems at center of closing

According to those who worked there, money troubles led to Cake Break’s demise.

Kelch had begun working for Cake Break in the summer as a baker. He had recently moved to Rehoboth to run his own bed and breakfast, Rehoboth Guest House.

“It seemed like a great opportunity, and they seemed like nice people,” he said. All was well, at least during the summer: checks were paid from a payroll company and were delivered on Friday. However, during the offseason, Kelch said, checks began bouncing.

“It felt like there was something wrong,” he said.

Erica Wilson started working for Cake Break in July as a cashier. She said in October, she was told she couldn’t be scheduled anymore, so her job ended. The business was having money problems, she said, but the Katzes maintained the impression all was well.

Baull said paychecks that at first had arrived on Friday began to arrive on Monday, and towards the end, instead of company checks, the checks would be personal checks from the Katzes.

Gonzalez said her first and third paychecks bounced, after which she was told to wait three days to cash her check.

Kelch said the personal checks did not come with paystubs. He said he had to go to the Delaware Department of Labor to get Phil Katz to give him his paystubs and time cards. When Katz did give him his time cards, Kelch said the cards were handwritten, something Cake Break never did because it had an electronic timekeeping system. He said the amount of time he worked had been changed to show he worked fewer hours than he actually worked, and he was not paid for overtime, in addition to $1,100 in bounced checks.

Kelch said the Katzes promised to reimburse employees for bounced check fees from their banks but never did.

Kelch said he wasn’t desperate for the money and did not want to rock the boat because he liked the Katzes and knew they were having financial problems. Kelch said, in his opinion, employees were being paid under the table, with no taxes being taken out, even though money was deducted from the checks as though taxes were paid.

“They wanted everyone to believe everything was fine up until they left,” employee Kelly Fanello said. “They kept saying they were opening the new store. They were taking orders the whole time. It doesn’t make sense.”

While Baull said Cake Break fulfilled its outstanding orders before closing, Kelch said he believes there are hundreds of wedding cake orders that were paid in advance that were not filled before the closing. He said he knows this because he’s the one who would have made the cakes.

“They didn’t tell their employees. I doubt they told the brides,” Kelch said.

This is not the first time the Katzes have run into financial issues. The couple moved to Rehoboth in 2010 from Laurel, Md., where they ran a printing business called Go To Digital.

Stephen Martinec worked with the Katzes through his bindery company, SGM Bindery, also located in Laurel. He said more than 10 years ago, SGM became the Katzes vendor. Martinec said the Katzes abruptly left their business behind; he said they owed him $4,200.

“They did not file bankruptcy. They just took off,” Martinec said. “We never collected the money owed.”

Martinec did not seem to have any indication the Katzes business was in trouble.

“They were a slow pay, but in the printing industry that is typical,” he said. Martinec said when the Katzes closed Go To Digital they closed the doors, liquidated their assets and leased most of the equipment.

While in Laurel, the Katzes were also taken to court twice by banks: in 2010 by Howard Bank in a foreclosure matter that saw the bank awarded a judgment of well over $1 million by the Circuit Court for Howard County. A second case, brought by Canon Financial Services, is still active after bankruptcy was suggested by the court. However, the Maryland bankruptcy court in Baltimore, which serves Howard County, has no record of Go To Digital ever filing. Attorneys involved in the cases declined to comment.

"It's been really hard"

Where the Katzes are now is a bit of a mystery. Sanello said she heard they had moved to Pennsylvania and went back to the printing business.

Baull said Dec. 1 was the last time he spoke with the Katzes face-to-face; he has been trying to get in touch with them since the closing to retrieve tools he left in the store, but has not been able to reach them, he said.

Kelch said he had cookbooks and baking equipment still in the store. He said Phil Katz has not responded to attempts to reach him about getting his equipment or issues regarding his pay. He said Katz had applied for and gotten a job for a printing company.

"He made sure he had gotten a job and was taken care of," Kelch said.

Kelch said Katz had not allowed him to go see his family in Pennsylvania during Thanksgiving, making Kelch and Gonzalez run the store while, he said, the Katzes vacationed in Massachusetts. After that weekend, the Katzes came back and closed the store. However, that is not what they told customers; at first, a sign was put on the door saying the store was temporarily closed. The 7 S. First St. building is listed for sale with Jack Lingo Realtor.

The closing of Cake Break made for a difficult Christmas time for the former employees.

“I was happy to have a job,” Baull said. “Now I don’t have one.”

Gonzalez, the mother of a 3-year-old son, faced difficulty paying rent and making ends meet. She said she has had to file for unemployment.

“It’s been really hard. It’s hard in the middle of winter. It’s almost impossible to get another job here,” Gonzalez said.

While Kelch already had a job running his bed-and-breakfast, he said he felt for the staff, who were all good employees who would have done anything for the Katzes and were left without jobs just before Christmas.

“He just blindsided all of us,” he said of Phil Katz.

Editor's Note: The name of one of the employees quoted in this story was mispelled, but it has been corrected. Her name is Kelly Fanello.

Sign placed on Cake Break's front door. Despite the optimistic message, employees said they were told Dec. 1 the store would be closing. (Photo by: Ryan Mavity)
The would-be location of Cake Break's second store on Savannah Road in Lewes. Owners Phil and Debbie Katz had planned to open the store Dec. 1. (Photo by: Ryan Mavity)
Former Cake Break baker Tom Kelch in front of his bed-and-breakfast, Rehoboth Guest House. Kelch and other employees said checks from Cake Break bounced routinely, and by the end, owners Phil and Debbie Katz were paying them with personal checks. (Photo by: Ryan Mavity)
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