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Breads Bakery Partners Locked in Nasty Fight Over Control of Business

The recipe guy is not happy with the business guy, and it’s not pretty

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An overhead photo of two loaves of chocolate babka beside a cutting knife
A tale of two babkas
Photo via Breads

New York City’s top babka is inspiring a thorny legal battle between Breads founder and baker Uri Scheft and operator Gadi Peleg.

Scheft — a top baker in Israel who started the Breads brand there — is alleging Peleg has been trying to push him out of the company, going as far as grabbing a cell phone out of the baker’s hand, according to a demand for arbitration filed in court. He’s also claiming that Peleg has been hiding profits.

The duo partnered up back in 2012, after Peleg approached Scheft at his hit Israeli bakery Lehamim (which means “breads” in Hebrew) to open a NYC location, according to an arbitration demand. Scheft moved here to help run the bakery, and Breads quickly grew as a babka favorite in NYC. It now has a flagship location near Union Square and outposts in Bryant Park and in Lincoln Center.

But in 2015, troubles allegedly started. The baker and chef alleges that Peleg began to “deprive Scheft of his share of bakery profits” and made moves to push Scheft out, the demand says.

That’s when the two created a partnership agreement that said Peleg would run operations while Scheft held creative control, according to the demand. The agreement noted that Scheft would be responsible for all recipes and that any additional product sold could “not exceed 5 percent of the total products being displayed for sale,” the demand says. The agreement also said that each partner would receive 1.5 percent of revenue in quarterly advance payments. In 2016, Breads generated $10 million in revenue, according to the arbitration demand.

As a part of that agreement, Scheft says he moved back to Israel. Issues arose after that, the demand alleges. The chef is now claiming he has not received the full amount for quarterly payments this year. He’s also accusing Peleg of diverting company resources like recipes and staff to his other restaurants in NYC: Middle Eastern hit Nur, pizza stand Rock Pizza Scissors, and Chinese street food company Mr Bing, the demand claims.

Beyond that, Breads has also been selling “an ever-growing number of unauthorized products that do not meet Scheft’s standards for quality and authenticity,” such as pan-baked cheese mousse jars, potato bureka sandwiches, white shakshuka, epi baguettes, and chocolate pretzels, the demand states.

Peleg has even allegedly gotten physical. In April, the demand says Peleg “forcibly grabbed” Scheft’s cell phone to stop him from photographing the “unauthorized products” and refused to return it until Scheft filed a police report.

Eater reached out to Peleg, who has not returned a request for comment.

Scheft’s lawyer tells Eater:

It is unfortunate that Gadi Peleg has chosen to hijack Breads Bakery for his own gain and to disregard his contractual obligations concerning quality control and creative supervision. Mr. Scheft looks forward to being vindicated in arbitration and to recovering control of the brand he created, so that New Yorkers may continue to enjoy the outstanding products they have come to expect from Breads Bakery.

Now, through this arbitration, Scheft is asking for access to all financial information, timely payments, and a stop on the sale of unapproved products. Resolution isn’t likely until at least 2018. Stay tuned.

Breads Bakery

18 East 16th Street, Manhattan, NY 10003 (212) 633-2253 Visit Website