A track moves models of vintage cars above the booths at the Ruby’s Diner location in Corona Del Mar. (MICHAEL GOULDING, ORANGE COUNTY REGISTER)

Ruby’s Diner is attempting to refinance its debt through bankruptcy court, according to a filing Sept. 5. (Courtesy Ruby’s Diner)

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Dave Cavanaugh had an idea to turn a dilapidated old bait shop at the edge of the Balboa Pier into a swinging 1940’s style diner. Friends thought he was crazy and the city turned him down at least once before giving him a permit. Cavanaugh proved them all wrong and created Ruby’s Diner – named after his mom.

A remodeled Ruby’s Diner was part of the renovation project at the Laguna Hills Mall. The mall has floundered as anchors have exited the property and this Ruby’s might be next. (Photo by Leonard Ortiz, Orange County Register/SCNG)

Laguna Beach Police Officer Brandon Drake takes several plates of food to the upstairs eating area at Ruby’s Diner in Laguna Beach during a Tip-A-Cop event. (Photo by Steven Georges, contributing photographer)



Supporters gather around Ruby’s Diner in Laguna Beach to view some sports cars and sit down to lunches served by Laguna Beach police officers during a Tip-A-Cop event to help raise money for the Special Olympics. (Photo by Steven Georges, contributing photographer)

Outlet mall developer Steven L. Craig is looking to partner with the operators of Ruby’s Diner in a financial reorganization of the debt-ridden company. (KEVIN SULLIVAN / Orange County Register)

The operators of the Ruby’s Diner restaurant chain have filed for bankruptcy protection and plan to partner with mall developer Steve Craig on a financial retooling.

Newport Beach-based Ruby’s Diners, known for its 1950s theme and iconic California beach locations, made its filing Wednesday, Sept. 5, in U.S. Bankruptcy Court in Santa Ana.

In court documents, Ruby’s said the bankruptcy will have no impact on its day-to-day restaurant operations at the 32-restaurant chain, including four company-owned units. The company has missed payments to lenders and investors amid a tough climate for family-oriented, sit-down dining chains.

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Rudy’s closed restaurants in Irvine and Mission Valley earlier this year. The court papers suggest a location at the troubled Laguna Hills mall also may close. The mall’s renovation was halted after major tenants announced they were leaving.

A key problem for Ruby’s was money it borrowed to buy out disgruntled partners in 2012. One lender, Opus Bank, moved to have a third party run the company. Ruby’s missed its June 30 payment to Opus, which is owed $2.1 million.

Another challenging debt is $4 million worth of outstanding Ruby’s gift cards, sold through Costco. The court approved Ruby’s motion to honor those cards for diners.

Ruby’s restructuring plan, if approved by the court, involves Craig lending Ruby’s up to $2 million to keep it operating in bankruptcy. Craig, who developed the Outlets at San Clemente and is a franchisee of the Ruby’s at the shopping center, would invest an extra $1 million when the company exits bankruptcy.

The plan calls for Craig to become Ruby’s chairman and owner of 60 percent of the restaurant chain that started in 1985. Co-founders Douglas Cavanaugh and Ralph Kosmides would own the remaining shares. Craig’s Newport Beach-based Craig Realty Group also helped develop the Citadel outlet malls.

Cavanaugh said in a statement that the agreement with Craig “will significantly improve our capital structure and provide Ruby’s the best opportunity for long-term success.” The company hopes to complete the restructuring within six months.