The owners of Sound Food have filed a lawsuit against the state seeking more than $500,000 for losses they say resulted from the state’s decision to discontinue their galley service on the state ferry system in 2006.

Owners Bill Dorn and Norm Vork’s Sound Food restaurant provided food aboard state ferries for two years before they were blindsided by the service’s cancellation, Dorn said — it destroyed the owners’ reputations, ruined their long-term plans and ultimately resulted in the closure of the Sound Food restaurant and the owners filing bankruptcy.

Dorn alleges that though Sound Food offered popular Island-made sandwiches, soups, salads and bakery items on board the Vashon-Fauntleroy-Southworth route, the ferry system shocked them in December 2006 by telling them that Sound Food’s services were no longer needed.

“They threw us off in December,” Dorn said, “and we immediately had a cash flow crisis and could no longer borrow day-to-day operating monies to keep the restaurant open. We had loans based on the income from the ferry system, and we were suddenly overextended.”

They claim in the lawsuit filed Dec. 31 that they jumped through hoops to meet requests made by Washington State Ferries (WSF) about their accounting practices, but were terminated nonetheless from a contract they believed would last a decade.

WSF officials said Sound Food had no guarantee its food-service contract would last 10 years and Dorn and Vork should have known their concessions contract was on a trial basis.

“We had a short-term pilot project with them,” said WSF spokesperson Marta Coursey. “They were not able to fulfill their contractual obligations. We tried very hard to work with them, but they simply were not structured to be able to provide the service.”

Dorn disputed that and said it seemed as if WSF was looking for a reason to give Sound Food the boot. It’s unclear why, he added.

“There was never any conversation” during contract negotiations about a temporary status for Sound Food’s service, Dorn said.

But Coursey said Dorn knew all along his contract was a temporary one.

“All of the language was outlined in the contract, and any businessperson would read all of the details,” Coursey said. “I have copies of the communication, and it’s very clear to anybody who reads it.”

According to the lawsuit, Sound Food sank more than $70,000 into starting up its ferry food venture, including more than $30,00 dollars installing credit card machines on three ferries, which the previous on-board vendor had refused to do. Dorn said he did so with WSF’s word that Sound Food would have time to recoup its initial losses.

“There were no discussions between Sound Food and WSF regarding any arrangement to alter the anticipated 10-year contract, and certainly no meeting of the minds between WSF and Sound Food to alter such a critical feature of the proposed concession arrangement,” the lawsuit states.

Events leading up to Sound Food’s termination weren’t amenable to either party, it seems.

WSF replaced one of three boats on the Vashon-Fauntleroy-Southworth route with the Evergreen State ferry for 63 days in 2006. The boat did not have a functional galley, so Sound Food could not provide service aboard it. The lawsuit alleges the business therefore suffered a $20,000 loss.

In response, the Sound Food owners determined it was within their rights to withhold $20,000 of fees it would pay to WSF under normal circumstances. WSF saw the nonpayment as a breach of Sound Food’s contract, and the unresolved issue factored into the ferry system’s decision to terminate Sound Food.

Dorn added he felt like he threw money away trying to satisfy the ferry system’s requests for improvements in its bookkeeping, when, in fact, the state had no intention of retaining Sound Food’s services.

Ferry system auditors reviewed Sound Food’s financial records, found Sound Food’s accounting practices deficient and requested several changes to its system, he said.

Sound Food hired independent accountants to ameliorate the issues, at a cost of $4,300, Dorn said.

The accountants “met over and over with the ferry system and were never able to find out what the ferry system wanted and what would suffice,” Dorn said. “It’s clear now that nothing would have been sufficient because their goal was to convince the public that we were cheating.”

He added that he felt misled into believing that work on Sound Food’s bookkeeping would help the company secure its position as a long-term food service vendor aboard state ferries.

He said he now believes ferry officials had already made the decision to dismiss his company, he said.

According to documents acquired by Dorn and his lawyer, Ron Leaders, under the Public Records Act, ferry officials wrote a draft termination letter in January 2006, but decided not to send it to Sound Food until the state Legislative session ended. Dorn did not receive a letter informing him of Sound Food’s termination until November 2006, almost a year later.

Brian Volkert, WSF’s business development manager, e-mailed other ferry officials in February 2006 that — at the request of the WSF executive director — officials were “trying to control the timing” of Sound Food’s termination, according to documents acquired by Sound Food.

Volkert made requests to Sound Food to amend its bookkeeping practices in April 2006, records show.

Sound Food discontinued its food service on Dec. 24, 2006.

“There were a lot of discussions about what we should do, but an official determination was not made until that letter was sent out,” said assistant attorney general Mark Lyon, who provides operational advice to WSF, about allegations the state had made its termination decision in advance.

“Things were rocky from the beginning,” he added.

Coursey, who did not begin work for the ferry system until after Sound Food stopped providing food service on state ferries, noted that the state’s contracts and communications are expected to be watertight.

“As a state agency, we’re required to have the highest standards of business relationships,” she said. “It was clear that it was a situation where we made a lot of effort to help Sound Food succeed, as we do with all our concessionaires. It was just not a workable situation.”