The City Market is broke, its bank account frozen after losing a court fight with one of its restaurant vendors, and the city is stepping in to keep the doors of the historic building open.

In return, Mayor Greg Ballard said he expects a major change in direction that could bring some national franchises or chains into the current mix of locally owned small businesses.

City Market’s leadership and some vendors said they oppose bringing in big-name eateries, but they acknowledge that the Downtown landmark is struggling and needs a major overhaul.

“We’re in dire straits,” said James Reilly, the market’s new executive director. “I haven’t paid bills or employees. It’s testing every management skill I have to keep this place open.”

Once a bustling market of fresh food stalls and a premier public space in the heart of the city, the market is now mostly a spot for government and office workers in the area to grab a quick lunch.

Its problems follow a renovation two years ago that went over budget and caused it to lose customers.

Too many vendors have folded recently and left too much vacant space to draw a high enough number of customers, Reilly said. The most recent exits are several dry-goods stands, a fourth-generation butcher and Lucia’s, an Italian food vendor.

Ballard said the city will help the nonprofit organization operating the market in the short term. But he said the city, which owns the building, can’t keep bailing out the market. The city subsidizes the market with $250,000 per year.

“Some people want to make it a 1950s-style market, but that model is done,” Ballard said. “It’s not working. I told them to open up to some new ideas.”

Ballard said all options need to be on the table, such as bringing in a Panera Bread or Starbucks.

Mike Batarseh, who owns CATH Coffee and Tea House, said that kind of move could hurt the existing businesses that populate the building.

“We’d become like a mall,” Batarseh said. “City Market is different. That’s the beauty of it.”

Bob Whitt, executive director of White River State Park and chairman of the market’s board, said Reilly is working to bring the mayor a plan to transform the space from a food court into a true public market.

“We have a definite preference for local, small businesses,” Whitt said. “We’re doing some real soul-searching. There are no easy solutions.”

Theresa Mascari, owner of Constantino’s, the market’s anchor tenant, said she was drawn back to the market last year after her family ran a business there from 1908 to 1998. She invested heavily in her large-scale produce stand and hopes a butcher, cheese vendor and bakery will follow suit. She said the market needs parking and better security and marketing, too.

“I don’t think franchises are the answer,” Mascari said. “We want it to be like Seattle or San Francisco. We just need time to get the right vendors here.”

Thomas Major, 36, who works nearby and was eating lunch in the market Friday, said he only frequents a few of the market’s 20 or so restaurant vendors.

“A balance with some national franchises would be good,” Major said. “If the choice is to change or close, I would want them to be flexible. This is a great facility that should stay open.”

The recent renovation, as well as a rapid turnover in management, led to the market’s problems.

Nikki Longworth, a former market director, planned a $1.8 million makeover that began in early 2007. The vendors relocated to smaller, hard-to-find spots in the wings of the 1886 building, and their incomes plunged.

Delays to replace old plumbing and add access for the disabled added about $700,000 to the bill and delayed the project for months. The city covered some of the cost overruns, and Longworth resigned.

John Mavrikis, manager of Grecian Garden, publicly criticized the management’s handling of the renovation and treatment of the vendors. Tempers flared on both sides.

When new director Joe Dayan would not honor Grecian Garden’s contract to rebuild its space in the main building after the renovation, the family business filed a lawsuit for breach of contract, seeking lost profits. The suit said the business made an average of $400 per day less in the east wing, where it was left for four months.

Dayan since has left the market and filed a pending lawsuit of his own alleging wrongful termination.

Judge David Dreyer ruled for Grecian Garden, and in April ordered the City Market to pay the business $42,382. The market had less than $30,000 in its bank accounts, which were frozen about two weeks ago by the court after Mavrikis’ attorney filed for collection.

Now the market can’t pay any of its bills, including vendors or utilities.

Chris Cotterill, the city’s lead attorney, said the city plans to appeal the ruling and must post the full amount of the judgment to do so. That will free up the market’s bank accounts.

Cotterill criticized members of the Mavrikis family for their aggressive handling of the collection, which could put their landlord and therefore themselves out of business.

Mavrikis said the market management left him little choice. He said no one asked the family to sit down and work out a solution.

“City Market uses the city’s lawyers at no expense,” he said. “That alters how they approach disputes.”

Reilly, who was the market’s director from 1994 to 2000, was brought back to fix the mess about seven months ago.

“We walked into a hornet’s nest,” Reilly said. “I’m relying on the city to resolve this.”