In re Elder-Beerman Stores Corp.

Decision Date03 May 1996
Docket NumberBankruptcy No. 95-33643. Adv. No. 96-3047.
Citation195 BR 1019
PartiesIn re The ELDER-BEERMAN STORES CORP., et al., Debtors. The ELDER-BEERMAN STORES CORP., Plaintiff, v. THOMASVILLE FURNITURE INDUS. INC., Defendant.
CourtU.S. Bankruptcy Court — Southern District of Ohio

Richard M. Cieri, Cleveland, Ohio, for debtor.

Lawrence E. Oscar, Hahn Loeser & Parks, Cleveland, Ohio.

William B. Sullivan, Womble Carlyle Sandridge & Rice, Winston-Salem, North Carolina.

Richard A. Chesley, Jones, Day, Reavis & Pogue, Columbus, Ohio.

Randy T. Slovin, Mason Slovin & Schilling Co., L.P.A., Cincinnati, Ohio.

DECISION AND ORDER FINDING VIOLATION OF AUTOMATIC STAY AND DENYING INJUNCTION

WILLIAM A. CLARK, Chief Judge.

FINDINGS OF FACT

1. Plaintiff Elder-Beerman ("Elder-Beerman") is a corporation organized under the laws of the State of Ohio. Elder-Beerman is a complex enterprise engaged in the ownership, operation, and management of retail department stores, furniture stores, and related businesses throughout the United States.

2. Defendant Thomasville Furniture Industries, Inc. ("Thomasville") is a corporation organized under the laws of the State of Delaware, with its principal place of business in Thomasville, North Carolina. Thomasville is engaged in the business of manufacturing furniture and related products.

3. Elder-Beerman has purchased and distributed Thomasville products for over 35 years. As early as 1985, the parties entered into a written contract for the sale and distribution of Thomasville furniture products. That contract contained a provision allowing either party to terminate without cause. Over the years, the relationship between Elder-Beerman and Thomasville expanded, and other written agreements were entered into. All of the agreements allow for termination without cause.

4. From the beginning of the relationship between the parties and through the mid-1970s, the Thomasville furniture line was an integral part of the Elder-Beerman furniture operation. Thomasville gave Elder-Beerman instant name recognition in the furniture business, and helped bolster the performance of those departments, as well as the franchise as a whole.

5. Thomasville is well-respected in the furniture industry. Mr. Max Gutmann, CEO of Elder-Beerman, stated that Thomasville is a "fine name" and is an essential line within Elder-Beerman's furniture market. Ron Bultema, Elder-Beerman's Divisional Merchandising Manager, stated that Thomasville is the "foundation" of his business. Thomasville's share of Elder-Beerman's furniture business has been characterized as a "lion's share" (more than 40%).

6. Although Thomasville sales represent less than 1% of Elder-Beerman's total sales revenues, this figure is misleading. Thomasville acts as a promotional leader line for Elder-Beerman. That is, customers are attracted to shop at Elder-Beerman because of the Thomasville name. As such, having the Thomasville line in its stores contributes to sales for Elder-Beerman both inside and outside of the furniture line.

7. Because of Thomasville's wide range of products, it may take as many as six to nine vendors to replace Thomasville in the Elder-Beerman stores. Adding additional vendors will require significant changes in Elder-Beerman's operations. There are complications with multiple delivery sources and order deadlines, dealing with different representatives and invoices, advertising, and more vendors means less sales volume with each individual vendor, which in turn may mean less incentives offered to Elder-Beerman from each vendor. In addition, Elder-Beerman's sales-people must be retrained to sell the new vendors' products.

8. In the course of the parties' relationship, Elder-Beerman has also expended a great deal of time and money in order to meet with Thomasville's standards.

9. Between 1989 and 1994, Elder-Beerman renovated four of its stores in order to accommodate Thomasville Galleries. These Galleries were located at Elder-Beerman's Northtowne, Northwest, Southtown, and Fairborn locations.

10. In order to comply with Gallery Agreements, Elder-Beerman agreed to expend substantial amounts of its own funds to renovate portions of its stores in accordance with Thomasville's Gallery blue-prints. The total expenditures on these galleries exceed $300,000. Elder-Beerman constructed, painted, wallpapered, lit, and furnished the Gallery areas to Thomasville's specifications.

11. In addition to the significant amount of time and money that Elder-Beerman spent to build its Thomasville Galleries, Elder-Beerman also eliminated its relationships with other furniture manufacturers to make room for additional Thomasville lines. Elder-Beerman made these sacrifices because Thomasville offered a well-established, recognized name, quality products at the upper middle range of price points, and the opportunity to control distribution in the Dayton trading area.

12. Thomasville strongly supported its relationship with Elder-Beerman during 1994 and 1995. For example, on August 1, 1994, Michael Nesbit, Thomasville's representative to Elder-Beerman, wrote a memo to Bill Carrico, his supervisor, concerning the November grand opening of Elder-Beerman's fourth Thomasville Gallery at its Fairborn location. Because Thomasville was Elder-Beerman's "number one vendor and growing," Mr. Nesbit recommended that Thomasville offer Elder-Beerman support in the form of $22,500 of products discounts and cooperative advertising funds. As justification for this expenditure, Mr. Nesbit indicated his confidence that the Elder-Beerman relationship would continue to be profitable for Thomasville.

13. Other indicators show that Elder-Beerman's dealings in the Thomasville line prior to bankruptcy were productive. In March 1995, Thomasville approved Elder-Beerman for yet another Thomasville Gallery at its Salem Avenue store. And in September of 1995, Michael Nesbit, Elder Beerman's Thomasville representative, in an internal memorandum to his supervisor, Dave Scarangella, informed him Elder-Beerman was considering building up to five more Thomasville Galleries.

14. In addition, from 1993 through 1995, delivery and return problems from Elder-Beerman markedly decreased. During this period, Elder-Beerman's return ratio was less than Thomasville's national average.

15. The healthy relationship between Elder-Beerman and Thomasville continued into 1995. During that year, Elder-Beerman's sales of Thomasville furniture products "dramatically increased," according to Mr. Nesbit. Estimates show the sales figures increased from $1.6 million in 1994 to $2,226,000 in 1995. Moreover, projections for the 1996 fiscal year showed that Elder-Beerman would continue to grow, and could meet or exceed Thomasville's $3 million sales goal, goals which none of Thomasville's vendors had met in 1995.

16. On January 4, 1995, Mr. Nesbit recommended a "customized" discount program for Elder-Beerman that coordinated Thomasville's promotions with Elder-Beerman's advertising schedule. These flat-rate discounts allowed Elder-Beerman to better take advantage of Thomasville's discounts when planning its own sales. According to Mr. Nesbit, these discounts were "much more responsive to growing business with Elder-Beerman."

17. On September 11, 1995, Mr. Nesbit wrote another memo to Scarangella recommending strong support for Elder-Beerman's stores. In this memo, Mr. Nesbit pointed out that Elder-Beerman had already doubled its volume with Thomasville and added that Thomasville made up 25% of Elder-Beerman's total furniture business, and approximately 50% of its case goods business. Because Mr. Nesbit approved of Ron Bultema, Elder-Beerman's new Divisional Merchandising Manager, and thought that it "behooved" Thomasville to help stabilize Elder-Beerman, he recommended a flat-rate discount for the first half of 1996 and possibly the last quarter of 1995.

18. On October 10, 1995, just seven days before Elder-Beerman filed its bankruptcy petition, Mr. Nesbit again recommended that Thomasville offer Elder-Beerman special promotions that could be coordinated with Elder-Beerman's advertising schedule. These plans were approved by Mr. Scarangella on October 12, 1995.

19. Prior to the Chapter 11 petition, Thomasville had grown to represent 25% of Elder-Beerman's wood products business with projected annual sales in excess of $2.5 million. It has been estimated that termination of the Thomasville product line may result in lost sales of $750,000 in wood products and $400,000 in upholstery business.

20. On October 17, 1995, Elder-Beerman and certain of its subsidiaries filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code"), in this court.

21. Immediately upon the filing of Elder-Beerman's bankruptcy petition on October 17, 1995, the relationship between Elder-Beerman and Thomasville changed dramatically.

22. Thomasville notified Elder-Beerman that the customized promotional program designed specifically for Elder-Beerman by Thomasville had terminated with the bankruptcy petition. Thomasville never offered Elder-Beerman another discount or promotional incentive until April 12, 1996, just one week prior to the hearing April 19, 1996.

23. On October 18, 1995, Thomasville demanded that Elder-Beerman return all previously shipped merchandise. On October 19, 1995, Thomasville stopped all shipments to Elder-Beerman. Thomasville did not resume shipments until Elder-Beerman furnished Thomasville with a $300,000 security, in early December.

24. On October 20, 1995, Charles Shaffer, Elder-Beerman's General Merchandising Manager, and Ron Bultema met with Thomasville representatives to discuss the bankruptcy filing. Thomasville had already, earlier in the day, taken steps to replace Elder-Beerman as they met with Larry Klaben of Morris Furniture, an Elder-Beerman competitor in Dayton.

25. At the October 20th meeting, Ron...

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