In re Food Management Group, LLC
| Decision Date | 25 July 2007 |
| Docket Number | Bankruptcy No. 04 B 20312(ASH).,Bankruptcy No. 04 B 22880(ASH).,Bankruptcy No. 04 B 22890(ASH).,Adversary No. 05-8636A.,Bankruptcy No. 04 B 22892(ASH). |
| Citation | 372 B.R. 171 |
| Parties | In re FOOD MANAGEMENT GROUP, LLC, KMA I, Inc., KMA II, Inc., KMA III, Inc., Bronx Donut Bakery, Inc., Debtors. Food Management Group, LLC, KMA I, Inc., KMA II, Inc., KMA I and Bronx Donut Bakery, Inc., Plaintiffs, v. Matrix Realty Group, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Chicago, IL, Attorneys for Plaintiff, Janice B. Grubin as Chapter 11 Trustee.
Law Offices of Avrum J. Rosen, by Avrum J. Rosen, Esq., Fred S. Kantrow, Esq., Huntington, NY, Attorneys for Defendant, Matrix Realty Group, Inc.
Table of Contents
Page
Jurisdiction...........................................................176
The Facts..............................................................176
(a) Background — the Gianopoulos factor..........................176
(b) Preparations for an auction of the franchised properties.....177
(c) Stalking horse bidders; adjournment of the auction...........178
(d) The Matrix Contract; cancellation of the auction.............179
(e) The Matrix/ZPG relationship..................................180
(f) Sale "as is, where is"; disclaimers..........................181
(g) Dunkin' Donuts' conditional approval of Matrix...............184
(h) Matrix' repudiation of the Contract..........................186
(i) Sale of the assets to The Beekman Group......................188
Discussion.............................................................188
I. Elements of plaintiffs' claim................................188
A. The existence of a valid and enforceable contract.........189
B. Anticipatory breach of Contract by Matrix.................189
C. The debtors' willingness and ability to perform...........190
D. Damages resulting from the breach.........................194
II. Matrix' affirmative defenses.................................194
A. The divisibility of the Contract..........................195
B. The debtors' alleged inability to deliver certain assets..197
C. The CPL and the CO for the Bronx Donut Bakery.............200
D. Assumption of the 2002 Settlement Agreement...............200
E. The shop remodeling obligation............................201
F. The argument that Matrix did not repudiate................203
G. The argument that a closing was not set and Matrix still
had time to cure..........................................203
H. Dunkin' Donuts' rejection of Krischer.....................203
I. The argument that the Dunkin' Donuts' Rider was not yet
signed....................................................205
J. Fraud in the inducement...................................206
K. The fraudulent 64 East bid................................208
L. Impossibility/frustration of purpose......................208
M. The December 15 Order.....................................209
N. Failure to join ZPG as a necessary party..................210
Conclusion.............................................................211
Plaintiffs-debtors entered into a contract (the "Matrix Contract" or, in context, the "Contract") dated April 15, 2005 with Matrix Realty Group, Inc. ("Matrix") for the sale of the debtors' assets to Matrix for a purchase price of $26.77 million subject to adjustments. In accordance with the Contract, Matrix delivered to debtors' counsel a cash deposit of $2,400,000 (the "Matrix Deposit"). In June 2005 Matrix repudiated the Contract and demanded return of the Matrix Deposit. The debtors commenced this adversary proceeding seeking damages for Matrix' anticipatory breach of the Contract and a declaratory judgment that the Matrix Deposit was forfeited to the debtors' estates.
By orders dated September 1 and 2, 2005, the Court authorized and confirmed the appointment of Janice B. Grubin as Chapter 11 Trustee (the "Trustee"). Since her appointment the Trustee has operated and controlled the debtors' assets and affairs and has prosecuted the adversary proceeding on behalf of the debtors' estates.
The adversary proceeding was tried to the Court without a jury, followed by two sets of post-trial submissions in accordance with schedules set by the parties. This Decision sets forth the Court's findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052.
The Court has core jurisdiction over this adversary proceeding under 28 U.S.C. §§ 1334(a) and 157(a) and (b) and the standing order of referral to bankruptcy judges dated July 10, 1984 signed by Acting Chief Judge Robert J. Ward. The Bidding Procedures (referred to below) states:
Any and all disputes related to the Auction or the sale of any of the Assets or the assignment of any of the Leases shall be adjudicated solely by the United States Bankruptcy Court for the Southern District of New York, White Plains Division. The submission of a Bid shall constitute an express consent to the exclusive jurisdiction of the Court for all matters related to the Auction and/or the sale of any Asset or Lease.
The assets which were the subject of the Matrix Contract consisted of 24 existing Dunkin' Donuts stores or shops and associated equipment and lease and franchise agreements in the Westchester area, a bakery approved and authorized by Dunkin' Donuts to supply the stores (the bakery premises included one of the 24 shops), and three "Shops Not Yet Opened." These assets were held until 2002 by twenty companies (the "Gus Companies") owned and controlled by Constantine Gianopoulos ("Gus").
For a variety of reasons Dunkin' Donuts desired to terminate the Gianopoulos' interest in the Dunkin' Donuts franchise stores in question. An agreement dated October 18, 2002 (the "2002 Settlement Agreement") was entered into between Dunkin' Donuts Incorporated, Baskin-Robbins USA Co., Baskin-Robbins Incorporated and Third Dunkin' Donuts Realty, Inc. (collectively "Dunkin' Donuts"), the Gus Companies, Gus, and his brother Anastasios Gianopoulos ("Tom"). The 2002 Settlement Agreement resolved three separate lawsuits pending in Federal District Court between the parties to the Agreement. The 2002 Settlement Agreement provided, in relevant summary, that the franchise agreements of the Gus Companies were terminated and that new franchise agreements would be entered into between Dunkin' Donuts and "new entities" to be owned by Tom and/or Gus which were to operate the Dunkin' Donuts franchise stores and bakery from the locations previously franchised to the Gus Companies. Thereafter, the corporate debtors were formed and constituted the "new entities" referred to in the 2002 Settlement Agreement, and these entities operated the 24 Dunkin' Donuts stores and bakery. The new entities were owned and controlled by Tom and have been colloquially referred to in these proceedings as the "Tom Companies" or the "debtors."
The 2002 Settlement Agreement required that the "new entities," i.e., the Tom Companies, sell all of the franchise stores and the bakery to purchasers having no affiliation with the Gianopoulos family pursuant to purchase and sale agreements to be submitted to Dunkin' Donuts on or before March 31, 2005 (the "Mandatory Sale of Franchises"). Specifically, paragraph 4 of the 2002 Settlement Agreement provided as follows:
Mandatory Sale of Franchises: On or before March 31, 2005 Franchisees shall submit purchase and sale agreements to [Dunkin' Donuts] for all of their franchises. If Franchisees are unable to close on the sale of any of their franchises by July 31, 2005 for which a purchase and sale agreement was submitted on or before March 31, 2005, then [Dunkin' Donuts] shall extend the closing date as reasonably necessary to complete the transfer(s), provided that all the parties, including the prospective transferee(s), are proceeding diligently and in good faith to closing.
In the event that the "new entities" did not comply with the Mandatory Sale of Franchises provision, Dunkin' Donuts had the right under paragraph 6 of the 2002 Settlement Agreement to purchase the franchises for a purchase price to be determined by the Dunkin' Donuts "business evaluation formula" in effect at the time.
Shortly before June 2004, in an action brought by Questech Financial LLC ("Questech") as secured creditor against the Gus Companies in Federal District Court (Westchester), the District Court ordered the appointment of a receiver for the Gus Companies and the Tom Companies for alleged misconduct by Gus and Tom and their counsel. As a consequence of the appointment of the Receiver, on June 1 and 2, 2004 the Tom Companies filed voluntary petitions under Chapter 11 and thereby became the debtors in this Court.
Questech promptly moved for the appointment of a trustee under 11 U.S.C. § 1104, alleging multiple acts of fraud and wrongdoing by Tom and Gus. The motion was granted to the extent that the Court entered an order dated June 28, 2004 for the appointment of an examiner (the "Examiner").
As noted above, the appointment of the Trustee was ordered and approved in early September 2005 in response to the latest in a series of motions for the appointment of a trustee filed by Questech following revelations of a continuing series of misconduct by Tom as owner and principal of the debtors, many of which were disclosed in Interim Reports filed by the Examiner.
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