In re Llc
| Decision Date | 22 March 2011 |
| Docket Number | No. 8–10–75439–478.,8–10–75439–478. |
| Citation | 65 Collier Bankr.Cas.2d 918,450 B.R. 392 |
| Parties | In re FPSDA I, LLC, et al., Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
OPINION TEXT STARTS HERE
Ruskin Moscou Faltishckek PC, By: Michael S. Amato, Esq., Uniondale, NY, for the Debtors.O'Rourke & Degen, PLLC, By: Ronald D. Degen, Esq., New York, NY, for Dunkin' Donuts Franchising LLC, Dunkin' Donuts Franchised Restaurants LLC, Baskin–Robbins Franchising LLC, Baskin–Robbins Franchised Shops LLC and DB Real Estate Assets I LLC.Hahn & Hessen LLP, By: Rosanne Thomas Matzat, Esq., New York, NY, for The CIT Group/Equipment Financing, Inc.Office of the United States Trustee, By: Stan Yang, Esq., Central Islip, NY.The Law Offices of Avrum J. Rosen, PLLC, By: Fred Kantrow, Esq., Huntington, NY, for Official Committee of Unsecured Creditors.Hinman, Howard & Kattell, LLP, By: Harvey D. Mervis, Esq., Binghamton, NY, for Bank of the West and First Franchise Capital.Windels Marx Lane & Mittendorf, LLP, By: Leslie S. Barr, Esq., New York, NY, for Sovereign Bank.
Before the Court is the motion by FPSDA I, LLC, Commack Road Donuts, LLC, FPSDA II, LLC, Highbridge Donuts, LLC, Metro Shops, LLC, Middle Country Road Donuts, LLC, Five Points Development Partners, LLC, Mountain Road Donuts, LLC, Benfield Donuts, LLC, Upper Marlboro, LLC, CDDC Holding Company, Miller Place Donuts, LLC, CDDC Acquisition Company, LLC, D3C, LLC, Kingdom Donuts, LLC, and Blue Point Ventures, LLC (collectively, the “Debtors”) for the entry of an order (I) determining that certain of the Debtors' non-residential real property leases need not be assumed or rejected pursuant to 11 U.S.C. § 365(d)(4) at this time, or (II) in the alternative, allowing the Debtors to assume the nonresidential real property leases at issue under 11 U.S.C. § 365(d)(4) without having to cure any monetary defaults existing under corresponding franchise agreements (the “Motion”). This Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334. This contested matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O) and 11 U.S.C. §§ 105(a) and 365(d). The following constitutes the Court's findings of fact and conclusions of law as mandated by Bankruptcy Rule 7052 of the Federal Rules of Bankruptcy Procedure.
The Debtors operate several quick serve restaurant franchises that produce and sell beverages, donuts, baked goods and other food products, with seven retail stores located in New York and six retail stores located in Maryland. The Debtors have been operating their businesses in Chapter 11 as debtors in possession since or about July 13, 2010. The bankruptcy cases are jointly administered but have not been substantively consolidated.
The Debtors' most significant assets consist of the separate franchise agreements entered into by twelve of the Debtors with Dunkin' Donuts Franchising LLC, Dunkin' Donuts Incorporated, Dunkin' Donuts Franchised Restaurants LLC, Baskin–Robbins Franchising LLC and/or Baskin–Robbins Franchised Shops LLC (collectively, “Dunkin' Franchisors”) as follows:
+------------------------------------------------------+
¦ ¦Franchise Agreement ¦
+--------------------------------+---------------------¦
¦Debtor ¦Date ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦CDDC Acquisition, LLC ¦June 28, 2004 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦Commack Road Donuts, LLC ¦June 28, 2004 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦FPSDA I, LLC ¦June 22, 2007 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦Kingdom Donuts ¦July 1, 2007 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦FPSDA I, LLC ¦October 4, 2007 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦Mountain Road Donuts, LLC ¦October 12, 2007 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦Highbridge Donuts ¦November 9, 2007 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦Middle Country Road Donuts, LLC ¦December 26, 2007 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦Miller Place Donuts, LLC ¦December 26, 2007 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦Benfield Donuts, LLC ¦December 26, 2007 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦D3C, LLC ¦March 4, 2008 ¦
+--------------------------------+---------------------¦
¦ ¦ ¦
+--------------------------------+---------------------¦
¦Metro Shops, LLC ¦September 17, 2008 ¦
+------------------------------------------------------+
Each of the franchise agreements set forth the location of the franchise unit that is to be operated under the respective franchise agreement in terms of the specific street address. At the termination of the franchise agreement, the Dunkin' Franchisors have the option to take over any interest the franchisee has in the real property lease or any other agreement related to the premises where the franchise unit was operating whether the landlord is affiliated with the Dunkin' Franchisors or is a third party. If the franchisee acquires ownership or control of the premises, then the Dunkin' Franchisors have the option to lease the premises from the franchisee for the remaining term of the franchise agreement should the franchisee default under the agreement or under any lease relating to the premises.
These franchise agreements also contain cross guarantee provisions that if the franchisee or any partner, member or shareholder of a franchisee holds or subsequently acquires an interest in any other unit franchised by the Dunkin' Franchisors, the franchisee would be jointly and severally liable to the Dunkin' Franchisors as guarantor of the obligations of the franchisee under each franchise agreement for such other unit. Such guarantee would include the payment of all franchise fees, advertising fees, equipment payments, note payments rental and other lease payments to the Dunkin' Franchisors or any of its parent, subsidiaries and affiliates.
It is undisputed that these franchise agreements are executory contracts which require Debtors to make certain payments of franchise and advertising fees to the Dunkin' Franchisors based upon a percentage of their sales revenue. The Debtors' bankruptcy filing was precipitated by the breakdown in negotiations between the Debtors and the Dunkin' Franchisors to restructure their obligations under the franchise agreements and the imminent threat of the Dunkin' Franchisors transmitting termination notices for the franchise agreements.
In addition to the franchise agreements, the Debtors are also tenants under various nonresidential real property leases. Four of those leases are with DB Real Estate Assets I LLC and/or Third Dunkin' Donuts Realty, Inc. (together with the Dunkin' Franchisors, “Dunkin' Brands”) as the landlord. The Debtors, Middle Country Road Donuts, LLC, Mountain Road Donuts, LLC, Benfield Donuts LLC, and CDDC Acquisition Company, LLC, each entered into a nonresidential real property lease with Dunkin' Brands (“Dunkin' Brands Leases”) at the same time they entered into the related franchise agreement. It is undisputed that the Dunkin' Brands Leases are true nonresidential real property leases. Each of the Dunkin' Brands Leases set forth the specific franchisor and franchise agreement that permits the respective Debtor to operate on the premises. Each of the Dunkin' Brand Leases also provides that the Debtors are only permitted to use the premises to operate a Baskin–Robbins and/or Dunkin' Donuts unit, and in two cases they include a Togo's Eatery, at the location covered by the Dunkin' Brands Lease. Each lease is subject to the franchise agreement remaining in full force and effect. If the franchise agreement is terminated for any reason, then Dunkin' Brands have the right to terminate the lease immediately. Dunkin' Brands would not have signed a lease with a debtor had that debtor not simultaneously signed a franchise agreement with the Dunkin' Franchisors to operate a Dunkin' Donuts and/or Baskin–Robbins franchise on the leased premises. There are some prepetition rent arrears due on the Dunkin' Brands Leases but the Debtors are current with their postpetition rent obligations under these leases.
Pursuant to 11 U.S.C. § 365(d)(4), the Debtors would have 120 days from the date of the entry of the order for relief to...
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Dunkin' Donuts Franchising LLC v. CDDC Acquisition Co. (In re FPSDA I, LLC)
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