In re Manyfoods, Inc., Case No. 03-27989 (DHS) (Bankr.N.J. 8/17/2009)
| Decision Date | 17 August 2009 |
| Docket Number | Adv. No. 05-01843 (DHS).,Case No. 03-27989 (DHS). |
| Parties | In Re: MANYFOODS, INC., Debtor. MANYFOODS, INC., Plaintiff, v. INTERSTATE REALTY CO., LLC, WAL-MART STORES, INC. and WAL-MART REAL ESTATE BUSINESS TRUST, Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Jaffe & Asher LLP, Gregory E. Galterio, Esq., Glenn P. Berger, Esq., New York, New York, Counsel to Plaintiff/Debtor Manyfoods, Inc.
Lasser Hochman, L.L.C., John R. Wenzke, Esq., Roseland, New Jersey, Counsel to Defendant Interstate Realty Co., LLC.
McGuireWoods LLP, Loree J. Shelko, Esq., New York, New York, Counsel to Defendant Wal-Mart Stores, Inc. and Wal-Mart Real Estate Business Trust.
McGuireWoods LLP, Donald A. Rea, Esq., Sung B. ("Ben") Yhim, Esq., Baltimore, Maryland, Counsel to Defendant Wal-Mart Stores, Inc. and Wal-Mart Real Estate Business Trust.
Before the Court are separate applications for summary judgment filed by Defendants Interstate Realty Co, LLC ("Interstate") and Wal-Mart Stores, Inc. ("WMS") and Wal-Mart Real Estate Business Trust ("WMREBT") (hereinafter the Wal-Mart entities will collectively be referred to as "Wal-Mart" and the three entities will be collectively referred to as "Defendants") against Manyfoods, Inc. ("Manyfoods" or "Debtor"). Manyfoods separately opposed both motions.
Having heard the arguments of counsel and for the reasons stated hereafter, Interstate's motion for summary judgment and Wal-Mart's motion for summary judgment are each hereby granted. The Court has jurisdiction over this motion pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). Venue is proper under 28 U.S.C. §§ 1408 and 1409. The following shall constitute the Court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.
On May 25, 1973, Cole Enterprises leased a portion of the Cedar Knolls Shopping Center ("Shopping Center") in Hanover, New Jersey to Stop & Shop Companies, Inc. ("Stop & Shop") ("Lease"). Cert. of John R. Wenzke, Esq. in Supp. of Interstate Realty Co., LLC's Mot. for Summ. Judg. ("Wenzke Cert."), Ex. A; Mem. of Law in Supp. of Defs. Wal-Mart Stores, Inc. and Wal-Mart Real Estate Bus. Trust's Mot. for Summ. Judg. ("Wal-Mart's Mot."), Ex. A. Cole Enterprises, as landlord, is the predecessor-in-interest to Interstate. Id. On November 10, 1978, Stop & Shop entered into a sublease ("Sublease") with Michas Brothers & Sons, Inc., which operated a Super Foodtown in the Shopping Center. Wenzke Cert., Ex. B; Wal-Mart's Mot., Ex. B. In March 2002, Michas Brothers assigned its interest in the Super Foodtown to Manyfoods. Wal-Mart's Mot., Ex. C.
The lease between Interstate and Stop & Shop contains the following covenant, located at Section 10.2(a), which is the basis of the issue between the parties here:
During such time as Tenant [Stop & Shop] or anyone claiming under Tenant shall occupy the demised premises, Landlord [Interstate] shall not lease, use or permit to be used any other portion of or premises in the Shopping Center for (i) a "Supermarket" (defined below); (ii) a retail store as to which the dollar sales of milk and other dairy products comprise seventy-five percent (75%) or more of total monthly dollar sales; or (iii) a convenience or compact type grocery store, so-called. The term "Supermarket" as used in this lease shall mean a store of the type now commonly operated by Tenant named herein, Star Market, Great Atlantic & Pacific Tea Company, First National Stores and similar chains, selling at retail a wide variety of foods for off-premises consumption; without limiting the foregoing, the sale of food for off-premises consumption where such sale is incidental to the principal purposes of a store (such as the incidental sale of packaged food by a drug store) shall not cause the store making the sale to be classified as a "Supermarket" within the meaning of the foregoing definition, nor shall a store selling only a limited number of items of food for off-premises consumption (such as an ice cream store or bakery), or whose sales are principally beverages, be deemed a Supermarket".
Wenzke Cert., Ex. A at § 10.2(a); Wal-Mart Mot., Ex. A at § 10.2(a). The language of the Lease provides that any breach by the Landlord entitled it to written notice from Stop & Shop. Wenzke Cert., Ex. A § 20.10; Wal-Mart Mot., Ex. A at §20.10. Furthermore, Section 5.1 of the Sublease provided that Manyfoods should notify Stop & Shop if there is a lack of performance of a Lease obligation by the Landlord. Id., Ex. B. at § 5.1. Thereafter, Stop & Shop would notify the Landlord. Id. The language in the Sublease clearly indicates that after the above procedure is enacted, if the default remains uncured, Manyfoods could then sue the Landlord in the name of Stop & Shop. Id.
On November 15, 2001, Wal-Mart entered into a lease with Interstate for 102,357 square feet of the Shopping Center ("Wal-Mart Lease"). Wenzke Cert., Ex. C.; Wal-Mart Mot., Ex.D. Wal-Mart describes itself as a discount retailer selling a variety of products including clothing, toys, electronics, jewelry, books, office supplies, furniture, photo processing, and tools. Wal-Mart Mot., at 4. Included in the Wal-Mart Lease at Section 5 was a provision that Wal-Mart would be subject only to the lease restrictions set forth in the existing shopping center leases annexed as Exhibit F to the Wal-Mart Lease. Wenzke Cert., Ex. C.; Wal-Mart Mot., Ex. D. Wal-Mart opened its store on January 22, 2003. Wal-Mart. Mot., Ex. E.
In March 2002, William Louttit purchased a controlling interest in Manyfoods from Michas Brothers. Wal-Mart Mot., Ex. C. At the time of purchase, Louttit had knowledge of the poor financial condition of the Cedar Knolls Super Foodtown. However, at his deposition, he stated that the condition was worse than he thought. Id. Manyfoods incurred over $1 million in operating losses during fiscal year 2001 and over $2 million for fiscal year 2002. Id. Furthermore, a Bradlees store that had operated in the Wal-Mart space closed a few months prior to Louttit's acquisition. Id. Louttit testified that after Bradlees closed, "the supermarket in Cedar Knolls lost about $40,000 a week in sales, and that severely affected the company." Id. In addition, Louttit stated that the physical condition of the Super Foodtown was "abominable." Id.
In October 2002, Manyfoods acquired two other supermarkets from Fairview Partners, LLC, located in Wanaque and River Vale, New Jersey. Id.; Wenzke Cert., Ex. D. Manyfoods assumed approximately $4 million of Fairview's debt . Id. Manyfoods' Financial Report for the year ending December 28, 2002 ("2002 Financial Report"), prepared by Marc Memoli, CPA, indicated:
On October 19, 2002, the company purchased two locations from an entity that was in default in its notes payable to a bank. Upon completion of the purchase transaction, the Company assumed the total debt of the defaulted entity, which affected its ongoing operations. The Company is not in compliance with the restrictive financial covenants of the loan. The Company's current year loss, and the Company's total liabilities exceed total assets and the uncertainty of the bank's commitment as to the permanent financing of the Company raise doubt about the Company's ability to continue as a going concern.
Wenzke Cert., Ex. D; Wal-Mart. Mot., Ex. L. At the end of 2002, Manyfoods had only $100,667. in cash, a $1 million decrease from early 2002 and Manyfoods had accrued rental arrearages of $375,300. Id.; Wal-Mart Mot., Ex. C.
At the time of its bankruptcy filing, Manyfoods faced sixteen (16) separate lawsuits from creditors. Finally, GS Distribution Company filed an ex parte motion in the United States District Court for the District of New Jersey seeking a preliminary injunction to freeze the Debtor's accounts under the Perishable Agricultural Commodities Act. Wal-Mart Mot., Ex. C; Wenzke Cert., Ex. E. Manyfoods filed for Chapter 11 bankruptcy protection on May 29, 2003, when its efforts to negotiate the release of its frozen assets proved unsuccessful. Id.
At the time of the bankruptcy filing, the Debtor operated three stores: River Vale, Wanaque, and Cedar Knolls. Wal-Mart Mot., Ex. N. River Vale's sublease was surrendered and its assets sold at public auction. The Debtor received in excess of $750,000 in consideration. Id. The Wanaque store's fixtures and pharmacy department were sold as was a liquor store in Cedar Knolls. Id.
A year later, the Debtor filed a motion to sell the Cedar Knolls Super Foodtown as a going concern. Id. In its application to sell, Manyfoods attached an Asset Purchase Agreement with Food King, Inc., which owns and operates another Foodtown. Id. at Ex. G. In conjunction with the proposed sale, the Debtor would also assign the Lease with Stop & Shop to the proposed purchaser. Id. Louttit contacted thirteen (13) supermarket proprietors, which resulted in a firm offer of $850,000.00 plus Net Acquisition Cost of the inventory and an offer from Oliva Supermarkets, L.L.C. ("Oliva") for $825,000.00. Id. Interstate asserts that Manyfoods did not approach it concerning purchase of the sublease. Interstate Mot., 10. Moreover, Interstate contends that the Debtor's DIP Lender, White Rose Division of Di Giorgio Corporation ("White Rose") controlled the sale process essentially focusing upon Foodtown operators in order for White Rose to maintain its vendor position. Id.; Wenzke Cert., Ex. G. After an auction, Oliva provided the highest and best offer and the Court approved the sale on January 26, 2004. Interstate Mot., 10; Cedar Knolls Supermarket Sale Approval Order, 03-27989 (...
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