In re Norrenberns Foods, Inc.

• Decision Date: 08 July 2022
• Docket Number: Case No. 21-30825
• Citation: 642 B.R. 825
• Parties: IN RE: NORRENBERNS FOODS, INC., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Illinois

642 B.R. 825

IN RE: NORRENBERNS FOODS, INC., Debtor.

Case No. 21-30825

United States Bankruptcy Court, S.D. Illinois.

Signed July 8, 2022

Mark D. Skaggs, US Trustees Office, Peoria, IL, for U.S. Trustee.

Steven M. Wallace, Goldenberg Heller & Antognoli, P.C., Edwardsville, IL, for Debtor.

OPINION

Laura K. Grandy, UNITED STATES BANKRUPTCY JUDGE

This matter is before the Court on the Debtor's Motion to Sell and the United Food and Commercial Workers Unions and Employers Midwest Pension Fund's ("the Fund") objection thereto. The issue before the Court is whether the sale of the Debtor's assets pursuant to Section 363(f) of the Bankruptcy Code may be sold free and clear of successor liability claims relating to the Debtor's withdrawal from the Fund's pension plans.

FACTS

The Debtor filed a voluntary petition for relief under Subchapter V of Chapter 11 of the United States Bankruptcy Code on December 7, 2021. The Debtor, Norrenberns Foods, Inc., operates and manages a retail grocery store in Mascoutah, Illinois, commonly known as Tom's Supermarket. The Debtor previously owned other grocery stores throughout southern Illinois, all of which were ultimately forced to close, leaving only the Mascoutah location grocery store. The Fund is a multi-employer pension fund that provides retirement, disability and death benefits to retail food employees in the Midwest who are covered by collective bargaining agreements between their employers and certain local unions affiliated with the United Food and Commercial Workers International Union, AFL-CIO. The Debtor was a party to one of those collective bargaining agreements. The Fund is a creditor of the Debtor with an unsecured claim in the amount of $4,774,800.54. The majority of the Fund's claim arises as the result of "withdrawal liability" under the federal Employee Retirement Income Security Act ("ERISA").

As the other grocery stores owned by the Debtor closed, the union pension withdrawal liabilities were left to be paid by the remaining stores until only the Mascoutah store remained. This left the Debtor unable to service its secured indebtedness to Citizens Community Bank, the only entity with a security interest in the Debtor's real estate, inventory, and equipment, and contend with its various union liabilities. Thus, the Debtor sought bankruptcy protection. On April 7, 2022, the Debtor filed its Motion to Sell seeking the Court's approval of an Asset Purchase Agreement between the Debtor and Purchaser, Norrenberns Properties, LLC and Betty Ann Market, Inc. The Motion to Sell seeks an order approving the sale of substantially all of the Debtor's assets used in the operations of the grocery business "free and clear of any and all liens, claims, interests and encumbrances." Debtor's Motion to Sell, ECF Doc. No. 50, p. 4 n. 14. The Motion also states that such sale "shall be free and clear of any and [sic] claims in any way related to such collective bargaining and other labor agreements." Id. at n. 3.

Citizens Community Bank Citizens ("Citizens") holds a first and prior lien against and security interest in all of the Debtor's assets at issue. Citizens filed an objection to the Motion, but it has since been resolved, and Citizens has agreed to a carve-out from the proceeds of the sale of the assets in the amount of $40,000.00. The Subchapter V trustee also filed an objection to the Motion, which was withdrawn.

The Fund filed an objection to the Motion to Sell arguing that the Bankruptcy Court lacks jurisdiction to enjoin the successor liability claims and that the sale of the Debtor's assets pursuant to 363(f) of the Bankruptcy cannot extinguish the Fund's successor liability claims. The Debtor filed a reply to the Fund's objection arguing that there is ample authority in the Seventh Circuit to approve the sale transaction free and clear of successor liability. A hearing was conducted on May 17, 2022 where initial arguments were heard, and an evidentiary hearing was scheduled for June 1, 2022.

On June 1, 2022, the Court heard testimony from John Norrenberns, one of the current owners of Norrenberns Foods, Inc. John Norrenberns owns the store with his brother, Don Norrenberns. John Norrenberns testified that Norrenberns Foods Inc. used to consist of several grocery stores throughout Illinois, including such places as Freeburg, New Athens, Smithton, Nashville. These stores gradually closed their doors due to the competition from large corporate stores. Each time one of the stores closed, the debt from the closed grocery store would fall onto the remaining open stores, including substantial union pension withdrawal liabilities. Because the Mascoutah store is the last remaining grocery store owned by the Debtor, the pension fund liability has fallen onto this store. In 2019, the Debtor began searching for a purchaser of the Mascoutah grocery store. Initially, the Debtor reached out to Associated Wholesale Grocers for assistance in finding a purchaser, but they were unsuccessful. Associated Wholesale Grocers is the main supplier of food to the Debtor. An employee of the Mascoutah store expressed an interest in purchasing the store, but that sale did not conclude. In 2021, the Debtor began negotiations with Craig Norrenberns. Craig Norrenberns and his wife are the owners of Norrenberns Properties, LLC and Betty Ann Market Inc. Citizens Community Bank was also included in these negotiations since it holds a validly perfected and enforceable lien on the assets. Citizens believed the terms of the Asset Purchase Agreement were fair. John Norrenberns testified that no one else has approached Norrenberns Foods Inc. showing an interest in buying the store.

The Court also heard testimony from the purchaser, Craig Norrenberns, and found him to be sincere, knowledgeable, and credible. Craig Norrenberns ("Purchaser") is the nephew of Don and John Norrenberns and has worked in the grocery store business with his father for many years. However, he has never worked for Norrenberns Foods, Inc. or the Mascoutah grocery store in any capacity. Purchaser formed Norrenberns Property, LLC and Betty Ann Market Inc. for the purpose of acquiring the Debtor's assets. The sale price was determined after a thorough financial review of the business by Purchaser and negotiation of the purchase price. Purchaser stated that neither Don nor John Norrenberns will be employed or have any interest in the property once the sale is completed. They will not receive any personal compensation from the sale either. Because he intends to purchase the grocery store assets, Purchaser plans on continuing to run it as a grocery store.¹ He had studied the customer base and was familiar with the competition, the commissary at the nearby Air Force base. Initially, he plans to keep the grocery store similar to how it currently is designed to please customers. Ultimately, he will remodel and rebrand the store, expanding the services available. Purchaser testified that he would not purchase the Debtor's assets if the Fund's successor liability is not extinguished by the sale.

Therefore, the Court must determine if a sale under Section 363(f) of the Bankruptcy Code can extinguish the Fund's potential successor liability claims against the buyer of the Debtor's assets.

JURISDICTION

"Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title." 28 U.S.C § 157(b)(1). The Debtor's Motion seeks the Court's approval of a sale under 11 U.S.C. § 363. This proceeding arises under Title 11 and is a core proceeding, so the Bankruptcy Court has jurisdiction.

ANALYSIS

Section 363(f) of the Bankruptcy Code provides:

The trustee may sell property ... free and clear of any interest in such property of an entity other than the estate, only if—

(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;

(2) such entity consents;

(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;

(4) such interest is in bona fide dispute; or

(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

11 U.S.C. § 363(f) (emphasis added).

Section 363(f) permits a trustee, or a debtor in possession, to sell property free and clear of an interest in such property provided at least one of the five enumerated conditions are satisfied. One of these conditions is that "such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest." 11 U.S.C. § 363(f)(5). The Court agrees that the interest in question is one for which the Fund could be compelled to accept a money satisfaction, as evidenced by the proof of claim filed by the Fund which indicates the monetary value of the claim. The parties dispute the meaning of the term "interest" in Section 363(f) of the Bankruptcy Code. The Fund asserts that its withdrawal and successor liability claims are not an interest in the property being sold within the meaning of the section and cannot be extinguished by the sale order. The Debtor, on the other hand, argues that the Court has authority to authorize the sale of Debtor's assets "free and clear of any interest," including the Fund's claims of successor liability.

The Bankruptcy Code does not specifically define the term "interest" as used in Section 363(f). However, "the trend seems to be in favor of a broader definition that encompasses other obligations that may flow from ownership of the property." 3 COLLIER ON BANKRUPTCY ¶ 363.06 (2022). "[T]he Code itself does not suggest that ‘interest’ should be understood in a special or narrow sense; on the contrary, the use of the term ‘any’ counsels in favor of a broad...