In re Specialty Foods of Pittsburgh, Inc.
| Decision Date | 16 September 1988 |
| Docket Number | Motion No. 88-1309M,Bankruptcy No. 87-03261,88-1503M. |
| Citation | 91 BR 364 |
| Parties | In re SPECIALTY FOODS OF PITTSBURGH, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
Joseph N. Bifano, West Mifflin, Pa., for debtor.
William T. Molczan, Pittsburgh, Pa., for trustee.
John R. Luke, Esq. and William Coholan, Pittsburgh, Pa., for Tambellini Foods, Inc.
Frank A. Conte, Washington, Pa., for Green Valley Packing, Inc.
The matters before the court are a Motion for Relief from Stay filed on behalf of Tambellini Foods, Inc. (hereafter Tambellini) at Motion No. 88-1309 and a Motion to Sell Personal Property of the Estate, Including License Agreement, Free and Clear of Liens filed by the Trustee at Motion No. 88-1503. These are core proceedings. 28 U.S.C. § 157. Tambellini is the owner of a trademark, the rights under which were licensed to Specialty Foods of Pittsburgh (hereafter the Debtor) on January 17, 1986, and alleges that pursuant to the license agreement the Debtor could not sell or assign the license rights to another without the written consent of Tambellini.
Tambellini contends that the license agreement is not an asset of the Debtor's estate and, therefore, cannot be sold or assigned through the Bankruptcy Court and further that the Debtor has failed to offer it adequate protection of its interest in this property. Tambellini also alleges that Debtor materially breached the license agreement by attempting assignments without prior notice to Tambellini. Tambellini therefore contends that it is entitled to relief from stay.
Both the Debtor and the Trustee have responded to the Motion for Relief from Stay, essentially contending that there was no material breach of the agreement and that the license is the only unencumbered and valuable asset of the Debtor's estate. At trial it was established that Debtor originally acquired its license rights from a division of General Host Corporation and that Debtor may owe amounts to General Host which, several years before this bankruptcy ensued, transferred its rights to Tambellini's predecessor. It was agreed at trial that Debtor does not owe Tambellini money either for purchase of the license rights or in the nature of a royalty. See paragraph 3 and note 3 and accompanying text, infra. Furthermore, there is no default in this case which the Trustee must cure within the provisions of § 365.
Although this court's Order Setting Hearing Date on the Trustee's Motion to Sell provided a deadline for written responses and objections to the Motion to Sell, Tambellini filed none. However, Tambellini raised verbal objections to confirmation of the sale at the hearing on the sale. At that time, to facilitate consideration of the oral objections, the court granted Tambellini ten days after the conclusion of the sale hearing to reduce its objections to writing. As filed, however, the written objections included allegations not previously presented to the court in any form.
Witnesses and testimony were presented only during an evidentiary hearing on the Motion for Relief from Stay but the evidence is equally applicable to issues raised in the context of the sale hearing. It is on the basis of the credible evidence so presented that the court makes the following findings of fact and conclusions of law.
1. Debtor filed a voluntary Chapter 11 petition on December 2, 1987.
2. The case was converted to Chapter 7 on February 17, 1988.
3. Prepetition, the Debtor obtained an exclusive license to market certain products under the Tambellini trademark by virtue of a license agreement dated February 7, 1984, introduced as Plaintiff's Exhibit 11 (hereafter the "1984 agreement").1 The licensor under the 1984 agreement was The All-American Gourmet Company, a division of General Host Corporation (hereafter General Host). Thereafter, General Host sold to Tambellini's predecessor all of its right, title and interest in the Tambellini trade name, all trademarks, and all rights and obligations under the 1984 agreement between General Host and Debtor. (Exhibit 14.) See also note 3 and accompanying text, infra. The parties in interest, therefore, are Tambellini Foods, Inc., and Debtor.
5. The testimony of Debtor's sole shareholder, John Lochra, established that the purpose of the 1984 license agreement was to provide Debtor with the exclusive right to market, on a retail level, certain refrigerated products using the Tambellini trade-name and mark.
6. The Debtor and Tambellini entered into a second license agreement on January 17, 1986, introduced as Exhibit 1 (hereinafter the "1986 agreement"). The purpose of this agreement was to expand the types of foods to be marketed exclusively by Debtor in a certain area, and to establish a second trademark under which the Debtor could market those products. This mark is referred to in the 1986 agreement and herein as the "new mark."
7. The terms of the 1986 agreement were substantially similar to that of the 1984 agreement in that the 99 year periods were continued, Tambellini was required to register the new mark, and the Debtor was granted exclusive marketing rights. The 1986 agreement differed, however, in that it provided that the new mark would cover an expanded product line, and the Debtor became responsible, upon thirty days' written notice from Tambellini, for reimbursing Tambellini for the fees, expenses and charges incurred by Tambellini for the registration and maintenance of registration of the new mark. Tambellini did not register the new mark and, therefore, the costs were never billed. Thus, Debtor's obligation to pay was not activated. The license agreements admitted into evidence establish that Tambellini and General Host provided the exclusive licensing agreements to Debtor on a "no royalty" basis but that the parties have continuing obligations under the agreements.
8. The evidence established that although the Tambellini new mark was not registered, it was used by the Debtor in accordance with the 1986 agreement.
9. Paragraph 10 of the 1986 license agreement is substantially similar to paragraph 12 of the 1984 license agreement and provides that:
without the prior written consent of Licensor, which will not be unreasonably withheld, Licensee may not sublicense any of its rights under this agreement to other than a company which is wholly owned by Licensee and only for so long as such company continues to be wholly owned by Licensee, nor may Licensee assign any of its rights under this agreement to other than a company which purchases the entirety of Licensee\'s assets and business relating to this Exclusive License. Licensee agrees to notify Licensor in writing within ten (10) days following any assignment or sublicense permitted by this paragraph, advising Licensor of the rights given and the parties involved. (Exhibit 1 at ¶ 10.)
Although this wording differs somewhat from that of paragraph 12(a) of the 1984 agreement, see paragraph 4, supra, the effect is the same; that is, Debtor may transfer its rights without the prior consent of the licensor under certain circumstances. In all other circumstances, Tambellini may not withhold consent unreasonably.
10. Tambellini's attorney drafted both license agreements.
11. Testimony established that on December 1, 1987, pursuant to paragraph 10 of the 1986 agreement, the Debtor entered into a sales agreement with Frank Traggone (Exhibit 2) who was in the process of incorporating Adtra Foods, Inc.2 to carry on the business. Traggone was and is an employee of Green Valley Packing, Inc., the sole bidder at the sale hearing. The agreement between Traggone and Debtor purported to sell the trademark to Traggone and provided that Traggone would assume Debtor's obligation to General Host as well as certain other obligations. Evidence and deposition testimony indicate that General Host had been negotiating with Traggone. See Deposition of Frank Traggone at 5-8, 12, 13, 19, 20. The reason is not clear inasmuch as General Host previously had transferred its interest, right and title in the trademark to Bischward, Inc., Tambellini's predecessor in interest.3 See paragraph 3, supra. Hand money had been submitted by Traggone to Debtor, but payment on the check was stopped and Traggone elected not to consummate the sale when Traggone became aware that Tambellini, not General Host, owned the trademark and tradename.
12. Debtor notified Tambellini of the fact that Debtor intended to sell its license rights to Traggone. Notice was given to Tambellini's president, Jack Bisbey, orally and by letter dated December 8, 1987. (Exhibit 3.) Tambellini was not notified in the letter of December 8 that an agreement had been signed on December 1, 1987.
13. Testimony established that the Debtor ceased ordering products in the beginning of November, 1987, but continued to fill orders from its inventory. Debtor was distributing from its inventory when Traggone assumed the distribution function immediately upon execution of the December 1st agreement with Debtor. Testimony further established that Traggone, as had Debtor...
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