Old Town Food Serv. v. Gold (In re Redskins Grille 1, LLC)
| Decision Date | 27 February 2020 |
| Docket Number | 19-cv-00633 (LMB/MSN),18-01045-KHK |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | In re REDSKINS GRILLE 1, LLC, Debtor. OLD TOWN FOOD SERVICE, LLC, et al., Appellants, v. H. JASON GOLD, Appellee. |
Before the Court is an appeal from a decision of the bankruptcy court in an adversarial proceeding brought by bankruptcy trustee H. Jason Gold ("Trustee" or "appellant") against defendants Old Town Food Service, LLC ("OTFS"), FML, LLC ("FML"), and Noe Landini ("Landini," and collectively with OTFS and FML, "appellants"). At issue in this appeal is whether the bankruptcy court erred in granting the Trustee's motion for summary judgment and denying appellants' motion for summary judgment. For the reasons set forth below, the decision of the bankruptcy court will be affirmed in part and remanded for further proceedings consistent with this Memorandum Opinion.
Redskins Grille 1, LLC ("debtor") formerly operated a Washington Redskins-themed restaurant at One Loudoun Shopping Center in Ashburn, Virginia. First Amended Complaint ("Compl.") [Bankr. Dkt. 25] ¶ 5. The restaurant space was originally leased from One Loudoun Downtown, LLC, but the lease was subsequently assigned to RPAI Ashburn Loudoun, LLC ("landlord"). Id. ¶ 13. In January 2017, the debtor filed a petition for Chapter 11 bankruptcy, which in August 2017 was converted into a petition for Chapter 7 bankruptcy. Id. ¶ 9-10. Gold was subsequently appointed as the debtor's bankruptcy trustee. Id. ¶ 11. In that capacity, he sought to sell the debtor's restaurant assets and assign the debtor's restaurant lease. Id.
In September 2017, the bankruptcy court approved bidding procedures for the sale ("bidding procedures"). Compl. ¶ 13. The bidding procedures set out the bidding process at length, including numerous requirements that prospective buyers needed to satisfy for their bids to be considered. For example, bidders were required to submit a "bid form" listing the name of the bidder, stating the initial cash bid, and describing the proposed use of the premises, among other pertinent information. Appellants' Appendix ("Appx.") [Dkt. 5-1] at 110. Bidders also had to make an "initial deposit" of $100,000 and provide "documentation sufficient, in the judgment of [the Trustee], to verify [their] financial capability to close the transaction." Id.
Under the bidding procedures, initial bids would be accepted until "5:00 p.m. on September 20, 2017." Id. After the bidding period had concluded, the Trustee would "identify the highest and best [i]nitial [b]id, as determined at [his] discretion . . . , and deem such qualified bidder the stalking horse bidder for purposes of the [f]inal [a]uction." Id. at 112. If the Trustee "determine[d] that there [were] no qualified bidders, the [final] auction [would] be cancelled;" otherwise, the final auction would be an "oral auction" held on October 17, 2017. Id. at 113-14. "Following the [f]inal [a]uction, the party making the [s]uccessful [b]id [would] execute an asset purchase agreement for the [r]estaurant [p]roperty, which [would] be shared with [the landlord] on October 17, 2017." Id. at 114. A sale hearing would occur before the bankruptcy court on October 24, 2017, and provided that the bankruptcy court "enter[ed] an Order approving thesale . . . [as] consistent with the requirements of the Bankruptcy Code," closing would occur by October 31, 2017. Id. The landlord retained the right to "object[] to the inclusion of any qualified [b]idders in the [f]inal [a]uction . . . on or before October 6, 2017." Id. at 113.
On September 20, 2017, "Old Town Food Services LLC t/a Fish Market" submitted a bid pursuant to the bidding procedures. Id. at 91. That bid included a cash bid of $700,000, with a "non-binding allocation" of $200,000 for the restaurant assets and $500,000 for the restaurant lease, and indicated the bidder's intent to open a "[r]estaurant specializing in seafood." Id. The top of the bid form stated: "The undersigned hereby submits this bid for substantially all of the assets of the [debtor], subject to the execution of a mutually agreeable [a]sset [p]urchase [a]greement, . . . and subject to the approval of the U[nited] S[tates] Bankruptcy Court [for the] Eastern District of Virginia." Id.
The bid form listed the "[n]ame of the [b]idder" as "Old Town Foods Services LLC t/a Fish Market," the "[i]dentity of the [p]roposed [t]enant" as "Same t/a Fish Market," and the "[p]roposed name under which the assignee intends to operate" as "Fish Market," and was signed by Landini in his capacity as a "[m]ember/[m]anager" of "Old Town Seafood LLC." Id. at 91-92. The record shows that Landini initially intended to create Old Town Seafood LLC to be both the ultimate owner of the restaurant assets and lease and the operator of the new restaurant. See generally Compl. ¶¶ 34-43. As discussed below, Old Town Seafood LLC was never created; rather, Landini eventually created FML to be both the ultimate owner of the restaurant assets and lease and the operator of the new restaurant. Id. Landini was at all relevant times a member and manager of both OTFS and FML. Id.
Because the Trustee received no other qualifying bids during the bidding period, no final auction was ever held. Compl. ¶¶ 18, 25. On September 29, 2017, the Trustee filed a motion withthe bankruptcy court seeking the court's approval of the sale to OTFS. Id. ¶ 19. On October 6, 2017, the landlord objected to the sale. Id. ¶ 19. As a result of that objection, the bankruptcy court scheduled a hearing to consider both the Trustee's motion to approve the sale and the landlord's objection. Id. ¶¶ 20-22.
At the hearing ("sale hearing"), the bankruptcy court considered whether the sale should be approved pursuant to 11 U.S.C. §§ 363, 365. Under these code sections, the court needed to determine whether the sale was "in the best interests of the estate" and whether the Trustee had provided "adequate assurance" of the tenant's future performance under the lease. Providence Hall Assocs. Ltd. P'ship v. Wells Fargo Bank, N.A., 816 F.3d 273, 279 (4th Cir. 2016); In re Trak Auto Corp., 367 F.3d 237, 242 (4th Cir. 2004). Focusing on the latter requirement, the landlord argued that "there[] [was] a big question mark as to [the tenant's] ability to perform" under the lease. Appx. at 147. Specifically, the landlord argued that the bankruptcy court should not approve "a proposal to sign [sic] a lease to an entity that doesn't exist" and that as a result was "not obligated to do anything." Appx. at 227. The landlord also argued that once this new entity was created, "it [would] be completely reliant until [the restaurant] open[ed] on the influx of cash from the principals into the company." Id. at 146. In this vein, the landlord explained that the new entity planned to make substantial renovations to the restaurant space that would take at least six months to complete. See id. at 231. During that time, the restaurant would not be open for business, which would put the new entity in default under a provision of the lease that prohibited closure for more than 90 days, and the landlord emphasized that this extended closure added to the uncertainty as to the new entity's financial ability to perform under the lease. See id.
Several witnesses testified at the sale hearing, including the Trustee and Landini, whose interests at that hearing were essentially aligned. Among other matters, the Trustee testified thatthe sale presented a "win-win-win-win-win situation," benefitting all parties involved, including the landlord, because the landlord would ultimately get a much more reliable tenant than the debtor. Id. at 168. Similarly, among other matters, Landini's testimony emphasized that although the new entity would indeed need to make substantial renovations to the restaurant space that would take at least six months, the new entity would be "capitalized sufficient" to pay the rent due under the lease during and after that renovation period. Id. at 192. Both the Trustee and Landini testified that OTFS t/a Fish Market submitted the bid at issue, even though a new entity was going to be created to be the ultimate owner of the restaurant assets and lease. Id. at 165, 172, 189.
At the conclusion of the sale hearing, Herbert Rosenblum, counsel for OTFS, asked to be heard. Id. at 236. Rosenblum was concerned with the lease provision stating that the tenant would be in default if it remained closed for more than 90 days, and specifically was concerned that the landlord would declare the new entity in default during the six-month renovation period. Id. at 237-38. Rosenblum asked the bankruptcy court "to say that . . . it's understood that the [renovations] could take up to six months and maybe more," and that the landlord could not declare the new entity in default during that time. Id. The Trustee also asked to be heard, and told the bankruptcy court that he believed Rosenblum's concerns were with "the language in the order" that the court was going to issue approving the sale. Id. at 239. The bankruptcy court ultimately agreed to take up the issue at a later time, once it had received a draft of the sale order from the Trustee. Id. at 239-40.
On November 13, 2017, the bankruptcy court issued a related order regarding the proceeds of the sale ("carve-out order"). Id. at 581-82. The order stated that the debtor's estate would "be entitled to a carve-out from the proceeds from the [s]ale." Id. Specifically, the orderstated that debtor's estate would be entitled to (1) "5% of the gross sales price, to be reserved for allowed administrative and unsecured claims" against the estate, (2) "[t]he amount required to cure existing defaults with respect to the [l]ease," (3) an "[a]uctioneer's [f]ee" in the amount of "7% of the sale price," (4) "[a]dvertising costs" in an amount up to "$4,000," (5) "[o]ther necessary...
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