Robert L. Geltzer, of Soup Kitchen Int'l, Inc. v. Original Soupman Inc. (In re Soup Kitchen Int'l Inc.)
| Decision Date | 01 January 2014 |
| Docket Number | 1–10–01330,Adv. Pro. No. 1–11–01317 (CEC), Adv. Pro. No. 1–10–01330 (CEC),Case No. 1–10–44670 (CEC) |
| Citation | 506 B.R. 29 |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
| Parties | In re Soup Kitchen International Inc., Debtor. Robert L. Geltzer, as Chapter 7 Trustee of Soup Kitchen International, Inc., Plaintiff, v. The Original Soupman Inc., Sebastian Rametta, Robert Bertrand, Penny Fern Hart, Daniel Rubano, Hank Gracin, Ronald L. Crane, Lehman & Eilen, LLP and John Doe #1–4, Defendants. Penny Fern Hart, Plaintiff, v. John Bello, Maj–Britt Rosenbaum and William McCreery, Defendants. John Bello, Maj–Britt Rosenbaum and William McCreery, Third–Party Plaintiffs, v. The Original Soupman Inc., Sebastian Rametta, Robert Bertrand, Hank Gracin, Ronald L. Crane, Soup One Inc., International Gourmet Soups, Inc., Soup Rock Center Inc. and Daniel Rubano, Third–Party Defendants. |
OPINION TEXT STARTS HERE
Robert L. Geltzer, Esq., Law Offices of Robert L. Geltzer, New York, NY, Chapter 7 Trustee.
M. Alexander Bowie, II, Esq. & Michael Weiss, Esq., Day Pitney LLP, New York, NY, Joshua W. Cohen, Esq., Day Pitney LLP, New Haven, CT, Attorneys for John Bello, Maj–Britt Rosenbaum and William McCreery.
Michael L. Schein, Esq., Vedder Price, New York, NY, Attorneys for Penny Fern Hart.
Anastasios Ernest Tonorezos, Esq., Wilson Elser, New York, NY, Attorneys for Lehman & Eilen and Hank Gracin.
Edward J.M. Little, Esq., Christopher Gartman, Esq., Hughes Hubbard & Reed LLP, New York, NY, Attorneys for The Original Soupman, Inc.
Robert A. Wolf, Esq., Squire Sanders LLP, New York, NY, Special Litigation Counsel for the Chapter 7 Trustee.
DECISION
This matter comes before the Court on the motion of twelve settling parties to approve a global settlement of disputes related to the main bankruptcy case and adversary proceedings captioned above. ECF No. 47 (“Motion”).1 The Motion was filed by Robert L. Geltzer, as chapter 7 trustee (the “Trustee”), Penny Fern Hart (“Hart”), The Original Soupman Inc. (“TOSI”), Sebastian Rametta (“Rametta”), Robert Bertrand (“Bertrand”), Daniel Rubano (“Rubano”) and Ronald L. Crane (“Crane” and, collectively, TOSI, Rametta, Bertrand, Rubano, and Crane are the “TOSI Defendants”), Soup One, Inc., International Gourmet Soups, Inc. and Soup Rock Center, Inc. (collectively, Soup One, Inc., International Gourmet Soups, Inc., and Soup Rock Center, Inc. are the “TOSI Affiliates”), Hank Gracin (“Gracin”), and Lehman & Eilen, LLP (“L & E”). Attached as Exhibit A to the Motion, the stipulation of settlement (the “Settlement”) would settle several claims, counterclaims, and third party claims in two adversary proceedings, dismiss other claims in those proceedings, and withdraw or subordinate creditor claims or future creditor claims against Soup Kitchen International Inc. (“SKI” or the “Debtor”) in the main bankruptcy case.
John Bello, Maj–Britt Rosenbaum and William McCreery (collectively, the “Bello Group”), who are shareholders, former insiders, and contingent creditors of the estate, filed an objection to the Motion. ECF No. 52 (“Objection”). A group of SKI's shareholders filed a joinder to the Objection. ECF No. 54 (“Joinder”). In addition to filing a written Objection, counsel to the Bello Group cross examined the Trustee at a hearing held on August 29, 2013. The Bello Group contends that the Trustee has not produced adequate information about the probability of the litigation's success, or the value of its potential recovery, to enable the Court to approve the Settlement under Rule 9019. The Bello Group members also object because the Settlement does not include a release of their personal guaranties of a loan to SKI, which remains unpaid.
The Bello Group's objections ignore or minimize the substantial obstacles to recovery by the Trustee, and reflect the fact that, as shareholders and guarantors of SKI's debt, they have little to lose by continuation of this litigation. Accordingly, and for the reasons explained in this decision, the Bello Group's objections are overruled, the Motion is granted and the Settlement is approved.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334, and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (H) and (O). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Federal Rule of Bankruptcy Procedure 7052.
The following facts are undisputed, unless otherwise indicated.
SKI is a Delaware corporation formed in 2004. Decl. of Michael L. Schein (“Schein Decl.”) Ex. A ¶ 28, ECF No. 48; Obj. ¶ 18, ECF No. 52. SKI was in the business of selling soups made from the recipes of Al Yeganeh, a New York City restaurateur made famous by a 1995 episode in the television series “Seinfeld.” Schein Decl. ¶ 28, ECF No. 48; Obj. ¶ 18, ECF No. 52. Pursuant to a license agreement with Yeganeh (the “Yeganeh Rights”), SKI used Yeganeh's name, likeness, and recipes to sell soup in store fronts and in supermarkets. Obj. ¶ 18; Tr. 82:16–20.2
SKI's directors included TOSI Defendants Rametta, Rubano, and Crane, and the Bello Group—Bello, Rosenbaum, and McCreery. Schein Decl., Ex. A ¶ ¶ 24–26, 30, 33, 35, ECF No. 48. Another TOSI Defendant, Bertrand, held the position of Chief Financial Officer as early as 2004 and served as the Debtor's president at various times. Schein Decl., Ex. A ¶ 32, ECF No. 48. Hart, although not an original member of the board, became a director in early 2007. Schein Decl., Ex. A ¶ 27, Ex. G ¶ 1, ECF No. 48; Complaint ¶ ¶ 3 8–3 9, ECF No. 1. Gracin served as secretary to SKI and through his former law firm, L & E, served as SKI's legal counsel. Schein Decl., Ex. A ¶ 34, ECF No. 48.
In 2007, SKI obtained $1 million in secured financing from Commerce Bank, N.A. (the “CB Loan”). Mot. 6, ECF No. 47. The CB Loan is evidenced by a Loan and Security Agreement and Revolving Term Note, each dated April 11, 2007. Mot. 6, ECF No. 47. Certain insiders executed limited personal guaranties of the CB Loan in varying amounts: Bello for $600,000, Rosenbaum for $300,000, McCreery for $120,000, Hart for $120,000, and Bertrand for $60,000. Mot. 6, ECF No. 47; Schein Decl., Ex. A ¶ 52, ECF No. 48. The CB Loan matured on April 15, 2008, but SKI failed to pay the loan when it came due. Mot. 6, 8, ECF No. 47. Two months later, on June 11, 2008, T.D. Bank (as successor to Commerce Bank, N.A.) assigned all its right, title, and interest in the CB Loan to Hart. Mot. 8, ECF No. 47; Schein Decl., Ex. F, ECF No. 48; Obj. ¶ 14, ECF No. 52.
In the same time period when Hart acquired the rights to the CB Loan, Hart was negotiating to lend new funds to SKI. On or about June 17, 2008, SKI borrowed $538,000 from Hart (the “Hart Direct Loan,” and together with the CB Loan, the “Hart Loans”) and executed a promissory note evidencing that indebtedness. POC 42–1, Ex. A, 28–41.3 The note matured on June 17, 2009. POC 42–1, Ex. A, 28. SKI defaulted on the Hart Direct Loan. POC 42–1 ¶ 5.
In 2009, TOSI was incorporated. See Trustee's Decl. (“T.Decl.”) ¶ 6, ECF No. 55; Tr. 69:2–8. In December 2009, SKI transferred all its assets of value, including the Yeganeh Rights, to TOSI. T. Decl. ¶ 6, ECF No. 55; Tr. 63:10–17; Tr. 64:6–8.4 In exchange for SKI's assets, TOSI agreed to pay $100,000 to SKI and to guarantee approximately $3,500,000 in SKI's debt, including the Hart Loans. Tr. 63:10–17. SKI transferred its assets to TOSI, but TOSI never made the $100,000 payment to SKI. Tr. 63:17–18.
The record does not reflect whether Hart sought to collect from SKI, the primary obligor of the Hart Loans, prior to SKI's bankruptcy, or from Bertrand, a guarantor of the CB Loan. Hart did negotiate a forbearance agreement with TOSI, as disclosed in a Form 8K filed with the Securities and Exchange Commission on August 6, 2012. Schein Decl., Ex. H 3, ECF No. 48. In the Form 8K, TOSI stated that a May 20, 2011 forbearance agreement between Hart and TOSI provided for Hart to receive interest only payments and shares of TOSI stock, in exchange for Hart's agreement to forbear enforcing TOSI's guaranties on the defaulted Hart Loans. Schein Decl., Ex. H, 3, ECF No. 48. The parties extended this forbearance agreement through August 31, 2013. Schein Decl., Ex. H, 3, ECF No. 48.
Hart did seek to enforce the Bello Group members' respective guaranties of the CB Loan. Between August 2008 and July 2009, Hart served Bello, Rosenbaum, and McCreery with notices of default and demands for payment. Mot. 8, ECF No. 47. On or about August 14, 2009, Hart filed a motion for summary judgment in lieu of complaint in New York County Supreme Court against Bello, Rosenbaum, and McCreery to recover under their guaranties of the CB Loan (the “Guaranty Claims”). Obj. ¶ 36, ECF No. 52. After the state court denied summary judgment, on October 26, 2010 the Bello Group interposed an answer, asserting counterclaims against Hart and third-party claims against the TOSI Defendants, TOSI Affiliates, and Gracin. Schein Decl., Ex. A, ECF No. 48. The Bello Group's relevant counterclaims and third party claims fall into three categories. The first group consists of derivative claims on behalf of SKI, for breach of fiduciary duty, legal malpractice, avoidance of a fraudulent conveyance, aiding and abetting a fraudulent conveyance, and a demand for an accounting (the “Derivative Claims”). Mot. 9 n. 6, ECF No. 47; see Schein Decl., Ex. A, ECF No. 48. The second group of claims are Bello Group members' individual claims for subrogation, indemnification, and contribution (the “Contingent Claims”). Mot. 9–10 n. 7, ECF No. 47. The Contingent Claims are only triggered if the Bello Group members are found liable on the guaranties, pay their respective liabilities, and the CB Loan becomes indefeasibly...
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