950 Meat & Grocery Inc.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------X
In re: 	: 	Chapter 11
: 	Case No. 20-10616 (SMB)
950 MEAT & GROCERY CORP., 	:
:
Debtor. 	:
------------------------------------------------X
MEMORANDUM DECISION AND ORDER
GRANTING RELIEF FROM THE AUTOMATIC STAY
A P P E A R A N C E S:
PLATZER, SWERGOLD, LEVINE,
GOLDBERG, KATZ & JASLOW, LLP
Attorneys for Debtor
475 Park Avenue South, 18th Floor
New York, New York 10016
Clifford A. Katz, Esq.
Of Counsel
KAPLAN LEVENSON P.C.
Attorneys for General Trading C. Inc. and
GLC Market Street, LLC
630 Third Avenue
New York, New York 10017
Steven M. Kaplan, Esq.
Of Counsel
MEYER, SUOZZI, ENGLISH & KLEIN, P.C.
Attorneys for NewBank
1350 Broadway, Suite 501
New York, New York 10018-0026
Edward J. LoBello, Esq.
Jordan D. Weiss, Esq.
Of Counsel
STUART M. BERNSTEIN
United States Bankruptcy Judge:
Prior to the Petition Date, Grocery Leasing Corp. (“GLC”) and General Trading
Co., Inc. (“GTC”, together with GLC, “General”) sued the Debtor and several affiliates in
20-10616-dsj Doc 57 Filed 05/20/20 Entered 05/20/20 12:07:08 Main Document
Pg 1 of 10

2
New Jersey State Court (“State Court Action”). The Defendants, including the Debtor,
counterclaimed. The Debtor subsequently commenced this chapter 11 case on the eve of
the trial of the State Court Action triggering the automatic stay as to General’s claims
against the Debtor. General now seeks relief from the automatic stay (the “Motion”) 1 to
continue the State Court Action. The Debtor opposes the Motion 2 and NewBank, a
secured creditor, joins in the Debtor’s Opposition. 3 For the reasons that follow, the
Motion is granted.
BACKGROUND
GTC is a wholesale food distributor to supermarkets. GLC, an affiliate of GTC, is
the tenant of a retail supermarket located at 946-956 Market Street, Paterson, New
Jersey (“Premises”). Pursuant to a letter agreement, dated July 20, 2012 (“APA”), 4 and
among other things, GTC sold to the Debtor all fixtures, furnishings and inventory
located in the Premises for $2,262,000. The same day, the Debtor and GLC entered into
an Agreement of Sublease (“Sublease”) 5 to enable the Debtor to operate the supermarket
and GTC and the Debtor also entered into a security agreement (“Security Agreement”) 6
1 	Motion of General Trading Co. Inc., and GLC Market Street, LLC for Relief from Automatic Stay
Under 11 U.S.C. § 362, dated Mar. 18, 2020 (“Motion”) (ECF Doc. # 27); General Trading Co. Inc., and
GLC Market Street, LLC’s Reply in Further Support of Its Motion for Relief from Automatic Stay Under
11 U.S.C. § 362, dated May 11, 2020 (ECF Doc. # 54).
2 	Debtor’s Opposition to Motion of General Trading Co. Inc., and GLC Market Street, LLC for
Relief from Automatic Stay Under 11 U.S.C. § 362, dated Apr. 30, 2020 (“Opposition”) (ECF Doc. # 48).
3 	NewBank’s Joinder to Debtor’s Opposition to Motion of General Trading Co. Inc., and GLC
Market Street, LLC for Relief from Automatic Stay Under 11 U.S.C. § 362 (ECF Doc. # 52).
4 	Declaration of Steven M. Kaplan (“Kaplan Decl.”), dated Mar. 18, 2020 Exhibit A (ECF Doc. #
26).
5 	Kaplan Decl., Exhibit B.
6 	Kaplan Decl., Exhibit C.
20-10616-dsj Doc 57 Filed 05/20/20 Entered 05/20/20 12:07:08 Main Document
Pg 2 of 10

3
by which the Debtor granted GTC and its affiliates a security interest in all of the
Debtor’s assets. General apparently had business relationships with affiliates of the
Debtor and the Security Agreement included a cross-default provision. As a result, the
Debtor’s assets also secured the obligations of and performance by the affiliates.
The deal documents included, among other things, a requirement that the Debtor
purchase all of its inventory from GTC (“Supply Covenant”). Paragraph 4 of the APA
states in pertinent part:
Buyer hereby agrees that. . . it shall purchase from Seller. . . all of Buyer’s
inventory requirements for the Store consisting of products which are sold
or available for sale by Seller. . . at prices and upon terms then offered by
Seller . . . to its customers generally.
Similarly, paragraph 48 of the Sublease states in relevant part:
Subtenant hereby agrees that. . . shall purchase from GTC . . . all of Subtenant’s
inventory requirements for the Store ( as defined in the Letter Agreement)
consisting of products which are sold or available for sale by GTC . . . at prices
and upon terms then offered by GTC . . . to its customers generally.
Likewise, paragraph 12 of the Security Agreement states in pertinent part:
TO INDUCE SECURED PARTY TO CREATE THE OBLIGATIONS AND TO ASSURE
THE PROMPT REPAYMENT THEREOF, . . . DEBTOR SHALL PURCHASE ALL OF ITS
INVENTORY REQUIREMENTS THAT ARE AVAILABLE FOR SALE BY SECURED
PARTY (INCLUDING WITHOUT LIMITATION GROCERY, DAIRY, DELI AND FROZEN
PRODUCTS). . . .
Finally, all three agreements are governed by New Jersey law. (APA at ¶ 10; Sublease at
¶ 42; Security Agreement at ¶ 11.04.)
On October 23, 2017, the Debtor entered into a series of agreements by which it
became a member of the Key Food Stores Co-operative, Inc. (“Key Food”) and agreed to
purchase 95% of its inventory through Key Food. (Reply Declaration of Steven M.
Kaplan, dated May 11, 2020, Exhibit J (“Kaplan Reply Decl.”)(ECF Doc. # 54-2).) The
Debtor does not deny this but offers various justifications. General sent a series of
20-10616-dsj Doc 57 Filed 05/20/20 Entered 05/20/20 12:07:08 Main Document
Pg 3 of 10

4
default notices citing the breach of the Supply Covenant as well as other, pre-existing
defaults including the installation of a refrigerated box and a storage container and
playing music in and failing to maintain the parking lot. (See Kaplan Decl., Exhibit E.)
By letter dated March 8, 2018, 7 GLC terminated the Sublease due to these ongoing
defaults effective March 13, 2018 and sent a notice to the Debtor to vacate the Premises
on March 19, 2018. 8 The Debtor continues to occupy the Premises without GLC’s
consent.
General commenced the State Court Action against the Debtor, Ken Tavera, the
Debtor’s principal, and several other supermarkets owned by Tavera, including F.T.
Meat Corp., Bronx 656 Food Corp., 323 Meat & Grocery, Inc. (“323 Meat”), and V.T.
Meat & Grocery, Inc. (“V.T. Meat”) (with the Debtor and Tavera, the “Defendants”). The
First Amended Complaint, (Kaplan Decl., Exhibit H), sought a judgment for possession
of the Premises (Count I); breach of Sublease, APA and Security Agreement by the
Debtor (Count II); breach of personal guaranty by Tavera (Count III); breach of various
cross-default provisions by the Debtor and other Defendants (Count IV); unjust
enrichment against the Debtor (Count V); account stated against the Debtor (Count VI);
breach of the 323 Meat Security Agreement by 323 Meat (Count VII); and replevin
against the Debtor and 323 Meat (Count VIII).
The Defendants’ answer, (Kaplan Decl., Exhibit I), denied the material
allegations (although the Debtor does not dispute that it purchased inventory from third
parties through Key Food) and asserted numerous counterclaims. These included
7 	Kaplan Decl., Exhibit F.
8 	Kaplan Decl., Exhibit G.
20-10616-dsj Doc 57 Filed 05/20/20 Entered 05/20/20 12:07:08 Main Document
Pg 4 of 10

5
breach of the APA against GTC for failing to carry the products that the Debtor needed
to effectively compete (Counterclaim I); breach of contract by GLC for requiring the
Debtor to remove storage containers from outside the Premises after agreeing to their
installation (Counterclaim II); breach of the implied covenant of good faith and fair
dealing by GTC and GLC for failing or refusing to supply inventory at commercially
reasonable prices and taking the retaliatory action of wrongfully convicting the Debtor
(Counterclaim III); breach of New Jersey’s anti-trust and consumer fraud statutes by
GTC for an improper requirements contract (Counterclaims IV, V); improper eviction by
GLC (Counterclaim VI); breach of a rebate agreement by GTC for failing to pay agreed-
upon rebates on inventory purchased by 323 Meat, V.T. Meat and the Debtor
(Counterclaim VI); and breach of contract by GTC in failing to advertise on behalf of the
Debtor despite charging a monthly fee for this service (Counterclaim VII).
Discovery was fully completed, and a bench trial was set for March 2, 2020. The
Debtor filed this chapter 11 case on February 27, 2020, three days before the trial,
triggering the automatic stay.
DISCUSSION
The filing of a bankruptcy petition automatically stays “the commencement or
continuation of a judicial, administrative, or other action or proceeding against the
debtor that was or could have been commenced before the commencement of the case
under this title, or to recover a claim against the debtor that arose before the
commencement of the case under this title.” 11 U.S.C. § 362(a)(1). 	The Court may grant
relief from the automatic stay “for cause, including a lack of adequate protection of an
interest in property,” 11 U.S.C. § 362(d)(1), but does not otherwise define or provide an
20-10616-dsj Doc 57 Filed 05/20/20 Entered 05/20/20 12:07:08 Main Document
Pg 5 of 10

6
example of “cause.” In determining the existence of “cause,” courts are guided by the
factors enumerated in Sonnax Indus., Inc. v. Tri Component Prods. Corp. (In re Sonnax
Indus., Inc.), 907 F.2d 1280 (2d Cir. 1990) (the “Sonnax Factors”):
(1) whether relief would result in a partial or complete resolution of the
issues; (2) lack of any connection with or interference with the bankruptcy
case; (3) whether the other proceeding involves the debtor as a fiduciary;
(4) whether a specialized tribunal with the necessary expertise has been
established to hear the cause of action; (5) whether the debtor’s insurer
has assumed full responsibility for defending it; (6) whether the action
primarily involves third parties; (7) whether litigation in another forum
would prejudice the interests of other creditors; (8) whether the judgment
claim arising from the other action is subject to equitable subordination;
(9) whether movant’s success in the other proceeding would result in a
judicial lien avoidable by the debtor; (10) the interests of judicial economy
and the expeditious and economical resolution of litigation; (11) whether
the parties are ready for trial in the other proceeding; and (12) impact of
the stay on the parties and the balance of harms.
Id. at 1286. Not all of the factors are relevant in every case, Schneiderman v.
Bogdanovich (In re Bogdanovich), 292 F.3d 104, 110 (2d Cir. 2002); Mazzeo v. Lenhart
(In re Mazzeo), 167 F.3d 139, 143 (2d Cir. 1999), and the Court need not assign equal
weight to each factor. In re Keene Corp., 171 B.R. 180, 183 (Bankr. S.D.N.Y. 1994).
Here, several relevant Sonnax Factors weigh in favor of stay relief. The State
Court Action involves a multi-party dispute and counterclaims by the Defendants. The
automatic stay does not stay the claims against the non-debtors, Teachers Ins. &
Annuity Ass’n of Am. v. Butler, 803 F.2d 61, 65 (2d Cir. 1986) (“It is well-established
that stays pursuant to § 362(a) are limited to debtors and do not encompass non-
bankrupt co-defendants.”), or the counterclaims asserted by the Defendants, including
the Debtor, against General. Verragio, Ltd. v. AE Jewelers, Inc., No. 15 Civ. 6500 (CM),
2017 WL 1753478, at *1 (S.D.N.Y. Apr. 27, 2017) (“It is well-settled that an automatic
stay pursuant to 11 U.S.C. § 362(a) does not encompass litigation of a debtor’s
20-10616-dsj Doc 57 Filed 05/20/20 Entered 05/20/20 12:07:08 Main Document
Pg 6 of 10

7
counterclaims, because they are not claims brought “against the debtor.”). Hence, the
State Court Action involves numerous claims involving multiple parties that are not
stayed, (see Factor 6), and is the only proceeding in which all of the parties are present,
and the entire controversy can be resolved. (Factor 1.) Furthermore, the parties were
ready for a bench trial at the time the Debtor commenced this case, (Factor 11), and the
New Jersey courts are capable of conducting remote trials to the same extent as this
Court. 9 In short, the continuation of the State Court Action, where all parties are
present and all claims have been asserted, will promote the interests of judicial economy
and the expeditious and economical resolution of the litigation. (Factor 10.) In
addition, although the New Jersey court is a court of general jurisdiction rather than a
specialized tribunal, all of the claims are governed by New Jersey law and the New
Jersey court has greater familiarity with that law, especially the various statutory claims
asserted through the Defendants’ counterclaims. (Factor 4.)
The Debtor’s Opposition mainly argues that the continuation of the State Court
Action will prejudice the Debtor’s creditors and lead to duplicate litigation and the
possibility of inconsistent results. 10 (Factors 7, 10.) First, General filed a $2 million
9 	New Jersey State Court’s April 24, 2020 Second Omnibus Order, (Kaplan Reply Decl., Exhibit
M), states that to the extent practical, court operations, including hearings, will be conducted remotely
through videoconferencing and teleconferencing. (Id., ¶ 7(b).) It expressly suspends jury trials, (id., ¶ 1),
but does not mention the suspension of non-jury trials like the State Court Action in the Superior Court.
At oral argument, the Debtor’s counsel offered information culled from a conversation with an
unidentified clerk in the New Jersey court regarding the likelihood of a trial in the near future. The Court
does not credit this hearsay evidence.
10 	The Debtor also argues that General’s alleged retaliatory conduct of declaring defaults under the
Sublease as retribution for Tavera’s decision to use a different supplier for his other supermarkets
evidences bad faith and commercial unreasonableness and could be grounds for equitable subordination
of General’s claim. (Factor 8.) (See Motion at ¶¶ 11, 58-59.) The Debtor admits it moved its business
from General to Key Food several weeks before General declared a default, (Motion at ¶ 11(f)), and the
documents attached to the Kaplan Reply Declaration as Exhibit J confirm this. General is not an insider
or fiduciary of the Debtor. It is a creditor. In order to equitably subordinate a creditor’s claim, a debtor
must show that the creditor “committed some breach of an existing, legally recognized duty arising under
20-10616-dsj Doc 57 Filed 05/20/20 Entered 05/20/20 12:07:08 Main Document
Pg 7 of 10

8
claim in the chapter 11 case commenced by the Debtor’s affiliate, JT Meat & Grocery
Corp., Case no. 20-10060 (SMB). (Opposition, Exhibit A.) The proof of claim states that
it “is the subject of ongoing litigation in NJ state court.” (Id. at p. 2.) The affiliated
debtor in that chapter case (“JT”) is not a party to the State Court Action but is party to
an agreement with General under which it guaranteed the obligations of its affiliates.
Presumably, the reference to the “litigation in NJ state court” signifies that the claims
against JT are based on the breaches of the affiliates’ obligations that are the subject of
the State Court Action. 11 Second, the Debtor’s most valuable asset is its interest in the
Sublease. General maintains that the Sublease was terminated pre-petition, cannot be
assumed and is not property of the estate. The issue, critical to the Debtor’s successful
reorganization, will be decided in the State Court Action unless this Court prevents it
and decides the question. 12
contract, tort or other area of law. In commercial cases, the proponent must demonstrate a substantial
breach of contract and advantage-taking by the creditor.” 80 Nassau Assocs. V. Crossland Fed. Savs.
Bank (In re Nassau Assocs.), 169 B.R 832, 840 (Bankr. S.D.N.Y. 1994). The Debtor does not cite any
authority to support the proposition that a creditor’s exercise of its contractual right to terminate a
contract based on the other party’s admitted breach of a material covenant can subject the creditor’s claim
to equitable subordination. Accordingly, this factor does not weigh in favor of continuing the automatic
stay.
11 	The Debtor also points to other litigation pending in the JT chapter 11 case that supposedly
implicates or overlaps with the same claims at issue in the State Court Action, but it is unnecessary to
parse the pleadings in those other litigations. General’s proof of claim in the JT case specifically states
that it is based on the same issues involved in the State Court Action. I take as a given that the issues in
the JT case and this chapter 11 case are intertwined.
12 	The Debtor contends that even if it breached the Supply Covenant, the breach is curable through a
monetary cure payment. (Motion at ¶ 11(e).) This misstates the law. The Debtor cannot assume the
Sublease if it was terminated pre-petition under applicable non-bankruptcy law. 11 U.S.C. § 365(c)(3). If
GLC properly terminated the Sublease pre-petition based on the Debtor’s breach of the Supply Covenant
(or for any of the other defaults cited by GLC), there is no Sublease to assume and no cure payment to
make.
20-10616-dsj Doc 57 Filed 05/20/20 Entered 05/20/20 12:07:08 Main Document
Pg 8 of 10

9
There are two responses. One, the possibility of multiple litigations became
inevitable once the Debtor filed this chapter 11 case rather than proceed to trial in the
State Court Action. The automatic stay does not apply to General’s claims against the
non-debtors or the Defendants’ counterclaims and there is no court aside from the New
Jersey court where those claims can proceed. Two, while the Sublease is undoubtedly
critical to the Debtor’s reorganization efforts, there is no pending proceeding before the
Court that will allow it to finally determine the Debtor’s interest in the Sublease. The
only proceeding the Debtor has commenced that implicates the existence of the
Sublease and the question of its termination is a motion to assume and assign the
Sublease as part of the sale of all of its assets. 13 However, the Court cannot adjudicate
the termination dispute between the Debtor and GLC as part of the motion to assume.
As the Second Circuit has explained:
[I]t is important to keep in mind that the bankruptcy court’s “business
judgment” in deciding a motion to assume is just that—a judgment of the
sort a businessman would make. In no way is this decision a formal ruling
on the underlying disputed issues, and thus will receive no collateral
estoppel effect. In a given case, a bankruptcy court might decide that it
would be beneficial for the trustee or debtor-in-possession to assume a
certain contract because the court thinks it unlikely that a court would
hold that the debtor had breached the contract, and thus assuming the
contract would be a good “business judgment.” This “business judgment”
could turn out to be wrong, however, if a later fact finder in an adversary
proceeding decides that the underlying contract was in fact breached. In
such a case, the judge's wrong decision is simply an error of business
judgment, not legal error.
13 	See Debtor’s Motion for the Entry of: (I) an Order, (A) Establishing Bidding Procedures for the
Sale Of Assets, (B) Authorizing the Debtor to Select a Stalking Horse Bidder, (C) Scheduling an Auction,
and (D) Approving the Form and Manner of Notice Thereof; (II) an Order Authorizing and Approving
(A) Debtor’s Entry into a Certain Asset Purchase Agreement, (B) the Sale of Assets Free and Clear of
Liens and Other Interests, and (C) Assumption and Assignment of Certain Executory Contracts and
Leases, and With Respect Thereto; (III) an Order Retaining VIP Realty, Inc. as Business Broker for the
Debtor, dated Apr. 30, 2020 (ECF Doc. # 44-1.)
20-10616-dsj Doc 57 Filed 05/20/20 Entered 05/20/20 12:07:08 Main Document
Pg 9 of 10

10
Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d
1095, 1099 (2d Cir. 1993). At best, therefore, this Court can only make an informed
business judgment whether it makes sense for the Debtor to spend its time and money
pursuing an assumption and assignment of the Sublease and curing defaults when, it
may turn out, the Sublease was terminated pre-petition and the Debtor had no Sublease
to assume.
Finally, I note that balancing the harms caused by the impact of the stay, (Factor
12), also weighs in favor of stay relief. For the reasons stated, the Debtor will not likely
be able to assign the Sublease until the termination issue is resolved. At a minimum, it
may have to accept a depressed price from a buyer unwilling to assume the risk that a
court will decide in the future that the Sublease had been terminated. Delaying this
resolution by continuing the stay will not benefit the Debtor or the creditors of this
estate. On the other hand, continuing the stay prevents GLC from exercising whatever
rights it has to recover the Premises.
Accordingly, I conclude that the Motion is granted with one caveat. If General
recovers a money judgment against the Debtor, it cannot collect the judgment except
through this bankruptcy proceeding.
So ordered.
Dated: 	New York, New York
May 20, 2020
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Judge
20-10616-dsj Doc 57 Filed 05/20/20 Entered 05/20/20 12:07:08 Main Document
Pg 10 of 10