United States District Court, S.D. New York
June 22, 2004.
2927 EIGHTH AVENUE CORP., d/b/a FINE FARE SUPERMARKETS, Debtor. GENERAL TRADING CO., INC., Appellant,
2927 EIGHTH AVENUE CORP., d/b/a FINE FARE SUPERMARKETS, Appellee.
The opinion of the court was delivered by: BARBARA JONES, District Judge
Before the Court is an appeal of the Bankruptcy Court's ruling
that Appellant was required to provide Debtor with 5 days notice
and opportunity to cure prior to voting certain stock, and that
the notice Appellant provided Debtor prior to voting was
insufficient as a matter of law. For the reasons below, the Court
reverses this ruling and remands the case for further
The Debtor, 2927 Eighth Avenue Corporation ("2927"), operates a
retail supermarket located at 2927 Eighth Avenue ("Supermarket").
Since 1996, 2927 purchased groceries and food products for resale from General Trading Company, Inc. ("GT"), a
local wholesale grocer. In that same year, GT loaned $310,000 to
Elvio Taveras, 2927's sole officer, director and shareholder, to
finance the acquisition of the Supermarket. (D345-47).
On October 7, 1997, GT loaned 2927 an additional $500,000. The
parties agreed to consolidate this sum with the balance of the
previous loan and to refinance the debt ("1997 Refinancing").
The 1997 Refinancing was memorialized by a new Loan Agreement
("Loan Agreement"), as well as several other documents signed
only by Taveras. Specifically, Taveras executed: (1) a Pledge
Agreement, discussed infra, (2) a Certificate of Incumbency,
confirming that he was the sole officer, director and shareholder
of 2927, (see D238), and (3) a written resignation as officer
and director of 2927, "effective immediately," to be held in
escrow by GT's counsel in case of a default. (D335).
a. The Pledge Agreement
The Pledge Agreement secured repayment of the loans and credit
advanced by GT to 2927 on October 7, 1997 "and any other
obligation now or hereafter owing" by 2927 to GT. (D44, ¶ 1).
Taveras secured the loan by pledging his stock in 2927, which
"constitute[d] all of the issued and outstanding shares" of 2927
("Pledged Shares"). (D44-45, ¶ 1-2).
The Pledge Agreement gave GT various rights in the event of a
default on 2927's obligations, including (1) the right to assume ownership of the Pledged Shares, (2) the right to vote the
Pledged Shares, (3) the right to sell the Pledged Shares, and (4)
the right to accept Taveras' resignation.*fn1
According to Paragraph 4 of the Pledge Agreement, upon the
occurrence of any event of default by 2927 on its obligations to
GT shall have the right to register the Shares in its
own name or in the name of anyone it appoints to hold
any of the Shares for it, and GT shall have (but will
not be required to exercise) all of [Taveras'] rights
in the Shares . . . but i[t] will only have the
right to sell the Shares or to vote if one of the
events referred to in paragraph 6 occurs after any
applicable grace period.
(D45-46, ¶ 4) (emphasis added). Accordingly, one must turn to the
language of Paragraph 6 to ascertain the "events" upon which GT
may exercise its right to sell or to vote, even though the
language of Paragraph 6 refers only to the right to sell.
Paragraph 6 reads:
6. Sale of Shares by GT. After five (5) days
written notice and an opportunity to cure, GT may
sell the Shares, or any part it chooses, if:
(a) Any amount owed by [Taveras] or 2927 to GT now or
in the future is not paid when it becomes due after
any grace period.
(D46, ¶ 6). Three more lettered subparagraphs follow, each
describing other defaults that would trigger GT's right to sell
the Pledged Shares. (D46, ¶ 6(b) (d)). Following the description of the four situations of default,
Paragraph 6 states that "At least five (5) business days before
GT sells any of the Shares, it will send me notice of the
proposed sale at my current address on GT's records, by certified
mail." (Id.). The Pledge Agreement does not require GT to
include any specific details in the notice of proposed sale.
Along with Paragraphs 4 and 6, Paragraph 14 also provides GT
with certain rights with respect to the Pledged Shares.
Specifically, if 2927 did not obtain a new lease for the premises
it currently occupied on or before March 31, 1999, Taveras
"agree[d] that the resignation and shares being pledged herein
may be turned over to GT or their nominee."*fn2 (D51, ¶ 14).
The final paragraph of the Pledge Agreement provides GT with
authorization, in the event that 2927 or Taveras fails to comply
with any obligations, "to take such further and other actions as
it may deem appropriate in order to protect its interest and to
secure the obligations owing," "notwithstanding anything"
contained in the Pledge Agreement. (D52, ¶ 15).
b. Events Occurring After the Execution of the Pledge
1. Alleged Defaults Under the Pledge Agreement
GT alleges that 2927 defaulted on several of its obligations under its agreements with GT. The Court provides the details of
the alleged defaults for background purposes only and not as
findings of fact because the bankruptcy court explicitly declined
to make findings on this issue. (D437) (Tr. of bankruptcy
proceeding) ("I could, but I don't think it would be useful to
get involved in the question of whether or not the Debtor
actually owes General Trading any money).
First, GT alleges that by the summer of 2001, 2927 was indebted
to GT in the amount of $80,985.83, including amounts incurred on
credit for unpaid merchandise, which was separate and apart from
amounts loaned in conjunction with the 1997 Refinancing. (D257, ¶
18). Second, GT alleges that Taveras owed it substantial debts
for other companies that Taveras controlled, which were
guaranteed by the terms of the Pledge Agreement. (D54). Last, GT
alleges that 2927 defaulted on numerous obligations under a
security agreement the parties entered into on January 26, 2000,
and these defaults are actionable under the Pledge Agreement.
2927 disputes all of these contentions. Specifically, 2927
asserts that it satisfied the 1997 Refinancing debt in its
entirety by October 1999. According to 2927, this extinguished
the rights and obligations under the Pledge Agreement. (2927's
Opp'n at 7). Although 2927 admits that it incurred additional
debts to GT on later dates, it disputes the amount that it was indebted, charges GT with misapplying funds and overcharging
interest, and asserts that these debts did not fall under the
terms of the Pledge Agreement.
2. GT's Actions on the Alleged Defaults
On May 10, 2001, GT delivered to Taveras a notice of default
stating that 2927 was in default of the Pledge Agreement
("Notice").*fn3 (D341). The Notice does not specify which
obligations 2927 failed to fulfill, but advises that "This letter
shall constitute written notice and an opportunity to cure the
defaults as set forth in the various notices that you and your
corporations have received with regard to this matter." (Id.).
It also states that GT intends to "sell the shares secured by the
pledge agreement" because of the alleged default. (Id.).
Four days later, GT noticed an auction for the sale of Taveras'
stock. (D204). The auction was scheduled for May 24, 2001, but
never occurred. (Id.).
On May 21, 2001, Taveras and the corporations he controlled
commenced an action against GT in the Supreme Court of the State
of New York, seeking to enjoin GT from, inter alia, "effecting
the title, use, ownership or possession of any shares of stock"
of 2927. (D168-69). The Court issued a temporary restraining
order the following day, but it was lifted on June 26. GT asserts that, on that day, it took possession of the Pledged Shares.
On June 27, without notice to 2927, GT conducted a `meeting of
the stockholders' and elected GT's president, Jonathan Abad, the
sole director and president of 2927. (D87-88). GT then noticed a
second auction sale for July 9 of the stock formerly held by
Taveras. (D211). However, on July 5, Taveras filed a personal
Chapter 11 bankruptcy petition, which stayed the auction of the
2. Procedural History
a. Proceedings Before the Bankruptcy Court
On the same day that the Chapter 11 was filed, GT filed an
Emergency Motion for Adequate Protection, An Order Determining
Control of the Debtor, and/or Dismissal of the Case ("Emergency
Motion"), arguing that Taveras did not have authority to file a
Chapter 11 on behalf of 2927. GT sought a ruling that, prior to
the filing of Chapter 11, (1) GT became the sole shareholder of
2927; (2) Taveras resigned or was otherwise removed as sole
director and officer of 2927; and (3) Jonathan Abad was elected
sole director and president of 2927. GT requested that the Court
issue an order turning control of 2927 over to it and dismissing
After hearing argument and receiving several rounds of
briefing, the bankruptcy court made two findings. First, it
stated: It is my interpretation of the pledge agreement that
under paragraph 4 . . . it was necessary to give five
days prior written notice before [GT] could vote the
shares, and that the reading of the phrase [`]only
have the right to sell the shares or to vote if one
of the . . . events . . . referred to in paragraph 6
occurs after any applicable grace period['], that
reference to vote includes the reference to notice
period which is contained in paragraph 6."
Second, the Court found that the Pledge obligated GT to
"specif[y] the nature of the default." (D436). It continued, "I
don't think there could be any question . . . that in order for
the notice to be meaningful that the right to cure would require
that the notice contain a precise description of what it is that
has not been done." (Id.). The Court then found that GT did not
provide sufficient notice. (D437).
Based on these findings, the Bankruptcy Court invalidated GT's
subsequent actions of accepting Taveras' resignation and voting
in a new officer and director. The Court ultimately concluded
that "General Trading was not a shareholder at the time the
petition was filed and the Debtor's petition was properly
The Bankruptcy Court reached this holding while expressly
declining to rule on whether 2927 was still indebted to GT,
(see D437), and whether the Pledge Agreement was still in
effect. (D438-39). The Court also did not make any explicit
findings regarding whether 2927 defaulted. b. Proceedings Before this Court
GT appealed the Bankruptcy Court's ruling to this Court,
arguing that, (1) it was not required to provide 5 days
opportunity to cure prior to voting the Pledged Shares, (2) it
had no obligation to provide 2927 with notice prior to voting,
and (3) to the extent that [the Court finds that] GT was
obligated to provide notice, the Notice GT provided was
sufficiently specific. In short, while admitting that it would
have been required to give notice prior to selling the Pledged
Shares, GT challenges the Bankruptcy Court's reading of the
Pledge Agreement to require such notice prior to merely voting
In its opposition, 2927 argues that, as a threshold matter, the
Bankruptcy Court's ruling was not a final ruling, and therefore,
cannot be the subject of an interlocutory appeal. With regard to
the merits of the appeal, 2927 asserts that the Bankruptcy
Court's reading of the Pledge Agreement and holding that it was
not provided with sufficient notice was correct.*fn4
The Court received briefs from the parties and held oral
arguments on the motion on April 8, 2004. For the reasons below, the Bankruptcy Court's ruling is reversed and remanded.
2927 argues that this Court does not have jurisdiction to hear
an appeal from the bankruptcy court's ruling because it lacks
finality. The Court disagrees.
District Courts have jurisdiction pursuant to 28 U.S.C. § 158(a)
to hear appeals, "from final judgments, orders, and decrees."
28 U.S.C. § 158 (a). The concept of `finality' in the bankruptcy
context, however, is more flexible than in ordinary civil
litigation. In re Prudential Lines, Inc., 59 F.3d 327, 331 (2d
Cir. 1995) (citations omitted).
A party may appeal immediately orders in bankruptcy matters
that "finally dispose of discrete disputes within the larger
case." In re Sonnax Indus., 907 F.2d 1280, 1283 (2d Cir. 1990)
(emphasis, quotation, and citation omitted). The resolution of a
"dispute" does not simply refer to the determination of a
separable issue. Rather, a "dispute" in this context means an
entire claim upon which relief may be granted. In re Flor,
79 F.3d 281, 283 (2d Cir. 1996).
In this case, 2927 attempts to characterize the ruling merely
as a denial of a motion to dismiss. However, it is clear that the
Bankruptcy Court determined several discrete and significant issues, most important of which is that Taveras, and
not GT, owns and controls 2927. The Court finds that this ruling
has sufficient finality to allow this Court to review it on
In addition, even if the ruling was not final, the Court
nevertheless would have jurisdiction under the collateral order
doctrine. This doctrine allows parties to appeal a non-final
bankruptcy court ruling if it "conclusively determines a disputed
question, resolves an important issue completely separable from
the merits of the action, and would be effectively unreviewable
on appeal from a final judgment." In re Johns-Manville Corp.,
824 F.2d 176, 180 (2d Cir. 1987). A court may allow appeal under
the collateral order doctrine not only when a ruling is
completely unreviewable, however, but also when allowing appeal
is "consonant with principles of efficiency and fairness." See
In re Pan Am Corp., 16 F.3d 513, 515-16 (2d Cir. 1994) (stating
that the decision to allow an appeal under the collateral order
doctrine should "be guided by principles of fairness and the
efficient administration of the bankruptcy case.").
It is clear that the ruling at issue here conclusively
determined that Taveras rather than GT owned and controlled 2927
as of the time of the Chapter 11 filing, and that this issue is
separate from the merits of the underlying bankruptcy.
Additionally, the ruling would be "effectively unreviewable" after a judgment on the merits. If GT could not immediately
appeal the ruling, it would be unable to challenge the
fundamental issue of who owns and controls 2927 until after
Taveras administered 2927 as part of his estate, proposed a plan
of reorganization, and had that plan approved. A belated ruling
on appeal therefore might require revisiting the reorganization
plan or might come too late to have any practical effect on the
reorganization. Accordingly, allowing immediate appeal,
therefore, would further the fairness and efficiency of the
The Court finds that it has jurisdiction over the appeal, and
will now address the merits.
b. The Merits of the Appeal
1. Review of the Bankruptcy Court's Contract Interpretation
The Bankruptcy Court interpreted the Pledge Agreement as a
matter of law and did not rely on parol evidence to inform its
decision. Cf. W.W.W. Assoc., Inc. v. Giancontieri, 77 N.Y.2d 157,
162 (1990) (stating that unambiguous terms of a contract are
enforced according to those terms and without resort to extrinsic
evidence). Accordingly, this Court reviews the decision de
novo. See In re Bonnanzio, 91 F.3d 296, 300 (2d Cir. 1996)
(stating that, under F.R.Bankr.P. 8013, a bankruptcy court's
findings of fact are reviewed for clear error while its
conclusions of law are reviewed de novo).
2. GT Did Not Have to Give 2927 5 Days Notice Prior to
Exercising its Right to Vote
The Bankruptcy Court ruled, based solely on the terms of the
Pledge Agreement, that GT was required to provide 2927 with 5
days notice and opportunity to cure prior to voting the Pledged
Shares, and held that because GT voted the Shares less than 5
days after it gave any notice, the vote was ineffective. The
Bankruptcy Court reached its interpretation of the Pledge by
construing the language in Paragraph 4 that provides GT with the
right to vote the Shares "if one of the events referred to in
paragraph 6 occurs after any applicable grace period" to
incorporate the notice provision set forth in the beginning of
Paragraph 6. That interpretation is clearly erroneous, however,
and fails to give effect to the plain meaning of the language in
Paragraph 6, taken alone, applies only to selling and not to
voting the Pledged Shares. Specifically, the Paragraph starts by
stating that "[a]fter five (5) days' written notice and
opportunity to cure, GT may sell the Shares" if one of four
events of default occur. (D46) (emphasis added). The Paragraph
later re-emphasizes that notice is required prior to sale,
while mentioning nothing about voting: "At least five (5)
business days before GT sells any of the Shares, it will send
me notice of the proposed sale at my current address. . . ." (D47) (emphasis
added). The balance of the Paragraph discusses the details of the
conduct of the sale of the Pledged Shares. In short, there is
nothing in Paragraph 6 that requires GT to provide notice prior
to voting the Shares.
Looking to Paragraph 4, it provides GT with the right to vote
the Shares only "if one of the events referred to in Paragraph
6 occurs after any applicable grace period occurs." This Court
finds that this language was plainly intended to limit the types,
or "events," of default that would trigger GT's voting rights,
and was not intended to impose notice requirements. The
Bankruptcy Court's reading of Paragraph 4, however, ignores the
word "event." See Homemaker Indus., Inc. v. Official Comm. of
Unsecured Creditors of HMKR, Inc., 2004 WL 838168, *5 (S.D.N.Y.
2004) (citing Manley v. Ambase Corp., 337 F.3d 237, 250 (2d
Cir. 2003) for the proposition that "[w]hen interpreting a
contract, courts should avoid any construction that renders terms
meaningless."). Properly reading Paragraphs 4 and 6 together
gives GT the right to vote the Shares without notice and
opportunity to cure when, inter alia, "[a]ny amount owed by
[Taveras] or by 2927 to GT now or in the future in not paid when
it becomes due after any applicable grace period." (D46, ¶ 6(a)).
Further support for this reading can be found in the parallel
language "any applicable grace period" used both in Paragraph 4 and subparagraph 6(a) a subparagraph that specifies
one type of default. Neither reference to "grace period" can
reasonably be interpreted to incorporate the 5 days notice and
opportunity to cure provisions of Paragraph 6, which explicitly
relates only to the sale of the Shares.
Accordingly, the Court holds that Paragraphs 4 does not require
GT to provide 5 days notice prior to voting the Pledged Shares
upon the occurrence of an event of default set forth in Paragraph
6. The Bankruptcy Court's ruling on this issue is reversed.
3. GT Provided Sufficient Notice According to the Terms of the
It is undisputed that GT provided notice of default to Taveras.
(D341) The Bankruptcy Court held, however, that because the
notice did not specify the type of default, it did not meet the
requirements of the Pledge Agreement and was thus ineffective.
Specifically, the Bankruptcy Court, relying on its interpretation
of Paragraph 4 to encompass Paragraph 6's requirement of 5 days
notice and opportunity to cure, stated that there could be no
meaningful "opportunity to cure" if the notice was not
The Court does not agree. As stated supra, the language in
Paragraph 4 does not include the introductory wording of
Paragraph 6, and therefore, there is no requirement in either Paragraphs 4 or 6 that GT provide any notice, no less notice
that specified the type of default, before GT votes the Pledged
In addition, after a review of the entire Pledge Agreement, the
Court finds no provision requiring GT to give specific notice of,
or opportunity to cure, a Paragraph 6 default prior to voting the
Shares. In fact, Paragraph 8 of the Pledge Agreement states that
"except for the notice referred to in paragraph 6, GT will not be
required to give  any notice." (D49, ¶ 8).
2927 argues that GT is required by law to give notice prior to
voting, regardless of whether the Pledge Agreement explicitly
requires it. The cases it cites in support of this contention,
however, are inapposite because in each case a contract or a
statute required that notice, containing specific details, be
provided.*fn6 2927 has not cited any cases holding that a
notice of default, as a matter of law, must contain a precise
description of the default. Cf. U.C.C. §§ 9-501(1), (3)
(allowing a secured party in possession the right to use
collateral for the purpose of preserving it or its value, or "in
the manner and to the extent provided in the security agreement,"
and requiring that "reasonable notification" be given to a debtor only before the
sale of the collateral).
Accordingly, the Bankruptcy Court's ruling that GT's Notice was
insufficient as a matter of law is reversed.
For the reasons above, the Bankruptcy Court's ruling is
reversed and remanded for further proceedings to determine
whether Taveras owned and controlled 2927 at the time of his
filing of Chapter 11.
The Clerk of the Court is directed to close this case.