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IN RE 2927 EIGHTH AVENUE CORP.

June 22, 2004.

2927 EIGHTH AVENUE CORP., d/b/a FINE FARE SUPERMARKETS, Debtor. GENERAL TRADING CO., INC., Appellant,
v.
2927 EIGHTH AVENUE CORP., d/b/a FINE FARE SUPERMARKETS, Appellee.



The opinion of the court was delivered by: BARBARA JONES, District Judge

Opinion

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 proceedings.

BACKGROUND

  1. Facts

  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,
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 Agreement

  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 ...


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