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).
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 ...