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In re West Pan

July 20, 2007

IN RE WEST PAN, INC., DEBTOR.
WEST PAN, INC., PLAINTIFF,
v.
MARTHA PERRY, ALVIN TRENK, PIZZA PIAZZA, INC., PIZZA PIAZZA OF NEW JERSEY, INC., PIAZZA MIA, INC., TECHTRON, INC., AND PIZZA PIAZZA OF NEW YORK, INC., DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

This cross-appeal arises out of the failed joint business venture between the debtor and appellant West Pan, Inc. ("West Pan") and appellee and cross-appellant Alvin S. Trenk ("Trenk") and Techtron, Inc. ("Techtron"). Following a 90-day bench trial, the Honorable Arthur J. Gonzalez, United States Bankruptcy Judge for the Southern District of New York, issued a lengthy memorandum decision on August 22, 2003 ("Bankruptcy Opinion"), supplemented by an order on January 31, 2006 ("Bankruptcy Order"), both of which are the subjects of this appeal. For the following reasons, the Bankruptcy Opinion and the Bankruptcy Order are affirmed.

Background

The following facts are taken from the Bankruptcy Opinion and are uncontested except where otherwise noted. The appeals concern lawsuits that have been pending since 1992 and include a voluminous record. The parties take very little issue with the description of the facts in the Bankruptcy Opinion, and indeed rely on it as the exclusive statement of facts for these appeals. The relevant facts for the issues raised on appeal are relatively few.

Since 1983, West Pan owned and operated a restaurant in New York called Pizza Piazza ("PPNY"), which was a premium pizza restaurant with distinctive decorations, recipes, and other details. Seeking to replicate the concept of Pizza Piazza in other locations, West Pan entered into a joint venture with Techtron, an investment vehicle Trenk had used for various business ventures. On February 12, 1991, West Pan and Techtron executed an Incorporation and Shareholders Agreement ("I&S Agreement"), which created Pizza Piazza, Inc. ("PPI") to own and operate the new Pizza Piazza restaurants as PPI subsidiaries, including the existing PPNY restaurant.

Under the agreement, Techtron received 80% of the equity, and West Pan received the remaining 20%. Techtron maintained complete management control of PPI and any new subsidiaries; West Pan continued to control and operate PPNY. The I&S Agreement obligated Techtron to capitalize PPI with those funds which in its discretion were prudent and sufficient to commence PPI's operations, including up to $300,000 of its own money. Techtron was not obligated to contribute or loan additional funds to PPI, but could choose to do so in its sole and exclusive discretion.

The agreement had several provisions that are important to this appeal. It restricted transfer of West Pan's assets in its "Covenant Not to Encumber":

[PPI], its acquiring subsidary [sic] and Techtron shall not sell, transfer, mortgage, pledge, encumber, hypothecate, or otherwise permit any lien, attachment, or execution to impair the ownership of those assets being purchased from West Pan . . . so long as West Pan has not been paid all monies due West Pan.

I&S Agreement § 2.4 (emphasis supplied).

The agreement set forth obligations in the event of a public offering, and also in the event that there was no public offering.

In the event the public offering or other secondary financing described in Section 4.2 produces a total of Three Million Five Hundred Thousand ($3,500,000) Dollars or less . . . then the Asset Purchase Note and the Phase Two Bonus shall be paid at West Pan's election by (a) [PPI] by paying West Pan ten (10%) percent . . . or (b) by following the Payment Schedule . . . .

Id. § 4.3. In the event of "No Public Offering":

In the event the public offering and/or secondary financing is not obtained within the time prescribed, at Techtron's option: (a) ownership of [PPI] shall be transferred to West Pan and Techtron shall be given a general release from West Pan . . . in consideration thereof; or, (b) Techtron will cause an additional ten (10%) percent equity in [PPI] to be transferred to West Pan or its designees.

Id. § 4.5 (emphasis supplied). In addition, if Techtron elects for the option in Section 4.5(b), Section 4.6 governs the payment schedule.

Article Ten of the agreement covers the event of Techtron's breach of the agreement:

In the event Techtron shall materially breach this Agreement, West Pan's sole and exclusive remedy shall be to receive the stock of [PPNY] from [PPI] and thereby the return of the Assets (including the exclusive right to the name Pizza Piazza) . . . . Upon receipt of such stock, West Pan shall have no further claims or rights against Techtron or [PPI] or any subsidiary thereof.

Id. § 10.1 (emphasis supplied). Article Eleven provides for indemnification, including the payment of attorneys' fees:

Techtron hereby indemnifies and agrees to hold West Pan harmless from and after the Closing from and against any and all claims, losses, expenses, damages deficiencies and liabilities including court costs and reasonable attorney's fees and costs arising directly or indirectly out of any misrepresentation, breach of warranty, breach of covenant on the part of Techtron under this Agreement.

Id. ยง 11.1 (emphasis supplied). Section 11.2 provides a parallel clause providing for indemnification by West Pan to Techtron and PPI for breaches by West Pan. The agreement also includes a choice of law clause, providing that "[t]his Agreement shall be construed and ...


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