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In re PBS Foods, LLC

United States District Court, S.D. New York

March 28, 2017

In re PBS FOODS, LLC, d/b/a Payard Patisserie & Bistro, Debtor.
HOLDING CAPITAL GROUP, INC., et ano., Defendants-Appellees, YANN GERON, Chapter 7 Trustee, Plaintiff-Appellee, and 1032-1034 LEX. AVE., LTD., Creditor-Appellant. Adv. Proc. No. 11-2717 (JLG)

          Avrom R. Vann Avrom R. Vann, P.C., M. David Graubard, Kera & Graubard Attorneys for Creditor-Appellant

          Caroline A. Morgan Nicole N. Santucci Fox Rothschild LLP Attorneys for Plaintiff-Appellee Yann Geron, Chapter 7 Trustee

          John Ignatius O 'Neill John A. Risi BleakleyPlatt & Schmidt, LLP Attorneys for Defendants-Appellees


          Lewis A. Kaplan, District Judge.

         These appeals and the bankruptcy court litigation from which they arise are rooted in a landlord-tenant relationship, through companies which they owned in whole or in part, between Steven Kirschenbaum and Francois Payard. Mr. Kirschenbaum is the owner of the Lexington Avenue premises on Manhattan's Upper East Side in which Mr. Payard until 2009 operated a well-known restaurant, patisserie, and bakery.[1] The considerable ill will between these protagonists may be a factor in why this dispute over what appears to be a relatively small amount of money has taken so long and generated so much acrimony.

         As two able bankruptcy judges have rendered three written opinions and made pertinent findings from the bench on the matters that concern us here, it is unnecessary for me to cover the events below in complete detail. It suffices for me to touch upon those of the highlights that inform my decision.


         PBS's Demise

         The Payard Upper East Side operation was owned by PBS Foods, LLC (the “Debtor” or “PBS”), which operated under the name Payard Patisserie and Bistro. PBS was wholly owned by Mr. Payard. The Upper East Side business occupied premises owned by 1032-1034 Lex. Ave., Ltd. (the “Landlord”), Mr. Kirschenbaum's company.

         In February 2009, The New York Times reported that the New York City Department of Health had closed down the Payard Patisserie and Bistro.[2] The record does not reveal whether the bistro later reopened. In any case, however, PBS called it quits at the end of June 2009 and shut down permanently. Although the cause reportedly was a result of the economic downturn, [3] the Trustee alleged in one of the adversary proceedings discussed below that the business closed in consequence of a doubling of its rent as of January 1, 2009 and “an ongoing dispute with its landlord.”[4]

         The Chapter 7 Proceeding

         On September 17, 2009, PBS filed a petition for relief under Chapter 7 of the Bankruptcy Code.[5]

         The schedules showed in relevant part that PBS had cash on hand of about $122, 000 and total assets of less than $200, 000, not counting trademarks and images of unknown value relating to “Payard.”[6]

         The liability side was dismal. An entity called FP Holdings, LLC (“Holdings”) asserted a claim in excess of $726, 000 allegedly secured by all of PBS assets. Unsecured non-priority claims totaled a little over $498, 000 of which $360, 000 was claimed by the Landlord.[7] It appears that the size of the Landlord's claim increased later as a result of a judgment. It in any case is undisputed that the Landlord overwhelmingly is the largest creditor of the PBS estate.

         The Adversary Proceedings

         In September 2011, the Trustee commenced four adversary proceedings, two of which are relevant here.

         The Present Case

         Geron v. Holding Capital Group, Inc., the present case, was an action against Holding Capital Group, Inc. (“HCG”) and Holdings. The complaint contained claims for avoidance and recovery of certain transfers allegedly made to HCG and Holdings, disallowance of all claims of HCG and Holdings under Bankruptcy Code § 502(d), and-most significantly for these appeals-a claim against Holdings alone to recover for alleged “unjust enrichment.”

         Mr. Payard and Holdings, which was wholly owned by HCG, jointly owned an entity called Payard Management, LLC (“Management”). The unjust enrichment claim-Count Eight of the complaint-rested upon a written agreement dated May 31, 2006 between PBS and Management (the “Licensing Agreement”) pursuant to which PBS transferred to Management exclusive worldwide rights to license Payard's trademarks and images. The complaint alleged that the transfer had been made without consideration, that Management had received fees from its sub-licenses of about $20, 000 per month, and that the Trustee was entitled to recovery from Holdings. The Trustee's sole theory of recovery was that Holdings had been a part owner of Management and thus must have benefitted from the license fees paid to Management. The complaint did not assert any claim that the Trustee was entitled to pierce the corporate veil between Management and Holdings.[8]

         The Case Against Management

         The other relevant proceeding was Geron v. Payard Management, LLC, which asserted only two claims. The first sought to avoid and recover an allegedly preferential transfer of about $129, 000 by the Debtor to Management. The second sought to disallow any claims Management might file against the estate unless the transfer were returned.[9] Significantly, the Trustee asserted no claim against Management (a) based on the Licensing Agreement by which Debtor gratuitously transferred to Management worldwide licensing rights or (b) to recover the license fees allegedly received by Management as a result of sub-licenses it granted thereunder. In due course, this and two other related cases were settled by a single agreement dated June 7, 2012, [10]over the Landlord's objection.[11]

         The order approving that settlement was entered on September 13, 2012. Although the Landlord did not appeal from the approval of that settlement, it is noteworthy that its papers in opposition to the settlement, which were filed on June 27, 2012, asserted that the income generated by the Licensing Agreement was about $20, 000 per month and thus at least $1.2 million over five years.[12]

         The Settlement of the Present Adversary Proceeding

         On December 13, 2013, the Trustee entered into a settlement agreement with HCG and Holdings to resolve this adversary proceeding. In substance, the settlement called for (a) HCG and Holdings to make a one-time payment of $105, 000 to the Trustee, (b) Holdings to waive its unsecured claim of $726, 131 against the estate, and (c) HCG and Holdings to waive their claims under Section 502(h) of the Bankruptcy Code, in full satisfaction of any and all of the estate's claims against them.

         On January 8, 2014, the Trustee moved for approval of the settlement pursuant to Fed.R.Bankr.P. 9019 (the “9019 Motion”). On March 11, 2014, the court held a hearing on the 9019 Motion during which the Trustee argued that approval of the settlement would be in the best interests of the estate and its creditors. Although the Landlord had not filed any response or opposition to the 9019 Motion, its counsel appeared at the hearing and told the court that his “gut reaction” to the settlement was that it was “too low.”[13] Counsel explained that he had not filed a written response or objection because the Trustee had responded only recently to the Landlord's discovery requests and he needed more time to “digest the information . . . to see what position [he and his client were] going to take.”[14] The Landlord's counsel requested an adjournment of the hearing to permit them to do so. The Trustee did not oppose an adjournment but insisted that he had responded to the Landlord's discovery requests and that those responses had been in the Landlord's possession for at least two to three weeks at that point.

         Ultimately, the court denied the Landlord's request for an adjournment, went forward with the hearing, and indicated that it would approve the settlement. The court, however, agreed to hold the order approving the settlement for one week to permit the Landlord to make a “better offer” to the Trustee.[15] But no deal was reached within a week; instead, the Trustee treated the matter as adjourned sine die while the parties discussed a potential resolution.

         Over the next seven months, the Trustee and the Landlord engaged in settlement negotiations. In the end, the Landlord offered principally to pay the Trustee $130, 000 to purchase the estate's claims against HCG and Holdings. The Trustee, however, declined that offer and asked the court to renew the hearing on the 9019 Motion.

         This time the Landlord filed a written objection to the 9019 Motion. During the renewed hearing, the Landlord urged the court to deny the 9019 Motion. It argued first that the court had an obligation to review the settlement in light of the Landlord's offer. It contended also that the Landlord was entitled to an evidentiary hearing on “whether or not [the settlement] me[t] the lower end of the [range of] reasonableness.”[16] The court rejected both arguments and granted the 9019 Motion, stating:

“The Trustee is an experienced trustee, he's an experienced practitioner, he believes this is the best deal even in light of [the Landlord's] offer. I think that meets at least the lowest standard of 9019 therefore I'm going to approve the settlement.”[17]

         The 9023 Motion

         On November 18, 2014, the Landlord filed a motion for reconsideration (the “9023 Motion”) of the order approving the settlement.[18] In connection with the 9023 Motion, the Landlord sought discovery from the Trustee related to the payment of license fees to Management or Holdings. In response, the Trustee produced three documents that he had failed to produce in response to two earlier discovery requests: (a) an August 2011 letter from François Payard to the Trustee concerning a license agreement and a $150, 000 payment of license fees to Management in 2007; (b) a January 5, 2007 license agreement between Management and Westin Chosun Seoul; and (c) pages from the Debtor's general ledger with handwritten notations concerning license fee payments intended for Management that had been wired to the Debtor in error (collectively, the “New Documents”).[19]

         After a hearing, the court denied the 9023 Motion on the basis that none of the alleged errors of law or fact identified by the Landlord provided grounds for relief.[20]

         The First Appeal and the ...

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