rbk Doc#305 Filed 04/07/16 Entered 04/07/16 18:56:05 Main Document Pg 1 of 5

Transcription

1 16-07-rbk Doc#30 Filed 04/07/16 Entered 04/07/16 18:6:0 Main Document Pg 1 of IN THE UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION In re: Buffets, LLC, et al. Debtors. Case No RBK CHAPTER 11 (Jointly Administered MOTION TO COMPEL REJECTION OF EXECUTORY CONTRACT This pleading requests relief that may be adverse to your interests. If no timely response is filed within 21 days from the date of service, the relief requested herein may be granted without a hearing being held. A timely filed response is necessary for a hearing to be held. Services Group of America, Inc. moves the Court for entry of an order compelling debtor OCB Purchasing Co. ( OCB to reject an executory contract between OCB and Distribution Market Advantage, Inc., and in support respectfully represents as follows: JURISDICTION The Court has jurisdiction over this matter pursuant to 28 U.S.C. 17 and Venue is proper in this district pursuant to 28 U.S.C and This is a core proceeding pursuant to 28 U.S.C. 17(b(2(A. The statutory predicates for the relief requested are Sections 10(a and 36(d(2 of Title 11 of the United States Code (the Bankruptcy Code. 1 BACKGROUND 1. Debtor OCB Purchasing Co. and Distribution Market Advantage, Inc. ( DMA are parties to an agreement titled OCB Purchasing Co. Foodservice 1 All Section references are to the Bankruptcy Code unless noted otherwise. MOTION TO COMPEL REJECTION OF EXECUTORY CONTRACT Page 1 of TELEPHONE ( FACSIMILE (

2 16-07-rbk Doc#30 Filed 04/07/16 Entered 04/07/16 18:6:0 Main Document Pg 2 of Distribution Agreement (the Distribution Agreement. A copy of the Distribution Agreement is attached as Exhibit A to the Declaration of Lee Clark. 2. Pursuant to the Distribution Agreement, DMA is required among other things to furnish distribution of certain food products to the Debtor. See Distribution Agreement, p Under the Distribution Agreement, DMA does not, itself, sell or deliver food products to the OCB. Instead, DMA serves, in the case of this Agreement, as a marketing and coordinating organization for two Distributors (as defined in the Distribution Agreement. The Distributors, in turn sell and deliver products to OCB. See id Services Group of America, Inc. ( SGA is one of the Distributors. See id. p. 1.. SGA is the parent company of Food Services of America, Inc. ( FSA. See Clark Dec. at Although SGA is not a signatory to the Distribution Agreement, the agreement provides that: OCB acknowledge[s] that all of [DMA s] rights and obligations under this Agreement are rights and obligations of the Distributors, and not DMA, unless specified otherwise. Distribution Agreement 1.2 (emphasis added. 7. OCB is required to make payments directly to the Distributors. See id In a typical month, SGA, through its subsidiary FSA, provides over $1 million per month (approximately $27,000 per week in goods to OCB. See Clark Dec. at However, to comply with the Distribution Agreement SGA is also required to maintain in its own inventory certain proprietary food and food products which are specifically prepared for OCB. In the event OCB does not order such products, they MOTION TO COMPEL REJECTION OF EXECUTORY CONTRACT Page 2 of TELEPHONE ( FACSIMILE (

3 16-07-rbk Doc#30 Filed 04/07/16 Entered 04/07/16 18:6:0 Main Document Pg 3 of cannot be sold to other customers of SGA. See id. at As of the commencement of this case, SGA was owed approximately $670,000 in connection with the sale and delivery of food and food products. See id. at The original term of the Distribution Agreement is from February, 201 through June 30, See id. p. 1. After June 30, 2016, the term of the Distribution Agreement is automatically renewed for successive one-year periods thereafter. However, either party may elect to give notice of non-renewal to the other at least 90 days prior to the end of the original term of the Distribution Agreement or any successive one-year period. See Distribution Agreement, On or about March 31, 2016, DMA sent a notice of non-renewal to OCB pursuant to Section 2 of the Distribution Agreement. Therefore, the Distribution Agreement will end by its own terms on June 30, See Clark Dec. at 13. RELIEF REQUESTED 13. SGA seeks an order requiring OCB to reject the Distribution Agreement immediately. BASIS FOR RELIEF REQUESTED 14. Section 36(d(2 provides that the trustee may assume or reject an executory contract... at any time before confirmation of a plan, but the court, on the request of any party to such contract... may order the trustee to determine within a reasonable period of time whether to assume or reject such contract. 11 USC 36(d(2. 1. What constitutes a reasonable time for a debtor to assume or reject an executory contract is left to the bankruptcy court s discretion, in light of the circumstances of the case. South St. Seaport Ltd. P ship v. Burger Boys (In re Burger Boys, 94 F3d 7, (2d Cir In determining what constitutes a reasonable MOTION TO COMPEL REJECTION OF EXECUTORY CONTRACT Page 3 of TELEPHONE ( FACSIMILE (

4 16-07-rbk Doc#30 Filed 04/07/16 Entered 04/07/16 18:6:0 Main Document Pg 4 of time within which a debtor should assume or reject an executory contract, the court should consider: (a the damage that the nondebtor party to the contract would suffer, beyond compensation available under the Bankruptcy Code, (b the importance of the contract to the debtor s business and reorganization, (c whether the debtor has had sufficient time to appraise its financial situation and the potential value of its assets in formulating a plan; and (d whether the exclusivity period has terminated. See In re Hernandez, 287 BR 79, 806 (Bankr D Ariz 2002 (citing Theatre Holding Corp. v. Mauro, 681 F2d 102 (2d Cir 1982; see also In re Rebel Rents, Inc., 291 BR 20, 30 (Bankr CD Cal 2003 (applying same test in motion to compel assumption or rejection of lease under 11 USC 36(d( Applying the factors set forth above, the Court should compel OCB to reject the Distribution Agreement before SGA is required to provide any additional services thereunder. If OCB is allowed to enjoy the benefits of the Distribution Agreement on an open-ended basis, SGA will be forced to continue a business relationship with OCB without any certainty that OCB will continue to perform. In addition, SGA will be required to prepare and maintain a sizeable inventory of products that are specific to OCB s needs, and which cannot be sold to other customers of SGA in the event OCB does not purchase them. Based on past sales averages, such products may be worth in excess of $70,000-$900,000. See Clark Dec. at 14. As a result, the potential harm to SGA is much greater than the value of the products purchased by OCB. 17. Even though SGA is entitled to an administrative claim for postpetition goods purchased by OCB, SGA has doubts concerning OCB s ability to reorganize. Forcing SGA to continue to perform at its peril until June 30, 2016 (the end of the term of the Distribution Agreement is unfair and does not reflect the parties respective bargained-for positions. MOTION TO COMPEL REJECTION OF EXECUTORY CONTRACT Page 4 of TELEPHONE ( FACSIMILE (

5 16-07-rbk Doc#30 Filed 04/07/16 Entered 04/07/16 18:6:0 Main Document Pg of 18. Requiring the Debtor to reject the Distribution Agreement is consistent with the Bankruptcy Code and equitable principles. If OCB wishes to assume the Distribution Agreement, it will have to cure its past defaults and provide adequate assurance of future performance. 11 USC 36(b(1. SGA would not oppose assumption of the Distribution Agreement (and would be willing to revisit the alreadyissued notice of nonrenewal if OCB were to meet all of its obligations under Section 36(b(1. However, SGA does not believe OCB has resources to do so. To the extent OCB is unable (or unwilling to assume it, the Distribution Agreement should be rejected now, and not only after SGA is required to accumulate substantial new accounts receivable, and invest additional amounts in maintaining specialized inventory that cannot be sold to other customers, after already having provided $670,000 in goods for which it was not paid. CONCLUSION WHEREFORE, SGA respectfully requests that this Court issue an order granting the relief requested in this Motion and such other and further relief as this Court deems just or proper. Dated this 7th day of April, 2016 SUSSMAN SHANK LLP /s/ Jeffrey C. Misley Jeffrey C. Misley, OSB No (pro hac vice Sussman Shank LLP 1000 SW Broadway, Suite 1400 Portland, OR Attorneys for Services Group of America, Inc. and Food Services of America, Inc. * \MOTION TO COMPEL ASSUMPTION OR REJECTION ( ;4 MOTION TO COMPEL REJECTION OF EXECUTORY CONTRACT Page of TELEPHONE ( FACSIMILE (