Case No. 03-75441-MHM, (Jointly administered with Case No. 03-75444), Case No. 03-75444-MHM, (Jointly administered under Case No. 03-75441), Case No. 03-81449-MHM (Not jointly administered), Case No. 04-61985-MHM, (Jointly administered with Case No. 04-62602), Case No. 04-62602-MHM, (Jointly administered under Case No. 04-61985).United States Bankruptcy Court, N.D. Georgia, Atlanta Division.
July 31, 2005
PETTIGREW ASSOCIATES, P.C., Harry W. Pettigrew, Decatur, Georgia, Counsel for Trustee, LPB Ventures, Ltd., and CMS of PA/Bistro Ventures LLC.
KING SPALDING, LLP, Mark M. Maloney, Atlanta, GA, Counsel for General Electric Business Asset Funding Corporation.
MOORE, INGRAM, JOHNSON, STEELE, Khristie Kelly, Marietta, GA, Counsel for Bank of North Georgia f/k/a Charter Bank Trust Company.
ARNALL, GOLDEN GREGORY, LLP, J. Hayden Kepner, Jr., Atlanta, GA, Counsel for the Official Committee of Unsecured Creditors of LPB and LG.
ORDER (I) APPROVING SETTLEMENTS AND COMPROMISE; AND (II) SUBSTANTIVELY CONSOLIDATING ESTATES
MARGARET MURPHY, Bankruptcy Judge
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On June 7, 2005, Gwinnett Cafe, Inc. f/k/a Le Petit Bistro Inc. (“LPB”), Fulton Cafe, Inc. f/k/a Latin Grill, Inc. d/b/a Latin Grille (“LG”) (LPB and LG are herein referred to collectively as the “Corporate Debtors”), LPB Ventures, Ltd. (“LPBV”), CMS of PA/Bistro Ventures LLC (“CMS”), by and through undersigned counsel, and Harry W. Pettigrew in his capacity as Chapter 11 Trustee for the bankruptcy estate of Ali M. Kabiri (the “Trustee”) (collectively, LPB, LG, LPBV, CMS and the Trustee for Mr. Kabiri are referred to herein as “Debtors”) filed a Motion to (I) Settle and Compromise Disputes Regarding (A) Allocation of Sale Proceeds Among Estates; (B) Validity, Priority, and Extent of Secured Claims in Sale Proceeds; and (C) Inter-Estate Claims; and (II) Authorize Substantive Consolidation of Estates in Connection Therewith (the “Global Settlement Motion”).
The Global Settlement Motion requests approval of a settlement and compromise of:
(a) claims between the LPB bankruptcy estate, the LG bankruptcy estate, the LPBV bankruptcy estate, the CMS bankruptcy estate, and the bankruptcy estate of Ali M. Kabiri (the “Inter-Estate Claims”);
(b) the secured claim asserted by General Electric Business Asset Funding Corporation (“GEBAF”); and
(c) the secured claim asserted by Bank of North Georgia f/k/a Charter Bank Trust Company (“Charter”).
Debtors also request substantive consolidation of Debtors’ estates in connection with the settlement and compromise of Inter-Estate Claims.
On June 14, 2005, an order and notice was entered scheduling hearing on the Global Settlement Motion for July 14, 2005 (the “Hearing”). The order and notice provided that any
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objection to the Global Settlement Motion must have been filed no later than July 6, 2005 (the “Objection Deadline”). As shown by the Certificate of Service filed June 17, 2005, the June 14, 2005 order and notice was duly and properly served on all creditors and parties in interest in the CMS, LPBV and Ali M. Kabiri bankruptcy cases, and was also served on all parties entitled to notice pursuant to this Court’s order entered November 6, 2003 in the LPB and LG cases, as amended.
No objections to the Global Settlement Motion were filed by any creditors or parties in interest. At the Hearing, the following parties, who were active throughout the related cases, were present and made presentations in support of the Global Settlement Motion: Mark M. Maloney, counsel for General Electric Business Asset Funding Corporation; Khristie Kelly, counsel for Bank of North Georgia f/k/a Charter Bank Trust Company; Harry W. Pettigrew, as Trustee for the estate of Ali M. Kabiri and counsel for Debtors, LPBV and CMS; Gregory D. Ellis, counsel for Corporate Debtors; Hayden Kemper, counsel for the Official Committee of Unsecured Creditors in the LPB and LG cases (the “Committee”); Mark A. Roberts, Chief Restructuring Executive for Corporate Debtors and, through Alvarez and Marsal, Inc., interim crisis manager for LPB, LG, LPBV and CMS, and Jeffrey K. Kerr, accountant for the Trustee of the estate of Ali M. Kabiri and Debtors, LPBV and CMS. Also present was James A. Morawetz, attorney for the United States Trustee. No party present at the Hearing presented any opposition to the Global Settlement Motion.
At the conclusion of the Hearing, Mark A. Roberts, Chief Restructuring Executive for LPB and LG and, through Alvarez
Marsal, Inc., interim crisis manager for LPB, LG, LPBV and CMS, announced his intent to resign as Chief Restructuring Executive of the Corporate
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Debtors with the understanding that the Trustee would then exercise control over the Corporate Debtors through his interests in the shares of the Corporate Debtors.
FINDINGS OF FACT[1]
LPB is a Georgia corporation formed August 24, 1992. As of November 4, 2003, the date the LPB and LG petitions were filed to begin their respective cases (the “Corporate Cases Petition Date”), approximately 65 restaurants were operated under the Le Petit Bistro and Le Petit Bistro Express names. As of the Corporate Cases Petition Date, Mr. Kabiri owned 100% of the issued and outstanding shares of LPB.
LG is a Georgia corporation formed August 31, 2000. As of the Corporate Cases Petition Date, approximately 10 restaurants were operated under the Latin Grill and Latin Grille names. As of the Corporate Cases Petition Date, Mr. Kabiri owned 100% of the issued and outstanding shares of LG.
LPBV is a Georgia corporation formed October 2, 1998. As of February 4, 2004 (the “LPBV Petition Date”), LPBV was party to five (5) license agreements whereby LPBV granted licensees the right to operate retail restaurants in the Le Petit Bistro name and to use all related intellectual property. As of the LPBV Petition Date, LPBV was also party to a management agreement whereby LPBV undertook management duties and responsibilities at one of the licensed locations. As of the LPBV Petition Date, Mr. Kabiri owned 100% of the issued and outstanding shares of LPBV.
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CMS is a Pennsylvania limited liability company formed September 9, 1999. As of February 16, 2004 (the “CMS Petition Date”), CMS was tenant at three (3) retail restaurants named Le Petit Bistro, all located at the Philadelphia Airport. As of the CMS Petition Date, LPBV owned 49% of the issued and outstanding shares of CMS; LPBV also served as Chair of the Management Committee and President of CMS.
On or about March 25, 2003, the State of Minnesota commenced a criminal complaint against LPB and subsequently amended the criminal complaint on or about June 18, 2003, to add Mr. Kabiri as a defendant (the “Criminal Action”). The Criminal Action charged thirty-three (33) felony counts against LPB and Mr. Kabiri for failing to remit sales taxes totaling approximately $96,082.84 for the period of March 2000 through October 2002 in violation of Minn. Stat. 1999 § 289A-63 subd. 11; § 609.03(1); § 609.05. The Criminal Action further alleged that the states of Georgia, Florida, Missouri, and Texas had filed tax liens and tax delinquency notices against LPB, or that failures-to-file tax notices had been sent to LPB from the states of Florida, Indiana, Massachusetts, Michigan, Missouri, North Carolina and Texas.
On September 19, 2003, GEBAF filed its “Complaint for Emergency Relief and Damages against Le Petit Bistro, Inc., Mr. Kabiri, Maryam Mirassadi, a/k/a Mariam M. Kabiri, a/k/a Marian M. Kabiri, a/k/a Maryan Kabiri, and Does 1 through 100 inclusive” in the United States District Court for the Northern District of Georgia, Atlanta Division (the “District Court”), Civil Action File Number 1:03-CV-2847 (the “District Court Action”), wherein GEBAF alleged, among other things, breach of contract, fraud and fraudulent inducement, and fraudulent conveyance. In the District Court Action, GEBAF asserted that Mr. Kabiri was attempting to conduct the business of LPB in a haphazard “all cash” basis that threatened the viability of the
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entity and was diverting and fraudulently conveying the assets of LPB out of the country in an effort to move assets and property out of the reach of LPB’s legitimate creditors. Also on September 19, 2003, GEBAF filed its “Emergency Motion for Temporary Restraining Order and Preliminary and Permanent Injunction Against Defendants Le Petit Bistro, Inc. and Ali Kabiri; and for Prejudgment Attachment Against Ali Kabiri and Request for Immediate Hearing” (the “Receiver Motion”).
By order entered in the District Court Action October 3, 2003 (the “Initial CRE Order”), Mark A. Roberts was appointed as Chief Restructuring Executive (“CRE”) to act in the capacity of a court-appointed receiver for LPB. An amended order entered by the District Court October 8, 2003 further appointed Mr. Roberts as Chief Restructuring Executive to act in the capacity of a court-appointed receiver for LG (the “Amended CRE Order”; hereinafter, the Initial CRE Order and the Amended CRE Order are referred to collectively as the “CRE Order”).
On October 24, 2003, Mr. Roberts filed an Emergency Motion of Chief Restructuring Executive Requesting Authorization to Commence Chapter 11 Bankruptcy Proceedings on Behalf of Le Petit Bistro, Inc. and Latin Grill, Inc. (the “Bankruptcy Authorization Motion”) and also filed supporting pleadings in the District Court Action wherein Mr. Roberts, in his capacity as Chief Restructuring Executive, requested entry of an order authorizing him to commence a Chapter 11 bankruptcy case on behalf of LPB and LG and requested an emergency hearing.
On October 27, 2003 (the “Kabiri Case Petition Date”), Premier Bank, Republic Bank and Citizens Trust Bank commenced an involuntary bankruptcy petition against Mr. Kabiri, the principal and 100% shareholder of LPB, in the United States Bankruptcy Court for the Northern
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District of Georgia, Atlanta Division (the “Bankruptcy Court”), Case Number 03-81449 (the “Kabiri Involuntary Case”).
On October 30, 2003, the District Court held an emergency hearing on Mr. Roberts’ Bankruptcy Authorization Motion. At that hearing, the District Court withdrew the reference for the Kabiri Involuntary Case and lifted the automatic stay to permit the hearing to continue. The District Court granted the Bankruptcy Authorization Motion by order entered October 31, 2003 (the “Bankruptcy Authorization Order”) and authorized Mr. Roberts to file voluntary bankruptcy petitions on behalf of LPB and LG, to take any and all necessary actions to proceed with the bankruptcy proceedings, and referred the Kabiri Involuntary Case back to the Bankruptcy Court.
Accordingly, on November 4, 2003, Mr. Roberts filed voluntary Chapter 11 bankruptcy petitions on behalf of LPB and LG, Case numbers 03-75441 and 03-75444, respectively (collectively, the “Corporate Cases”). On November 6, 2003, an order was entered authorizing joint administration of the Corporate Cases under case number 03-75441, and further ordering that a separate claims register be maintained in each of these cases. Also on November 6, 2003, an order was entered in the Corporate Cases authorizing and empowering Mr. Roberts to exercise the rights, powers, and authorities of a debtor in possession with respect to the LPB bankruptcy estate (the “LPB Estate”) and the LG bankruptcy estate (the “LG Estate”) (collectively, the “Corporate Estate”) as set forth in 11 U.S.C. §§ 1107 and 1108. Mr. Roberts continued, therefore, as the Chief Restructuring Executive.
On December 18, 2003, Mr. Kabiri filed a voluntary petition for Chapter 11 bankruptcy relief in the United States Bankruptcy Court for the Central District of California, San Fernando Valley Division, Case Number SV03-20147-AG (the “Kabiri Voluntary Case”). On January 8,
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2004, in response to a motion to transfer venue for the Kabiri Voluntary Case, an order was entered transferring the Kabiri Voluntary Case to the U.S. Bankruptcy Court in the Northern District of Georgia to be administered with the Kabiri Involuntary Case under Case Number 03-81449-MHM. The Kabiri Involuntary Case, following merger with the Kabiri Voluntary Case, is herein referred to as the “Kabiri Case”. By order entered January 16, 2004, a Chapter 11 Trustee was appointed in the Kabiri Case. On or about January 20, 2004, the United States Trustee filed a “Notice of Appointment of Chapter 11 Trustee and Setting of Bond”, appointing Harry W. Pettigrew as Chapter 11 Trustee for the bankruptcy estate of Mr. Kabiri (the “Kabiri Estate”).
On February 4, 2004 (the “LPBV Petition Date”), the Trustee, under his authority as trustee in the Kabiri Case, with Mr. Kabiri being the sole shareholder of LPBV, filed a voluntary Chapter 11 bankruptcy petition on behalf of LPBV, Case Number 04-61985 (the “LPBV Case”). On February 16, 2004 (the “CMS Petition Date”), Mr. Roberts, CRE of LBP, by and through counsel, filed an involuntary bankruptcy petition against CMS in the Bankruptcy Court, Case Number 04-62602 (the “CMS Case”). A Consent Order for Relief under Chapter 11 was entered in the CMS Case May 12, 2004. By order entered May 18, 2004, joint administration of the LPBV Case with the CMS Case (collectively, the “LPBV/CMS Cases”) was authorized under Case Number 04-61985, and this court ordered that a separate claims register be maintained in each of these cases.
After the Corporate Cases Petition Date, the Kabiri Case Petition Date, the LPBV Petition Date, and the CMS Petition Date (collectively, the “Petition Dates”) the CRE and the Trustee began to market certain assets of the LPB Estate, the LG Estate, the CMS bankruptcy estate (the
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“CMS Estate”), the LPBV bankruptcy estate (the “LPBV Estate”), and the Kabiri Estate (collectively, the “Estates”) for sale through J.H. Chapman Group, LLC (“Chapman”). On February 22, 2005, Debtors sold substantially all of their assets pursuant to notice, hearing and appropriate orders entered February 11, 2005 and February 17, 2005, (the “Sale Authorization Orders”), which specifically identified the assets sold, to Bistro Foods, Inc./Bistro Foods — PA, Inc., as designees of United Enterprise Fund (“Buyer”) in a transaction referred to herein as the “Sale.” The Sale was accomplished pursuant to the following orders:
(a) Order Approving Sale of Assets to LPB Acquisition Corporation Free and Clear of Liens, Claims, and Encumbrances entered January 24, 2005;
(b) Order Pursuant to 11 U.S.C. § 365(1) Approving Debtors’ Assumption of Executory Contracts and Non-Residential Real Property Leases and (2) Authorizing Debtors’ Assignment of Executory Contracts and Non-Residential Real Property Leases to LPB Acquisition Corporation entered January 24, 2005;
(c) Order on Expedited Motion of the Official Committee of Unsecured Creditors to Approve Back-Up Purchase Agreement and for Authority to Use Property of the Estate Outside the Ordinary Course Of Business entered January 28, 2005;
(d) Order on Joint Motion for Entry of Order Facilitating Free and Clear Sale of Assets and Assignment and Assumption of Non-Residential Real Property Leases entered February 11, 2005; and
(e) Order Authorizing Debtors’ Assumption and Assignment of Non-Residential Real Property Leases to United Enterprise Fund or Its Designee entered February 17, 2005.Page 10
(collectively, the “Sale Authorization Orders”).
The Sale generated $6,790,000.00 in proceeds. Of this amount, $390,787.09 (plus accrued interest of $213.94) was paid to Debtors to fund Debtors’ operating cash needs, approximately $40,000.00 of which remains undisbursed and available to fund the settlements proposed in the Global Settlement Motion (the “Additional Sale Proceeds”); $1,209,608.45 was paid to landlords holding undisputed pre-petition cure claims; $1,567,819.88 was paid to Merrill Lynch Business Financial Services, Inc. (“Merrill Lynch”) in full satisfaction of its first priority secured claim, including attorney’s fees; $337,572.29 was paid to GEBAF in full satisfaction of the DIP Loan authorized postpetition by order entered January 13, 2004, including attorney’s fees; $241,400.00 was paid to various secured or administrative creditors pursuant to Court-approved settlements and compromises; $910,134.78 was placed in a designated reserve for payment of post-petition cure claims, which claims were disputed by Debtors as of closing; $174,130.00 was placed in a designated reserve for disputed mechanics’ liens in the Acquired Assets, as defined in the motion for Sale Authorization orders; $100,000.00 was placed in a designated reserve for payment to any taxing entities holding ad valorem tax liens in the Acquired Assets; $1,082,741.00 was placed in a designated reserve for payment of professional fees of LCSS, AM, and AGG (as each are defined below) as provided in the Sale Authorization Orders (the “Professional Fee Reserve”); $50,000.00 was paid to United Enterprise Fund for its back-up bid fee; and $385,779.23 was placed in a designated reserve for payment of the professional fees of Chapman (the “Chapman Reserve”). The remaining $340,000.00 is held by Corporate Debtors’ counsel pending further court order.
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On June 7, 2005, Debtors filed the Global Settlement Motion. In the Global Settlement Motion, Debtors requested the following forms of relief:
• authority to settle and compromise the secured claim of GEBAF and to enter into the settlement agreement attached to the Global Settlement Motion as Exhibit “C” (the “GEBAF Settlement”);
• authority to settle and compromise the secured claim of Charter and to enter into the settlement agreement attached to the Global Settlement Motion as Exhibit “D” (the “Charter Settlement”);
• authority to settle and compromise the Inter-Estate Claims;
• authority for Debtors to substantively consolidate the Estates; and
• a finding that upon settlement and compromise of the foregoing items, the remaining Total Available Funds (as defined below) in the Estates shall be held free and clear of any liens, claims or encumbrances.
As set forth in the Global Settlement Motion, Debtors currently hold the following funds which are available for payment of claims pursuant to priorities in the Bankruptcy Code;
• $80,042.00 in undisbursed Sale proceeds;
• $2,139,755.00 in other undisbursed funds from the Corporate Cases;
• $1,980,035.00 in undisbursed funds from the Kabiri/LPBV/CMS cases.
In the aggregate, the sum of $4,199,832.00 (the “Total Available Funds”) is available for settlement and payment of claims of the Estates. The Total Available Funds are exclusive of the $174,130.00 placed in a designated reserve for disputed mechanics’ liens in the Acquired Assets; the $100,000.00 placed in a designated reserve for payment to any taxing entities holding ad
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valorem tax liens in the Acquired Assets, and $192,105.89 of the $910,134.78 placed in a designated reserve at the closing of the Sale for payment of the following disputed post-petition cure claims: $22,000.00 for attorneys fees in connection with the assumption of the leases at Cambridgeside Galleria in Cambridge, MA; $13,763.99 in connection with the assumption of the lease at Fayette Mall in Lexington, KY; $32,259.71 in connection with the assumption of the lease at Westshore Plaza in Tampa, FL; $50,650.91 in connection with the assumption of the lease at Polaris Fashion Place in Columbus, OH; $24,127.58 in connection with the assumption of the lease at Plaza Las America in San Juan, PR; $14,000.00 for attorneys fees in connection with the assumption of 14 leases managed by Simon Properties; $1,303.70 for attorneys fees in connection with the assumption of the lease at Suntrust Plaza, Atlanta, GA; $9,000.00 for attorneys fees in connection with the assumption of 2 leases managed by Westfield Concession Management, Inc.; and $25,000.00 for attorneys fees in connection with the assumption of the leases at the Philadelphia, PA airport. As of the Hearing, counsel for the Corporate Debtors held in escrow and in reserve funds totaling $466,235.89 (the “Remaining Designated Reserves”).
As set forth in Exhibit “B” of the Global Settlement Motion, Debtors propose that the Total Available Funds, which as indicated above are exclusive of the Remaining Designated Reserves, be allocated and paid as follows:
• $500,000.00 to GEBAF pursuant to the GEBAF settlement;
• $100,000.00 to Charter pursuant to the Charter settlement;
• $13,750 to Kabiri/LPBV/CMS U.S. Trustee fees;
• $837,470.77 to fund payment and a reserve for professional fees in the Kabiri/LPBV/CMS cases;
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• $1,988,580.18 to fund payment of Corporate Debtors’ professional fees as set forth in the following full paragraph; and
• $760,031.05 to fund the consolidated estates and to be disbursed pursuant to the Bankruptcy Code.
The $1,988,580.18 in Corporate Debtors’ professional fees consist of the following:
• outstanding expenses in the total amount of $26,319.65 incurred by Mr. Roberts, as Chief Restructuring Executive in capacity of receiver under authority of the District Court in the District Court Action, in connection with the pre-petition receivership estate of LPB and LG;[2]
• fees and expenses of Lamberth, Cifelli, Stokes
Stout, P.A.,[3] in the amount of $492,471.75;
• fees and expenses of Alvarez Marsal, LLC in the Corporate Cases,[4] in the amount of $921,848.43;
• fees and expenses of Arnall, Golden Gregory, LLP,[5] in the amount of $263,661.12; and
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• fees and expenses of Chapman,[6] in the amount of $284,279.23.
As set forth in proofs of claim filed July 16, 2004 in the Corporate Cases and in the Kabiri, LPBV and CMS cases, GEBAF asserts a $20,242,276.29 secured claim against the Corporate Debtors and the Kabiri, LPBV and CMS Estates. In the GEBAF Settlement, GEBAF has agreed to accept $500,000 and a release of claims from Debtors in full satisfaction of the asserted GEBAF secured claim and, upon payment, to release any and all liens, claims or encumbrances in Sale proceeds or Kabiri/LPBV/CMS funds.
As set forth in a proof of claim filed June 25, 2004, Charter asserts a $2,513,184.41 secured claim against the Corporate Debtors. In the Charter Settlement, Charter has agreed to accept $100,000 in full satisfaction of the asserted Charter secured claim and, upon payment, to release any and all liens, claims or encumbrances in Sale proceeds or Kabiri/LPBV/CMS funds.
The Estates have agreed to compromise and settle all the Inter-Estate Claims. Compromise and settlement of Inter-Estate Claims will pool assets of the various Estates, which is necessary to fund the GEBAF Settlement, the Charter Settlement, and to pay outstanding administrative expenses. The litigation costs and expenses that would be incurred by each Debtor in pursuing claims against other Debtors exceeds the amount of funds such actions would recover for any of the Estates.
In the Global Settlement Motion, Debtors request authority to substantively consolidate the Estates. Substantial identity between the Estates is shown by the following:
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• Absence of consolidated financial statements.
Prior to the Petition Dates, Debtors operated their businesses on a haphazard “all cash” basis. Payments were made directly from cash registers without any bookkeeping or accounting. Sale proceeds from the various estates were routinely combined and treated as a single pool of funds to pay all obligations of all estates. The Corporate Debtors, LPBV, and LPBV as Chairman of the Management Committee and President of CMS never prepared financial statements in any form. No consolidated financial statements showing the inter-relation of the various companies were ever prepared. Mr. Kabiri provided fraudulent personal financial statements to various entities.
• Unity of interests and ownership between various corporate entities. Prior to the Petition Dates, Mr. Kabiri was the sole shareholder of LPB, LG, and LPBV. LPBV held a 49% interest in CMS and was Chairman of the Management Committee and President of CMS.
• Existence of parent and inter-corporate guarantees on loans. Mr. Kabiri guaranteed certain financing obtained by the Corporate Debtors, including the loan giving rise to the asserted GEBAF secured claim, and certain real property leases executed by Corporate Debtors. LPB guaranteed certain lease obligations of CMS.
• Degree of difficulty in segregating and ascertaining individual assets and liabilities.
Prior to the Sale, the Estates’ assets also included intellectual property, leasehold interests and personal property. Mr. Kabiri asserted that he personally owned certain valuable intellectual property used in the businesses of each of thePage 16
Debtors, despite documentation to the contrary. The primary asset of Debtors, however, was the intangible “going concern value” of the Le Petit Bistro business concept. In fact, neither the pleadings nor the closing documents of Sale specifically identified the value of each asset conveyed; instead, the sale price reflected the overall value of the entire business enterprise, assets and concept, as a going concern. As a result, it is virtually impossible to calculate the amount of proceeds each asset, or each of the Estates, contributed to the Sale. The parts are likely worth less than the whole.
• Existence of transfers of assets without formal observance of corporate formalities. Prior to the Petition Dates, funds were transferred between the Estates without any corporate formalities. Such transfers included payment of corporate funds (including sales tax trust funds) to Mr. Kabiri and use of ordinary-course-of-business sales proceeds of one or more Estates to pay obligations incurred by one or more other Estates. Similarly, the Corporate Debtors paid substantial obligations of LPBV and CMS, so that Mr. Kabiri could personally withdraw funds from LPBV that would not otherwise have been available.
• Commingling of assets and business functions.
Prior to the Petition Dates, assets and business functions of the Estates were clearly commingled. For example, although LPB owned the rights to the Le Petit Bistro name, LPBV licensed the Le Petit Bistro name to third parties without payment to LPB. LPBV operated restaurants at which CMS was the tenant, using the Le Petit Bistro name, without paying any consideration to LPB. Moreover, LPB entered into financing agreements for the purchase of equipment and some of that equipment was placed in LG andPage 17
CMS locations, with no consideration paid to LPB. The commingling effect of such agreements and arrangements allowed Mr. Kabiri to personally withdraw funds from Debtors that would not otherwise have been available.
• Profitability of consolidation at a single physical location. After the Sale, Debtors ceased operating their businesses. To administer the remaining assets and obligations of the Estates, Debtors combined all remaining resources, such as books and records, and assets at a single physical location. Similarly, in the event of substantive consolidation, Debtors would, most likely under an appointed trustee, administer the remaining assets and liabilities of the Estates at a single physical location to minimize administrative expenses and maximize return to creditors.
• Parent owning the majority of the subsidiary’s stock. As set forth above, Mr. Kabiri was the sole shareholder of LPB, LG, and LPBV.
• Entities having common officers or directors. Mr. Kabiri was an officer and director of LPB, LG, and LPBV. LPBV was Chairman of the Management Committee and President of CMS.
• Subsidiary grossly undercapitalized. CMS, as subsidiary of LPBV, was created for the sole purpose of entering into real property leases or subleases at the Philadelphia Airport locations. The shareholders of CMS were LPBV, with a 49% interest, and Concessions Management Services of Pennsylvania, Inc., with a 51% interest. Debtors believe that Concessions Management Services of Pennsylvania, Inc. never provided CMS with working capital. LPBV operated restaurants at locations leased by CMS, retained all sale proceeds and earnings, and paid all expenses includingPage 18
CMS’s lease obligations. Similarly, LG was undercapitalized and funds of LPB were used to fund LG’s various operating needs including rent payments, payroll, and food supplies.
• Subsidiary transacting business solely with the parent. CMS entered into real property leases for locations operated by LPBV. LPBV licensed rights only to the Le Petit Bistro business concept.
• Entities disregarding the legal requirements of the subsidiary as a separate organization. As set forth above, LG and LPB did not maintain separate books and records and regularly treated assets and obligations of each as joint assets and obligations of both. LPB, LPBV, and CMS treated the Le Petit Bistro name and related intellectual property as joint assets. LPBV and CMS treated the real property leases at the Airport locations as joint assets. Mr. Kabiri treated assets and obligations of LPB, LG, LPBV, CMS, as well as his personal assets and obligations, as joint assets and obligations.
Without substantive consolidation, insufficient funds exist for the Corporate Debtors to pay outstanding administrative expenses. Without substantive consolidation, substantial additional administrative expenses would be incurred in litigating claims between the Estates, determining allocation of, as well as extent, validity, and priority of, asserted secured claims. If the Estates are substantively consolidated, funds from the Kabiri, LPBV, and CMS Estates will be available to pay administrative expenses of the Corporate Debtors and will more likely be available to satisfy at least some pre-petition claims.
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CONCLUSIONS OF LAW[7]
Based upon the facts and circumstances in these cases, including the complexity, expense, and likely duration of potential litigation, the GEBAF Settlement and the Charter Settlement are in the best interests of Debtors, the Estates, and creditors thereof. Similarly, based upon the facts and circumstances in these cases, including the complexity, expense, and likely duration of potential litigation, settlement and compromise of the Inter-Estate Claims is in the best interests of Debtors, the Estates, and creditors thereof.
Additionally, Debtors have demonstrated that substantial identity exists between the Debtors and that substantive consolidation of the Estates is necessary to prevent harm to and to realize maximum benefit from the Estates. Based upon the Findings of Fact set forth above, it can be reasonably inferred that Debtors’ creditors did not, and have not, relied solely on the credit of one of the Debtors. Substantive consolidation of the Estates is a fair and equitable result. The economic prejudice of consolidation is outweighed by the economic prejudice of continued case separation, and, as such, substantive consolidation would yield a benefit offsetting any harm it may inflict. Therefore, based upon all the facts and circumstances in these cases, and after weighing the anticipated benefits and potential harm, substantive consolidation of the Estates is appropriate under the standards set forth in Eastgroup Properties v. Southern Motel Association, 935 F.2d 245 (11th Cir. 1991). No objections to the Global Settlement Motion have been filed or advocated.
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CONCLUSION
Accordingly, based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby
ORDERED that the Global Settlement Motion is GRANTED:
• The GEBAF Settlement is approved; accordingly, Debtors and the Committee are authorized and ordered to enter into the GEBAF Settlement;
• The Charter Settlement is approved; accordingly, Debtors and the Committee are authorized and ordered to enter into the Charter Settlement;
• Debtors are authorized to settle and compromise the Inter-Estate Claims;
• On or before July 29, 2005, Mark A. Roberts as Chief Restructuring Executive of LPB and LG shall file his notice of resignation and shall file a final report with a summary narrative of his findings, and identification of transition tasks and recommendations for the Trustee. Such resignation shall not effect the validity of the existing orders authorizing the Trustee to employ Alvarez and Marsal, Inc.;
• The Estates, effective upon the resignation of Mark A. Roberts as Chief Restructuring Executive of LPB and LG, shall be deemed substantively consolidated and shall be jointly administered under Case No. 03-75441;
• Effective upon the resignation of Mark A. Roberts as Chief Restructuring Executive of LPB and LG, the Trustee on behalf of LPB and LG is authorized to take any and all corporate actions necessary to exercise control over the assets of LPB and LG, and to exercise any and all powers of a debtor-in-possession as set forth in 11 U.S.C. §§ 1107 and 1008;
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• Debtors are authorized to make the distributions and payments set forth in the Global Settlement Motion from the Total Available Funds as set forth above. Upon making such distributions and payments, the remaining Total Available Funds held by Debtors, in the total amount of $760,031.05, shall be held free and clear of any claim, lien or encumbrance;
• Counsel for the Corporate Debtors shall hold the Remaining Designated Reserves in escrow and in reserve, said funds totaling $466,235.89, with claims, liens or encumbrances to attach as set forth above.
IT IS FURTHER ORDERED that within five days of the date of entry of this order, attorney Gregory D. Ellis shall serve a copy of this Order and Notice upon attorneys for Debtors’ Estates, CRE, the Trustee, the U.S. Trustee, and all creditors and parties in interest and shall file a certificate of such service within three days thereafter.
IT IS SO ORDERED.