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HomeMy WebLinkAbout1988 08-18 Special MeetingBANNIGAN & KELLY, P.A. ATTORNEYS AT LAW 409 MIDWEST FEDERAL BUILDING STH AND CEDAR SAINT PAUL, MINNESOTA 68101 18121224.3781 JOHN F. BANNIGAN, JR. PATRICK J, KELLY JAMESJ.HANTON July 18, 1988 JANET WILEBSKI LEGAL ASSISTANT Ms. Lucille E. Aurelius Maplewood City Clerk 1830 E. County Road B Maplewood, MN 55109 Mr. Kenneth V. Collins Maplewood Police Chief 1830 E. County Road B Maplewood, MN 55109 Dear Clerk and Chief: 4 \_ RE: Maplewood Bowl Liquor License With reference to our continuing concern about the compliance of Maplewood Bowl with the liquor license ordinances and policies of the City, I am forwarding to you what I consider to be various admissions against interest. It appears that Hatton, d /b /a Maplewood Bowl, Ltd. defaulted with reference to Maplewood Bowl, Inc. (Del Benjamin) in May, 1988. It appears further that Maplewood Bowl, Ltd. had failed to pay real estate taxes in Ramsey County for 1987 and that Maplewood Bowl, Inc. has failed to pay the first -half of the 1988 real estate taxes. These two alone warrant consideration for revocation. Other pleadings in hand from the United States Bankruptcy Court reveal that Adeline Benjamin is presently managing the Maplewood Bowl. This also violates local liquor control policy. It is my suggestion that the three of us get together for the purpose of verifying the facts and making a recommendation to the Manager to convene the City Council for the purpose of considering revoking the on -sale liquor license of the Maplewood Bowl. L JB:cge Sincerely yours, UNITED STATES BANKRUPTCY COURT DISTRICT OF MINNESOTA In the Matter of MAPLEWOOD BOWL, INC., Debtor. MAPLEWOOD BOWL, INC., Plaintiff. Vs. MAPLEWOOD ENTERPRISES, INC. and ROBERT L. HALL, Defendants. -- ---- ----------- - - - - -- Case No. 3 -88 -1601 Adv. No. 3 -88- NOTICE OF MOTION AND MOTION TO: The above named defendants and Meshbesher, Singer & Spence, their attorneys. Please take notice, that the above plaintiff will move the above named Court before the Honorable Dennis O'Brien, one of it the Judges thereof, in Courtroom No. 1, Federal Courts Building, 316 North Robert Street, St. Paul, Minnesota 55101, on Monday, the 11th day of July, 1988 at 9:30 o'clock, A.M., or as soon thereafter as counsel may be heard for a Temporary Restraining Order, pursuant to Section 105(a), restraining the defendants and all entities acting for, or on their behalf from taking any steps to commence or continue any legal proceedings against Adeline Benjamin, an officer, director, stockholder and managing officer of debtor pending further hearing herein. Said Motion will be made upon all the files, records and proceedings herein, and pursuant to the provisions of Rule 7001 and following of the Bankruptcy Rules and upon the verified Complaint, a copy of I which is hereto attached and herewith served upon you. Plaintiff may offer testimony of Adeline Benjamin and James Wehmhoff, CPA at said hearing. Levy I& By: -. /VVyW4 1 V h -� James H. Levy, Esq. 570 Towle Building 330 Second Ave. South Minneapolis, MN 55401 Tele: (612) 332 -5933 Attorneys for Debtor 5 - 2 - UNITED STATES BANKRUPTCY COURT DISTRICT OF MINNESOTA In the Matter of MAPLEWOOD BOWL, INC., Debtor. To: Persons on the attached service list. Case No. 3 -88 -1601 NOTICE OF HEARING ON MOTION TO AFFIRM LEASE AND REJECT EXECUTORY CONTRACT 1) The above named Debtor, by its counsel moves the Court for the relief requested below and gives notice of hearing herewith. 2) The Court will hold a hearing on this Motion in Courtroom No. 1, Federal Courts Building, 316 N. Robert St., St. Paul, MN 55101 on Tuesday the 9th day of August, 1988 at 9:00 o'clock A. M., or as soon thereafter as counsel may be heard. 3) The Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and 1334, Bankruptcy Rule 5005 and Local Rule 113. This proceeding arises under 11 U.S.C. Section 365. Movant requests an Order approving the affirmance of a lease of non- residential real property and an Order approving the rejection of an executory contract not to compete. The Petition , commencing this Chapter 11 case was filed May 18, 1988. The case is now pending before this Court. 4) Bankruptcy Section 365 provides in relevant part that: "(a) ...... the Trustee, subject to the Court's approval, may assume or reject any executory contract or unexpired lease of the Debtor. (b)(1) If there has been a default in an executory contract or unexpired lease of the Debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee- - (A) cures, or provides adequate assurance that the trustee will promptly cure, such default; (B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the Debtor to such contract or lease, for any actual pecuniary loss to such party resulting from such default; and (C) provides adequate assurance of future performance under such contract or lease..... (d)(4) Notwithstanding paragraphs (1) and (2), in a case` under any chapter of this title, if the trustee does not assume or reject an unexpired lease of non - residential real property under which the Debtor is the lessee within sixty (60) days after the date of the Order for relief, or within such additional time as the Court, for cause, within such sixty day period, fixes, then such lease is deemed rejected, and the trustee shall immediately surrender such non - residential real property to the Lessor." 5) Debtor entered into a lease of the premises at 1955 English St., Maplewood, MN with Maplewood Enterprises, Inc. (Lessor) on or about April 1, 1980. A copy of that lease and addendum is attached hereto as Exhibit A. Defendant Robert L. Hall may have succeeded to the rights of Lessor therein. 6) Subsequently, Lessor consented to the assignment of said lease to Maplewood Bowl, Ltd. On May 2, 1988, Maplewood Bowl, Ltd. defaulted and returned the premises to Debtor. Debtor ever since has been and is in possession thereof, and operating in business therein. 7) Prior to said default, Maplewood Bowl, Ltd. had failed to pay real estate taxes to Ramsey County for 1987 in the approximate amount of $78,600.00, the Debtor has not paid the - 2 - 1st half of the 1988 real estate taxes in the approximate amount of $39,800.00. 8) Monthly rent in the amount of $9,000.00 remains unpaid since the commencement of this proceeding. 9) The business of the Debtor is highly seasonal. The number of bowlers and other customers is very substantial from September thru May, while bowling leagues are active. Most leagues do not operate during June, July and August. Debtor has a large number of leagues ready to start next September from which it will derive very substantial revenue, adequate to continue operations and satisfy the obligations of the lease. 10) Lessor has a security interest in equipment and other tangible personal property of Debtor. However, Lessor failed to file a renewal of a financing statement and the security interest became unperfected. i Lessor filed a renewal, but within 90 days of the commencement of these proceedings. Debtor is bringing a separate declaratory judgment adversary proceeding asserting that Lessor does not have a valid perfected security interest in the collateral. 11) The lease is essential to the operation of Debtor's business. Prior to the transfer to Maplewood Bowl, Ltd., there was no default. Once the bowling season resumes, Debtor will have funds to continue the lease without default. 12) Debtor has made arrangements for obtaining additional funds by sale of corporate stock and upon entry of an Order approving the affirmation of the lease, will pay in cash all rent delinquent since May 18, 1988. Any delinquent prepetition - 3 - rent (other then real estate taxes) will be paid in full on or before November 10, 1988. As to delinquent real estate taxes, Debtor proposes to deposit in a separate interest bearing escrow account the sum of $7,500.00 or more per month beginning in September 1988. Said deposit with accrued interest will be used to pay delinquent real estate taxes and for no other purpose. 13) As and for additional assurance of future performance, Debtor will dismiss with prejudice its action to determine that Lessor's interest in tangible personal property is a pre- preferential transfer and will acknowledge that Lessor has a valid perfected security interest therein to secure future lease obligations. 14) At the time of the purchase of the business and assets from Maplewood Enterprises, Inc., Debtor entered into a non - compete agreement with Robert L. Hall. A copy of that agreement is attached herein as Exhibit B. 15) Said agreement is an executory contract. Breach of the agreement by Hall would justify termination of further payments by Debtor. 16) Said contract is burdensome on the Debtor, diverts substantial revenue for a purpose which produces no immediate value, and reduces Debtor's funds available for current operations. In the interest of increased cash flow and profitability, Debtor wishes to reject the balance of said contract. - 4 - WHEREFORE, Debtor prays for an Order: 1) Authorizing Debtor to assume the lease attached as Exhibit A upon immediate payment of rent delinquent from May 18, 1988; 2) Authorizing Debtor to cure delinquent real estate taxes by depositing in a separate interest bearing account the sum of $7,500.00 per month or more beginning in September 1988. Said funds and interest to be used as soon as possible to pay said.,, taxes; 3) Authorizing Debtor to dismiss with prejudice its adversary proceeding against Lessor and to make, execute and deliver to Lessor a security agreement and financing statement concerning Debtor's tangible personal property, as security for the performance of the lease; and 4) Authorizing Debtor I to reject the executory non - compete contract with Robert L. Hall effective as of May 18, 1988. Levy & Miller B !�" f`� Ronald J. Walsh 570 Towle Building 330 Second Ave. South Minneapolis, MN 55401 Tele: (612) 332-5$33 Attorneys for Debtor - 5 - VERIFICATION STATE OF MINNESOTA ) ss. COUNTY OF RAMSEY ) ADELINE BENJAMIN, being first duly sworn on oath, deposes and says, that she is the Secretary- Treasurer of the above -named Maplewood Bowl, Inc., that she has read the foregoing Motion to Affirm Lease and Reject Executory Contract, and knows the contents thereof and the same is true and correct to the best of her knowledge, information and belief. RONALD JOHN WALSH W .!1 MOTARI' M1000 — W Wl80TA RAMSEY COUNTY MT O C T WXN'wn ExPft* J* 2Z IK3 Subscribed and sworn to before me this _ I day of ✓ , 1988. Nota Public Adeline Benjamin/ V - 6 - UNITED STATES BANKRUPTCY COURT DISTRICT OF MINNESOTA Maplewood Bowl, Inc., Bky. No. 3 -88 -1601 Chapter 11 Debtor. UNSWORN DECLARATION FOR PROOF OF SERVICE I, Lois Ann Mixer, employed by Levy & Miller, 570 Towle Building, 330 Second Avenue South, Minneapolis, Minnesota 55401, declare that on July 7, 1988, I served a Notice of Hearing on Motion to Affirm Lease and Reject Executory Contract, a Verif- ication, Findings and Order Approving Debtor's Assumption of Non - Residential Lease and Rejection of Executory Contract, Exhibit A, Exhibit B, and the Unsworn Declaration for Proof of Service upon each of the persons named on the attached service list by mailing to them each a copy thereof and by enclosing same in an envelope with first class mail postage prepaid and depositing same in the post office at Minneapolis, Minnesota. And I declare, under penalty of perjury, that the foregoing is true and correct. Executed July 7, 1988 ttois Ann UNITED STATES BANKRUPTCY COURT DISTRICT OF MINNESOTA In the Matter of MAPLEWOOD BOWL, INC., Case No. 3 -88 -1601 FINDINGS AND ORDER APPROVING DEBTOR'S ASSUMPTION OF NON- RESIDENTIAL LEASE AND REJECTION OF EXECUTORY CONTRACT Debtor. The Motion of the Debtor for a hearing and an...Order Approving Debtor's assumption of a non - residential lease with Maplewood Enterprises, Inc. and rejection of an executory contract with Robert L. Hall came on for hearing before the undersigned Bankruptcy Judge on August 9, 1988, pursuant to notice dated July 7, 1988. James H. Levy Esq. appeared on behalf of the Debtor. Otheriappearances are noted in the minutes of the Court. Upon all the files, records and proceedings herein, and being fully advised in the premises, and pursuant to the Provisions of Section 365 of the Bankruptcy Code, the Court finds: 1). Debtor is prepared to pay post petition rent immediately, 2). Debtor's proposal for payment of pre - petition rent and real estate taxes is a cure within a reasonable time within the meaning of Section 365, 3). Debtor is capable of future performance without further default, 4). Debtor's proposal to secure future performance by granting a security agreement in tangible personal property provides adequate assurance of future performance. UPON SUCH FINDINGS IT IS ORDERED: 1. The.Debtor is authorized to assume its lease with Maplewood Enterprises, Inc. or Robert L. Hall for non - residential real property located at 1955 English"Street, Maplewood, Minnesota, according to its terms. 2. The Debtor is authorized to reject its executory non- compete contract with Robert L. Hall dated April 1, 1980. 3. As adequate assurance of a prompt cure of all defaults under the lease and as security for future performance under the same, the Debtor is authorized to grant a perfected security interest in personal property of the Debtor to Maplewood Enterprises, Inc. or Robert L. Hall. Dated: Gregory F. Kishel I U.S. Bankruptcy Judge - 2 - UNITED STATES BANIMUPTCY COURT DISTRICT OF MINNESOTA In the Matter of MAPLEWOOD BOWL, INC., Debtor. MAPLEWOOD BOWL, INC., Plaintiff. VS. MAPLEWOOD ENTERPRISES,INC. and ROBERT L. HALL, Defendants. Case No. 3 -88 -1601 Adv. No. 3 -88- COMPLAINT Plaintiff for its Complaint against Defendants, alleges: 1) Plaintiff is a Minnesota corporation operating a bowling lane and related activities at 1955 English St., Maplewood, MN. Defendant, Maplewood Enterprises, Inc. or defendant Robert L. Hall as As successor, is lessor of the premises and holds a security interest in tangible personal property of plaintiff, which plaintiff claims is unperfected. Robert L. Hall is the principal of Maplewood Enterprises, Inc. and party to a non - compete agreement with plaintiff. Plaintiff also owes Maplewood Enterprises, Inc. a balance on an original purchase price. 2) The lessee's obligation under the lease, the non -,, compete agreement and the sale agreement were guaranteed personally by shareholders of plaintiff. To secure said guarantees, they pledged to Defendant Hall their corporate shares in the plaintiff. 3) One of the said shareholders is Adeline Benjamin. She is Secretary- Treasurer of the Plaintiff. She holds shares of stock representing 35% of the outstanding shares. 4) Said Adeline Benjamin has been designated as operating manager of the plaintiff as debtor -in- possession and has agreed to serve in such capacity at a monthly salary of $5,000.00. To secure said payment, 251 shares of stock have been issued to her, the other shareholders have personally guaranteed the corporate obligation and assigned their stock to Adeline ^ Benjamin, subject to an existing pledge to Hall, to'secure their guarantees. 5) Because of defaults in the lease, non- compete agreement and purchase price installments, defendants have threatened to proceed against the individual guarantees and exercise defendant's rights to forecloFe on the corporate shares. 6) Plaintiff is informed and believes that unless enjoined and restrained, defendants will proceed against shareholders, will attempt to become majority shareholders, remove the current directors, cause the election of new officers, and dismiss this proceeding. As a result, debtor will suffer irreparable harm; its equity and its assets will be lost to the detriment of its other creditors, it will lose the opportunity of curing existing defaults and carrying on its business and proposing a confirmable Plan of Reorganization. 7) To the extent that defendants take any action against Adeline Benjamin personally, any suit on her guarantee or foreclosure of her shares, she will be substantially impeded in - 2 - her ability to operate and manage plaintiff's business; her time and effort will be diverted, she may be harassed with process, discovery, depositions and similar matters, all to the detriment of plaintiff, its estate and its other creditors. 8) Plaintiff has or will file a motion to assume the lease. Plaintiff's cash flow is temporarily reduced because of the seasonal nature of the bowling business. Plaintiff anticipates that.its cash flow will substantially increase beginning in September and that it will be able to service its obligations without further default and satisfy defendants in full in a reasonably prompt period of time. 9) No prior application for this relief has been filed herein. WHEREFORE,' pursuant to 11 U.S.C. Section 105 (a), Plaintiff prays for an order of this Court; I a) Enjoining and restraining Defendants from taking any action against Adeline Benjamin or her assets, pending further order of this Court; b) Awarding plaintiff such other, further and sufficient relief necessary to the foregoing, as may be appropriate Levy & Miller / By: %s�l✓ James H: Levy Ronald J. Walsh 570 Towle Building , 330 Second Ave. South Minneapolis, MN 55401 Attorneys for Plaintiff - 3 - VERIFICATION STATE OF MINNESOTA COUNTY OF RAMSEY ss. ADELINE BENJAMIN, being first duly sworn on oath, deposes and says that she is the Secretary- Treasurer of the above named Maplewood Bowl, Inc., that she has read the foregoing Complaint and knows the contents thereof and the same is true and correct to the best of her knowledge, information and belief. RONALD JOHN WALSH y NOTAIIY nr.uC - MINNESOTA RAMSEY COUNTY yT pm""W" 23.1203 Subscribed and sworn to before me this & day of ;� , 19 Notary Public Adeline Benjamir}/ - 4 - UNITED STATES BANKRUPTCY COURT DISTRICT OF MINNESOTA in the Matter of MAPLEWOOD BOWL INC., Debtor. MAPLEWOOD BOWL, INC., Plaintiff. vs. MAPLEWOOD ENTERPRISES, INC. and ROBERT L. HALL, Defendants. ------------- ---- - - - - - -- Case No. 3 -88 -1601 Adv. No. 3 -88- MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR TEMPORARY INJUNCTION This adversary proceeding is brought by Plaintiff to obtain injunctive relief from the Court, restraining the Defendants k from exercising any State remedies or State Court proceedings they may have against Adeline Benjamin. The Debtor is protected by the provisions of Section 362. Adeline Benjamin is not at this time a Debtor in any proceeding. The officers and shareholders of the Debtor, Deleano Benjamin, Adeline Benjamin, Gladys Restorff, and Fred Dahlin, ( "guarantors ") each individually guaranteed obligations of „the Debtor to the Defendants named herein. The Defendants have alleged that the Debtor is in default of its obligations to the Defendants thereby subjecting the guarantors to liability for the default. Defendants have indicated through their attorney that they are considering legal action to pursue the above named non - debtor individuals on their personal guarantees. The defendants have expressed a particular desire to foreclose on the stock of the Debtor owned and pledged by the above individuals to the defendants to secure their personal guarantees. A copy of the stock pledge is attached herein as exhibit A. Debtor asserts that an attempt by the defendants to pursue Adeline Benjamin and execute upon her non - exempt assets would so interfere with its operation that it would be unable to continue its business and reorganize itself for the benefit of its creditors. Any type of lawsuit or foreclosure that would divert Adeline Benjamin and her personal resources from the day to day operations of the Debtor would substantially interfere with the ongoing operations of the Debtor and would be an indirect violation of Section 362. kj There are a number of Bankruptcy decisions in which Courts have issued such injunctions. Co- defendants of Debtor who are officers, directors or key employees of the Debtor have been allowed a stay in virtually every reported case. In Hunter Savings Assn v Georgetown of Kettering Ltd.. 14 BR 72 (Ohio 1981), a mortgagee wanted to foreclose on a Debtor's property. The Court found that the mortgage was in default, and that all co- makers (the Debtor and several non - debtor partners) were liable, but ruled that all comakers in the Debtor company were subject to the Bankruptcy .Court's jurisdiction, and entitled to an extension of the stay. Hunter savings at 78. since - 2 - executing judgments would have reduced the amount of money left for the Debtor to reorganize, a stay extension was necessary. Id at 80. A New York case involved the director of a union benefits fund who sued to recover wage supplement contributions from a bankrupt corporation and its president. In Re U.S. Air Duct Corp. 8 BR 848 (N.D.N.Y. 1981). The Court cited 1 Collier Section 3.01 at 3 -49 as interpreting Section 105 as being "limited only by whether the civil proceeding arises under, arises in, or is related to, the Title 11 case." Air Duct at 851. By way of defining what constituted "related ", the Court stated the "fundamental question . . is whether the . . claims against the Non - debtor will or will not effect (sic) the U Debtor's assets and /or liabilities." Id,. at 851. For this determination the Court offered a broad criterion: whether the claim "could conceivably have any effect upon the estate. Id. at 851. The Judge found that an action against Air Duct's president would indeed affect the estate, and allowed the State to forestall actions against the President. But the case most closely on point and most supportive of the one at bar is certainly In Re Otero Mills. Inc. 25 BR 1018 (N.M.D.C. 1982). There a Debtor sought a stay precluding actions against its president: a lower Court granted the stay after finding that judgment against the president would affect the disposition of the Debtor's estate. The Order permanently - 3 - enjoined creditor Security Bank and Trust from executing or collecting on a judgment already rendered against the president. That Otero Mills blocked creditors from executing a judgment, rather than from pursuing one, is an important distinction for Maplewood Bowl's case. Most of the other cases involve Courts staying actions to save a non - debtor the time and expense of enduring a trial; Otero Mills expressly concerns the possible economic effect on the Debtor of having a key officer pay out a judgment. The New Mexico District Court affirmed the lower Court's extension of the stay. It stated that Section 105 had repeatedly been held to allow a Court to enjoin parties from suing non - debtors. It dismissed Aboussie as an aberrant exception and asserted that the decision relied on the old Bankruptcy Act. Otero Mills 1021. "The new Code, the Court held, gave Bankruptcy Courts jurisdiction of all civil proceedings "in State Court against non - bankrupts where the State proceeding is related to a case arising under Title 11." And when was a proceeding sufficiently related? The lower Court held that 'Ito so enjoin a Creditor's action against a third party, the Court must find that failure to enjoin would (affect) the Bankrupt estate and would adversely or detrimentally influence and pressure the Debtor through that third party." In Re Otero Mills 21 BR 777, 778 cited in Otero Mills 25 BR 1018,1020. It should be noted that this statement - 4 - merely grants jurisdiction over such "related" actions to the Bankruptcy Court: it does riot necessarily require that a stay be extended. Nevertheless, both the lower Court and the affirming District Court held here that the President, also a shareholder, was necessary for reorganization, as was his financial contribution -- therefore actions against him were related to Otero Title 11 proceeding, and the President was entitled to a stay. The Court suggested a slightly varied version of the traditional test for preliminary injunctions. It is said the non - debtor seeking a stay must show: (1) irreparable harm would result in the absence.of a stay; (2) probable success on the merits (here interpreted to mean probable success at u reorganization); (3) little harm to others: (4) the public interest. Otero Mills 25 BR 1018, 1021. Otero, the Court held, had demonstrated each of the above. Whether enforcement against assets not necessary for reorganization, was a matter left for the trier of fact to decide. The District Court was affirming two separately reported decisions on the same case: 21 BR 777 and 21 BR 645 (1982). Otero Mills has been cited occasionally since its decision, usually for its four -part test. Even in cases rejecting an extension of a stay, though, Otero's test has been considered valid. In Re century Machine Too1G Inc , 33 BR 606 (Fla. 1983) concerned a President of a bankrupt corporation whose wages were - 5 - being garnished to cover debts. Though the Court declined to give the President the protection of a stay, it approved the Ot test, and found that in the case before it, it could not be said that "irreparable harm" would result. . century ac i e at 607. The test was appropriate; the Debtor had simply not carried its burden of proof. Likewise, In Re Landmark Air Fund II 19 BR 556 (Ohio 1982) refused to issue an injunction preventing actions against seven individual partners of a Debtor partnership. Though it agreed that Section 105 indeed allowed any necessary stay, the facts of the present case Landmark Air at resources of the that could possi obligations. Id. did not warrant an extension of the stay. 557. The primary reason: the combined partners were "far in excess" of any amount bly be required to satisfy the Debtor's at 558. 11 In reaching its decision, the Court relied on First Federal and the Otero Mills test. Notwithstanding the limits imposed by Section 362, the Court ruled, Section 105 allows any necessary action; any holding by Aboussie to the contrary is erroneous, since that Court failed even to consider the effect of Section 105. As for the Otero test, the court found: (1) no irreparable harm would result, since each partner could get contribution from the others; (2) there was no likelihood of success in reorganization, since the company's sole capital -- one plane ' which it leased -- had been repossessed. Having thus failed the test, the partners lost their attempt to gain injunctive relief. - 6 - The johns- Manville Court has also expressly allowed officers to gain equitable protection. in Re Johns - Manville Corp, 26 BR 420 (S.D.N.Y. 1983). In one of the early procedural actions of the ongoing case, officers, employees, insurers and sureties of the beleaguered corporation asked Judge Lifland's Court to extend Manville's stay to include them. Lifland held that while Section 362 protects only the Debtor, Section 105 lets the Court do whatever is necessary and appropriate. Citing U.S. Air Duct Lifland found that suits against officers were in fact derivative of claims against Johns - Manville. He then allowed the stay to apply to 25 key officers to be designated by Manville to allow them to prepare for reorganization without the time and cost of preparing discovery for their own trials. He was also quick to dittinguish the case cited above in which he denied an extended stay to non- Manville co- defendants. Johns - Manville at 428. In the case against officers, he ruled the "true object is the Debtor itself," and suits against employees merely constituted tries at circumventing the provisions of Section 362. Id. at 428. Whereas an adverse judgment against the co- defendants would not have affected the estate of the Debtor, suits against key Manville officers could easily affect reorganization and the payment of claims. Id 429. The Court did not allow stays for the insurers however. Shortly thereafter, Judge Lifland issued a Counter -Order amending the above decision. Where the original holding had - 7 - protected only 25 key employees, he now substituted language prohibiting all entities from "commencing, conducting or continuing (suits against any) officer, director or employee" of Manville or its insurers. In Re Johns- Manville Cora. 33 BR 254, 264 (S.D.N.Y. 1983). In short, he found s4i employees of the corporation so related to the action that he felt they must be protected under Manville's stay. Though the Fifth Circuit later overturned the stay as it applied to insurers, it left the Court Order intact as regarding all Manville employees. 706 F.2d 541. Most recently, the Fifth Circuit held that it was within the power of a Bankruptcy Court to stay actions against insurers and executives if the insurance was the property of the estate. In Re Davis 730 F.2d 176 (5th Circuit 1984). Intact insurance coverage was necessary, the dourt ruled, "as a bulwark against erosion of the estate." Davis at 185. Much of the Fifth Circuit's adjudicating in the asbestos cases has come under fire and appeal, however, so it does not provide the most stable of bases on which to rest Maplewood Bowl, Inc.'s case. Based upon the above authority, Judge John Connelly in In Re Pacific Management Systems Corp (Minn 1984), granted an injunction against executing on a judgment obtained against a non - debtor officer of the Debtor. The facts of that decision are essentially the same as Maplewood Bowl, Inc. A copy of that Order is attached as exhibit B. - 8 - The Debtor believes the Defendants intend to pursue the guarantors on all possible claims they may have as a result of the Debtor's alleged defaults. These claims are certainly derivative of claims against the Debtor and attempt to circumvent the protection of Section 362. The Defendants objective is to realize on the assets of the Debtor. As a practical matter, the guarantors only assets of any real value are their shares of the Debtor and the personal property owned by the Debtor. It is both necessary and appropriate that Adeline Benjamin should be granted injunctive relief under Section 105 from any attempts to realize on her personal property as a result of alleged defaults by the Debtor. Any legal process instituted by the Defendants to realize on their collateral or the guarantor's other personal assets will necessarily interfere with Adeline Benjamins ability to effectively operate and reorganize the Debtor. Debtor takes the position that Adeline Benjamin is indispensable to the reorganization of the Debtor because of her particular knowledge of the Debtor's business and proven record of successful management of this Debtor. Debtor argues that if the Defendants are allowed to pursue Adeline Benjamin for her shares, the Debtor will necessarily lose its greatest asset. Specifically, the Debtor will lose the services of Adeline Benjamin that are vital for the Debtor's reorganization. The non - debtor's position also meets the Otero criteria for a preliminary injunction against the defendants. (1) The Debtor will suffer irreparable harm if injunctive relief is not granted to Adeline Benjamin Adeline Benjamin will have to expend time and resources defending against actions brought against her personally by the Defendants that are better spent on the Debtor's reorganization. The Debtor's current operations are in a precarious state because of the seasonal nature of the bowling business and the manner in which Debtor came into the control of the present shareholders. Adeline Benjamin must devote large amounts of time, effort and resources towards keeping the Debtor in operation until the fall leagues begin. The Debtor's only chance of reorganization will be lost if the Debtor's key manager and employee must divert her attention from operating and rehabilitating the'Debtor to defending personal suits brought by the Defendants that are actually a disguised attempt to collect from the Debtor during the Chapter 11 case. If the Debtor loses Adeline Benjamin it will not survive until September and will suffer irreparable harm in that it will lose many of its fall leagues and will have no chance at reorganizing. (2) The Debtor is likely to succeed at its reorganization > The Debtor's past success when operated by Adeline Benjamin shows the Debtor is likely to succeed and prosper in its re- organization if she remains responsible for the Debtor's operation and management. - 10 - J Defendan . ts The actions contemplated by the Defendants are motivated for their own pecuniary gain. There will not be any harm done to anyone but the Defendants. This harm, if any, may be that the Defendants will not be able to realize upon their collateral during the Chapter 11 case. The Defendants will not lose their collateral, rather they will merely be prevented from doing indirectly what Section 362 prevents them from doing directly. If the Debtor's motion for injunctive relief is granted, the Defendants will remain in the same secured position they are already in for the duration of the Chapter it case. If the motion is denied, then the Defendant's will be able to improve their secured position to the detriment of the estate if they are able to successfully fordbloss on Adeline Benjamin's shares As mentioned in number 3 above, the Defendants are threatening actions that will allow them to circumvent the Stay of Section 362. The public interest in enforcing Section 362 as a tool of reorganization is plainly obvious. If creditors "are allowed to perform an end run around the stay then the whole purpose of Chapter 11 reorganization will be lost. This particular Debtor will not have a prayer of successfully reorganizing if the defendants are given the opportunity of - 11 - and thereby owning the Debtor. I diverting the time and resources of Adeline Benjamin away from the Debtor. If the Defendants are able to foreclose on their collateral, the Debtor will quickly lose its indispensable officer and employee as she will be replaced by the Defendants. Based upon the foregoing authorities and arguments, the Court should grant the relief sought by the Debtor. Respectfully submitted, Dated: July. -', 1988 LEVY & MILLER B James H. Levy 570 Towle Building 330 Second Ave. South Attorneys for the Debtor Tele: (612) 332 -5933 it 0 - 12 - TO: Michael A. McGuire, City FROM: Bannigan & Kelly, P.A., DATE: August 3, 1988 RE: Licenses to sell alcoholic English Street, Maplewood Manager and Maplewood City Council Maplewood City Attorneys beverages at The Maplewood Bowl, 1955 There is probable cause to believe that the person presently licensed to sell non - intoxicating malt liquor, at retail, and intoxicating liquor for consumption on -sale at the Maplewood Bowl, 1955 English Street, Maplewood, is no longer the manager /proprietor of the establishment for which the licenses were issued. In April and May of this year, certain proceedings in unlawful detainer were commenced by Maplewood Enterprises, Inc. (hereinafter Mplwd. Entrps. /Robert L. Hall) as fee owner of record against Maplewood Bowl, Inc. (hereinafter Mplwd. Bowl /Del Benjamin) as purchaser from Mplwd. Entrps. /Robert L. Hall and Maplewood Bowl, Ltd (hereinafter Mplwd. Bowl, Ltd /Robert A. Hatten) as purchaser from Mplwd. Bowl /Del Benjamin. As a-result of the unlawful detainer proceedings, Mplwd. Bowl /Robert Hatten was evicted by court order dated May 4, 1988 thereby terminating licensee Hatten's legal right to occupy the leased premises. Additionally, the court entered an order effective May 28, 1988 evicting Mplwd. Bowl /Del Benjamin. At the hearing on the unlawful detainer, the judge asked "Who is Mr. Hatten ?" His attorney, Russ Jensen, replied "he's the Maplewood Bowl, Limited. The license is in his name and has to be in the personal name of the party." Jensen had previously advised the Court that "we - -my client, was unable to continue with the operation of the Bowl, so we're turning it over -- back to Maplewood Bowl, Incorporated." In conclusion, when the Court inquired whether Mplwd. Bowl /Robert Hatten objected to the immediate issuance of a writ of restitution, Jensen replied "no, we have no objection on an immediate writ." The writ of execution /eviction issued immediately. With the above information in hand, Chief Collins went to the Maplewood Bowl to investigate whether the licensee /Hatten was performing as manager in possession. The Chief was advised by several employees that Robert Hatten had not been seen by them on the premises in several months. During the period May 4 through May 28, 1988 while the writ of restitution to evict Mplwd. Bowl /Del Benjamin was pending, Mplwd. Bowl /Del Benjamin filed a voluntary petition in bankruptcy, Chapter 11, thereby staying the eviction. In its pleadings in bankruptcy court, Mplwd. Bowl /Del Benjamin represented that on May 2, 1988 Mplwd. Bowl /Robert Hatten defaulted and returned the premises (The Maplewood Bowl) to debtor ( Mplwd. Bowl /Del Benjamin) who ever since has been and is now in possession thereof and operating in business therein. Again, in its pleadings, Mplwd. Bowl /Del Benjamin represented to the bankruptcy court that Adeline Benjamin has been designated as operating manager of Mplwd. Bowl /Del Benjamin and has agreed to serve in such capacity at a monthly salary of $5,000.00. There is no mention in the bankruptcy court pleadings of a management agreement with the former licensee, Robert Hatten. Maplewood Bowl, Inc. was required in the bankruptcy proceedings to identify its managers and managing executives. Other than identifying Adeline W. Benjamin, there is no reference to Robert Hatten. in these proceedings. As of April 30, 1988 delinquent real estate taxes due and payable in 1987 were $77,931.40 and real estate taxes due and payable May 15, 1988 were $39,313.27, none of which have been paid. The City staff has probable cause to believe that the nominal licensee, Robert Hatten, has abandoned the Maplewood Bowl, 1955 English Street and that Mplwd. Bowl /Robert Hatten have been evicted from the premises. Mplwd. Bowl /Del Benjamin has regained possession of the Maplewood, Bowl. The staff has probable cause to believe that Adeline W. Benjamin is the person presently managing the bowling alley restaurant cocktail lounge. She is not a licensee. Maplewood Code, Section 5 -83(a) "No license granted under this article person ... without the consent of the resolution passed by the Council." Adeling W. Benjamin and not Robert therefore, without a license. which provides in pertinent part: shall be transferable from person to Council, which consent shall be by The apparent managing proprietor is Hatten. The current operator is, Maplewood Code, Section 5.36 in pertinent part provides: "... it shall be unlawful to sell non - intoxicating malt liquors, at retail, in the city, except when licensed under this article." Maplewood Code, Section 5.37 in pertinent part provides: "licenses under this article shall be issued only to persons who are citizens of the United States and who are of good moral character and repute, who have attained the age of 19 years and who are proprietors of the establishments for which the licenses are issued." The present nominal license holder, Robert Hatten, is no longer the proprietor of the establishment for which the license was issued. This section has been violated. RECOMMENDATION: It is the recommendation of the undersigned that the City Council set the date, time and place for a public hearing to take testimony relative to the proposed revocation of the alcoholic beverages licenses for The Maplewood Bowl, 1955 English Street, Maplewood. The grounds for the proposed revocation are: 1) The licensee has abandoned the licensed premises; r 2) The current managing proprietor, Adeline W. Benjamin, is unlicensed and has made no application to obtain a license. The undersigned further recommends that the public hearing to consider the proposed revocation take place on Thursday, August 18, 1988 at 5:00 p.m., CDST, in the Council chambers of the Maplewood City Hall, 1830 E. County Road B., Maplewood. Notices of the hearing should be mailed to the following: 1) Maplewood Enterprises, Inc., c/o Robert L. Hall, 7330 101st Street North, White Bear Lake, Minnesota 55110; and 2) Maplewood Enterprises, Inc., c/o Gerald M. Singer, Attorney at Law, 1616 Park Avenue, Minneapolis, Minnesota 55404; and 3) Maplewood Bowl, Inc., 1955 English Street, Maplewood, Minnesota 55109; and 4) Maplewood Bowl; Inc., c/o Richard L. Matykiewicz and Gerald C. Rummel, Attorneys at Law, 1100 Capital Centre (386 North Wabasha Street, St. Paul, Minnesota 55102; and 5) Maplewood Bowl, Inc., c/o Deleano D. Benjamin, 20365 Hughes Avenue West, Box 644, Lakeville, Minnesota 55044; and 6) Maplewood Bowl, Inc., Attn: Adeline W. Benjamin, 18465 Ixonia Avenue, Lakeville, Minnesota 55044; and 7) Maplewood Bowl, Inc., Attn: Gladys Restorff - Ratzlaff, 18505 22nd , Avenue North, Plymouth, Minnesota 55447; and 8) Maplewood Bowl, Ltd., 1200 E 55337; and Highway 13, Burnsivlle, Minnesota 9) Robert Hatten and Maplewood Attorney at Law, 1300 Capital Centre, Minnesota 55102. Bowl, Ltd, c/o Russell J. Jensen, 386 North Wabasha Street, St. Paul, cge