20-10161-jlg Doc 531 Filed 06/26/20 Entered 06/26/20 15:44 ...20-10161-jlg Doc 531 Filed 06/26/20 Entered 06/26/20 15:44:31 Main Document Pg 1 of 50. 2 . PLEASE TAKE FURTHER NOTICE

Hearing Date and Time: July 16, 2020 at 11:00 am Objection Date and Time: July 9, 2020 at 4:00 p.m.

George R. Pitts (pro hac vice admission) BIRCH HORTON BITTNER & CHEROT, P.C. 1100 Connecticut Ave., N.W., Suite 825 Washington, D.C. 20036 T 202.862.8349 • F 202.659.1027 [email protected] Attorney for United Natural Foods, Inc. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------- In re:

FAIRWAY GROUP HOLDINGS CORP, et al., Debtors.

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Chapter 11 Case No. 20-10161 (JLG) (Jointly Administered)

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NOTICE OF MOTION OF UNITED NATURAL FOODS, INC. TO REQUIRE DEBTORS TO ASSUME OR REJECT CUSTOMER DISTRIBUTION AGREEMENT

PLEASE TAKE NOTICE that a hearing on the annexed motion (the “Motion”) of United

Natural Foods, Inc. (“UNFI”) for an order requiring the Debtors (as defined in such Motion) to

assume or reject that certain Customer Distribution Agreement dated as of June 13, 2016 by and

among such Debtors and UNFI no later than five (5) business days after entry of an order by the

Court requiring such assumption or rejection, all as more fully set forth in such Motion, will be

held telephonically before the Honorable James L. Garrity, Jr., United States Bankruptcy Judge,

United States Bankruptcy Court for the Southern District of New York, Courtroom 601, One

Bowling Green, New York, New York 10004 (the “Bankruptcy Court”) on July 16, 2020 at 11:00

am (Eastern Time), or as soon thereafter as counsel may be heard.

20-10161-jlg Doc 531 Filed 06/26/20 Entered 06/26/20 15:44:31 Main Document Pg 1 of 50

mailto:[email protected]

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PLEASE TAKE FURTHER NOTICE that all parties wishing to appear at, or participate

in, such telephonic hearing must refer to the Bankruptcy Court’s guidelines for telephonic

appearances and make arrangements with Court Solutions LLC at (646) 760-4600 or at

https://court-solutions.com/.

PLEASE TAKE FURTHER NOTICE that any responses or objections to the relief

sought in the Motion must be in writing, shall conform to the Federal Rules of Bankruptcy

Procedure and the Local Rules of the Bankruptcy Court and shall be filed with the Bankruptcy

Court (i) by attorneys practicing before the Bankruptcy Court (including attorneys admitted pro

hac vice) electronically in accordance with General Order M-399 (found at

www.nysb.uscourts.gov) and (ii) by all other parties on a CD-ROM, in text searchable portable

document format (“PDF”) with a paper copy delivered directly to chambers, in accordance with

the customary practices of the Bankruptcy Court and General Order M-399. Such responses or

objections shall, to the extent applicable, be served in accordance with that certain Order

Implementing Certain Notice and Case Management Procedures [ECF no. 201] so as to be filed

and received no later than July 9, 2020 at 4:00 p.m. (Eastern Time).

PLEASE TAKE FURTHER NOTICE that if no responses or objections are timely filed

and served, UNFI may, after July 9, 2020, submit to the Bankruptcy Court an order substantially

in the form of the order annexed to the Motion, which order may be entered by the Bankruptcy

court without further notice or opportunity to be heard.

PLEASE TAKE FURTHER NOTICE that objecting parties must attend the Hearing,

telephonically or in person, as the case may be, and failure to attend may result in relief being

granted against such objecting parties by default.


https://court-solutions.com/

http://www.nysb.uscourts.gov/

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Dated: June 23, 2020 Washington, District of Columbia

Respectfully submitted, /s/ George R. Pitts

George R. Pitts BIRCH HORTON BITTNER & CHEROT, P.C. 1100 Connecticut Ave., NW Suite 825 Washington, DC 20036 Telephone: (202) 659-5800 Email: [email protected] Counsel for United Natural Foods, Inc.



Hearing Date and Time: July 16, 2020 at 11:00 am Objection Date and Time: July 9, 2020 at 4:00 p.m.

George R. Pitts (pro hac vice admission) BIRCH HORTON BITTNER & CHEROT, P.C. 1100 Connecticut Ave., N.W., Suite 825 Washington, D.C. 20036 T 202.862.8349 • F 202.659.1027 [email protected] Attorney for United Natural Foods, Inc. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------- In re:


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MOTION OF UNITED NATURAL FOODS, INC. TO REQUIRE DEBTORS TO ASSUME OR REJECT CUSTOMER DISTRIBUTION AGREEMENT

United Natural Foods, Inc. (“UNFI”) hereby moves the Court for an order requiring the

Debtors (as defined in paragraph 2, below) to determine whether to assume or reject that certain

Customer Distribution Agreement dated as of June 13, 2016 by and among such Debtors and

UNFI, and to file a motion seeking approval of such assumption or rejection, no later than five (5)

business days after entry of an order by the Court requiring such assumption or rejection. In

support of this motion, UNFI presents the following facts and arguments.

I. FACTUAL AND PROCEDURAL BACKGROUND

1. The debtors herein filed their petitions under Chapter 11 of the Bankruptcy Code on

January 23, 2020 (the “Petition Date”) and have continued to operate their businesses

as debtors in possession since that date. The bankruptcy cases of the various debtors



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are being jointly administered under Case No. 20-10161 (JLG), In re Fairway Group

Holdings Corp.

2. Under the terms of the Agreement, UNFI supplied groceries to debtor Fairway

Group Central Services LLC and various debtors listed in Schedule “A” to the

Agreement (collectively, for purposes of this motion, the “Debtors”) for the

operation of their supermarket businesses prior to the Petition Date. A true and

correct copy of the Agreement is attached hereto as Exhibit 1.

3. The Agreement states that UNFI shall be “Customer’s ‘Primary Supplier’ of organic

and natural food Products,” Agreement, Section 1, and “Customer” is defined by the

Agreement to mean Debtor Fairway Group Central Services LLC and the sixteen

(16) “Customer Stores” listed in Schedule “A” to the Agreement.

4. Effective March 10, 2020, UNFI and the Debtors entered into an Amendment to

Customer Distribution Agreement (“Amendment”) governing postpetition supply

arrangements between UNFI and the Debtors. A true and correct copy of the

Amendment is attached hereto as Exhibit 2. The Amendment preserves the right of

the Debtors to assume or reject the Agreement and terminates upon the occurrence

of various events, including without limitation, assumption or rejection of the

Agreement by the Debtors. Amendment, Sections 3, 4 and 5.

5. The Amendment further provides that UNFI may file a motion to require assumption

or rejection of the Agreement from and after the last date “for approval of the sale of

any Customer Store…” and that such motion, if filed, cannot be brought on for

hearing “prior to the closing of the last approved sale of a Customer Store.”

Amendment, Section 5.


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6. On or about April 20, 2020, the Court entered orders [ECF Nos. 445, 448 and 449]

approving the sale of eight (8) Customer Stores and a parking lot for one Customer

Store, as follows: (i) Fairway Broadway, Fairway Pelham, Fairway East 86th Street,

Fairway Kips Bay, Fairway Chelsea and the parking lot for Fairway Uptown to

Village Super Markets, Inc. (“Village”); (ii) Fairway Georgetowne to Seven Seas

Georgetowne LLC (“Seven Seas”); and (iii) Fairway Woodland Park and Fairway

Paramus to Amazon Retail LLC (“Amazon”). Neither Village, Key nor Amazon

sought to require assumption by the Debtors of the Agreement in connection with

these sales. Upon information and belief, each of these purchasers is making its own

supply arrangements with respect to the organic and natural food products covered

by the Agreement.

7. The last closing dates established in the Village, Seven Seas and Amazon purchase

contracts (attached as exhibits to the respective orders approving the sales) are May

6, 2020, June 30, 2020 and June 30, 2020, respectively. See, e.g., Village purchase

contract, Section 2.4; Seven Seas purchase contract, Section 8.1(b)(ii); and Amazon

purchase contracts, Section 2.4. It appears that the initial closing under the Village

purchase contract did occur on May 6, 2020. See ECF No. 500 at paragraph 5.

8. Upon information and belief, Customer Stores Fairway Nanuet and Fairway Lake

Grove ceased operations on or prior to the Petition Date and are not debtors in these

bankruptcy proceedings.

9. After giving effect to the foregoing closings and sales, the remaining Customer

Stores receiving services from UNFI under the Amendment are: Fairway Uptown,

Fairway Group Plainview, Fairway Red Hook, Fairway Stamford, Fairway


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Douglaston and Fairway Westbury – six (6) of the original sixteen (16) Customer

Stores (“Remaining Customer Stores”).

10. On or about May 21, 2020, the debtors in these bankruptcy cases filed a motion

[ECF No. 488] seeking approval of their retention of a “liquidation consultant,” such

approval to be nunc pro tunc to May 12, 2020, for the purpose of managing going

out of business sales for the Remaining Customer Stores. This motion was

subsequently granted by the Court [ECF No. 518]. The contract with the liquidation

consultant contemplates that the liquidation sales in the Remaining Customer Stores

will be completed on or about June 30, 2020. ECF No. 488, Exhibit A at Section 3.

11. Thus, of the original sixteen (16) Customer Stores under the Agreement, two (2)

were out of business by the Petition Date, eight (8), plus the parking lot for another,

are subject to contracts of sale approved by the Court and closing, at the latest, by

June 30, 2020 and the remaining six (6) are to be supervised by a liquidation

consultant who will be running liquidation sales that will be completed by June 30,

2020. There is hence no prospect that the Debtors can assume the Agreement and

there is no reason to delay the decision on assumption or rejection any further.

II. ARGUMENT

12. This Court has jurisdiction over the matters raised in this motion under 28 U.S.C.

Sections 157 and 1334, and this is a core proceeding as defined in 28 U.S.C. Section

157(b). Venue is proper in this district and division pursuant to 29 U.S.C. Sections

1408 and 1409.

13. It is not disputed between UNFI and the Debtors that the Agreement is an executory

contract, subject to assumption or rejection under Section 365 of the Bankruptcy


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Code, as suggested, if not confirmed, by the provisions of the Amendment. Under

the facts and circumstances described above, the Debtors should be required to

assume or reject the Agreement earlier than time that would otherwise be allowed

under Section 365(d)(2) because (i) forcing early assumption or rejection under the

circumstances of this case is consistent with the factors identified in In re Dana

Corporation, 350 B.R. 144, 147 (Bankr. S.D.N.Y. 2006) and (ii) as a result of

decisions made by the Debtors themselves, the Agreement cannot be assumed and

there is hence no reason to delay the decision to reject any further. In what follows,

each of these arguments will be considered individually.

14. In its decision in In re Dana Corporation, this Court identified a list of factors to be

considered in evaluating whether to shorten the time a debtor has to decide whether

to assume or reject an executory contract. Those factors are: (i) the importance of

the contract in question to the debtor’s business and reorganization; (ii) the debtor’s

failure or ability to satisfy postpetition obligations; (iii) the nature of the interests at

stake; (iv) the balance of harm to the parties; (v) whether the debtor has had

sufficient time to assess its financial situation and make decisions concerning the

potential value of its assets in connection with a plan; (vi) the safeguards afforded to

the parties; (vii) any damage to the non-debtor contract party; (viii) whether there is

a dispute as to whether the contract is in fact executory; (ix) whether exclusivity has

been terminated; (x) whether the proposed action is in derogation of the provisions

of the Bankruptcy Code; and (xi) the purposes of Chapter 11. Id.


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15. Certain of these factors can be dealt with summarily because they are not significant

in this case. There is no dispute that the Agreement is an executory contract (factor

viii) and exclusivity has not been terminated in these bankruptcy cases (factor ix).

16. When the remainder of the Dana factors are reviewed, they favor granting UNFI’s

motion. First, as a result of the actions taken by the Debtors in these bankruptcy

cases, the Agreement at most affects a limited number of stores that will be closed

by June 30, 2020 and thus is not an important executory contract for the Fairway

debtors, given the current posture of these bankruptcy cases (factor i). Second, while

the Debtors have thus far made the payments required of them under the

Amendment, the Debtors cannot meet the requirements for assumption of the

Agreement without continuing operating businesses, nor would it be in their

economic interests to assume the Agreement under those circumstances (factor ii).

Third, because the Debtors are not in a position to assume the Agreement, the

question becomes how long can UNFI be reasonably forced to continue performing

when facing an inevitable rejection of the contract under which performance is being

required. For as long as UNFI is extending credit under the Amendment there is a

risk that payments will not be made, adding to the substantial amount of payments --

$2,305,047 -- that the Debtors decided (even while able to do so) not to make before

filing their bankruptcy cases. On the other hand, the risk to the Debtors is non-

existent if their liquidation sales are completed within the period they themselves

have identified – that is, by June 30 – because the rejection decision will not need to

be made until after that date. Balancing the interests at stake therefore favors

shortening the time to reject (factors iii, iv, vi and vii). Fourth, the Debtors have had


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ample time, within the schedule set by themselves and their secured lenders, to

decide whether to assume or reject the Agreement, and have now effectively and

already decided to reject it (factor v). Fifth, the schedule of events in these Chapter

11 cases has been dictated by the Debtors, in accordance with plans worked out with

their secured lenders before the filing of these cases. The actions taken by the

Debtors – the sale of some stores and the liquidation of others – have been taken by

the Debtors in the exercise of their business judgment, as affected by the

circumstances of these cases. The result of those decisions has been to place the

Debtors in a position where assuming the Agreement simply makes no sense because

their operating stores have been sold to others and their only remaining stores are

being liquidated and closed. It is therefore entirely consistent with the provisions of

the Bankruptcy Code to shorten the time within which the Debtors may assume or

reject the Agreement and there is no reason to wait for presentation and

consideration of the inevitable liquidating plan that will provide for rejection of the

Agreement (factors x and xi).

17. Thus, when the relevant Dana factors are considered, they favor shortening the time

to assume or reject the Agreement.

18. While analysis of the Dana factors should be dispositive of the matters raised in

UNFI’s motion, there is a second reason that it should be granted: by their actions in

these bankruptcy cases, the Debtors have made assumption of the Agreement

impossible and because the conditions that make assumption impossible are not

excused by Section 365(b)(2) of the Bankruptcy Code, it is appropriate to shorten the

time for the Debtors to assume or reject the Agreement.


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19. The Agreement provides that UNFI “shall be Customer’s ‘Primary Supplier’ of

organic and natural food…” and Customer is defined in the Agreement to mean

Fairway Group Central Services LLC and the sixteen (16) “Customer Stores” listed

in Schedule A to the Agreement – that is, UNFI’s undertakings in the Agreement are

predicated upon its supplying 16 stores, and thereby achieving the sales volumes,

associated with 16 stores, not fewer than 16, and certainly not zero. Satisfaction of

this condition represents a non-monetary obligation of the Debtors under the

Agreement that cannot be cured by the Debtors because all of the stores supplied

under the Agreement have either been closed, sold or are in the process of being

closed. While Section 365(b)(2) excuses non-compliance with monetary penalties

associated with non-monetary obligations under an executory contract, it does not

excuse compliance with the non-monetary obligations themselves. Section

365(b)(2)(D); In re Empire Equities Capital Corp., 405 B.R. 687, 690-91 (Bankr.

S.D.N.Y. 2009). Thus, in order to assume the Agreement, the Debtors must cure not

only the substantial monetary defaults thereunder, but also the non-monetary

obligation with respect to the number of their stores. Empire Equities, 405 B.R. at

691.

20. Empire Equities involved a failure to satisfy a “time is of the essence” obligation to

tender an additional down payment under a purchase option. Citing New York law

to the effect that failure to timely satisfy “time is of the essence” conditions was a

material default the court did find that the default was “curable” through the

extension of time provided by Section 108(b) of the Bankruptcy Code, thereby

vindicating the strategy of the debtor in filing the bankruptcy case. Empire Equities,


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405 B.R. at 691-93. However, it is clear from the decision in Empire Equities that,

had the extension of time provided by Section 108(b) not been involved, the default

would have been both material and incurable. Id. at 691.

21. In re New Breed Realty Enterprises, Inc., 278 B.R. 314 (Bankr. E.D.N.Y. 2002),

cited with approval in Empire Equities, confirms that, without the benefit of Section

108(b), the situation in Empire Equities would result in an incurable default that

would preclude assumption of the applicable contract. New Breed Realty, 278 B.R.

at 320-323 (discussing cases). In this case, the number of stores to which UNFI was

to be the primary supplier is material to the contract and, certainly, and more

generally, having operating stores as opposed to stores that are in the process of

closing would be material to any contract to supply those stores. Under the

circumstances of this case, then, the Debtors cannot cure a material non-monetary

obligation under the Agreement and there is hence no reason to postpone assumption

or rejection of the Agreement until the plan confirmation process in these cases.

22. UNFI does not seek to disrupt the Debtors’ liquidation sales and therefore seeks a

decision on assumption/rejection after the Debtors have indicated those sales should

have been completed (June 30, 2020) and after any remaining store sales should

have closed (also June 30, 2020). A form of order granting the relief requested

herein is attached hereto as Exhibit 3

WHEREFORE, UNFI prays that the Court enter an order (i) requiring the Debtors to

determine whether to assume or reject the Agreement, and to file a motion seeking approval of

such decision, within five (5) business days of entry of the Court’s order granting this motion and


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(ii) awarding it such other and further relief in consideration of this Motion as may be appropriate

under the circumstances of this case.

Dated: June 23, 2020 Washington, District of Columbia

Respectfully submitted, /s/ George R. Pitts

George R. Pitts BIRCH HORTON BITTNER & CHEROT, P.C. 1100 Connecticut Ave., NW Suite 825 Washington, DC 20036 Telephone: (202) 659-5800 Email: [email protected] Counsel for United Natural Foods, Inc.



EXHIBIT 1






























EXHIBIT 2






EXHIBIT 3


UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

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ORDER PURSUANT TO SECTION 365(d)(2) OF THE BANKRUPTCY CODE REQUIRING DEBTORS TO ASSUME OR REJECT CUSTOMER DISTRIBUTION

AGREEMENT

This matter came before the Court on the Motion (“Motion”) [ECF No. ___] of United

Natural Foods, Inc. (“UNFI”) for an order requiring the Debtors, as defined in the Motion, to

determine whether to assume or reject that certain Customer Distribution Agreement dated as of

June 13, 2016, between the Debtors and UNFI (the “Agreement”), and file a motion seeking

approval of such assumption or rejection, within five (5) business days of the entry of this Order,

all as more fully set forth in the Motion.

IT APPEARING to the Court that it has jurisdiction to consider the Motion under 28

U.S.C. Sections 157 and 1334; that the Motion is a core proceeding as defined in 28 U.S.C.

Section 157(b); that proper notice of the Motion was provided in accordance with the Court’s

Case Management Order [ECF No. 201]; that such notice was adequate and appropriate under

the circumstances of this case and that no further notice need therefore be provided;

AND IT FURTHER APPEARING, after review of the Motion and a hearing conducted

on July 16, 2020 to consider the relief requested in the Motion, that the Motion should be


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granted, based upon the record, and for the reasons stated by the Court, at such hearing; and good

cause appearing therefor,

IT IS ORDERED THAT

1. The Motion is granted.

2. The Debtors, as defined in the Motion, shall, no later than five (5) business days after

entry of this Order, (i) determine whether to assume or reject the Agreement and (ii) file a

motion seeking approval of that decision with the Court.

3. The Court retains jurisdiction to consider all matters relating to the interpretation,

implementation or enforcement of this Order.

Dated: July __, 2020 New York, New York __________________________ Hon. James L. Garrity, Jr. United States Bankruptcy Judge


Documents

20-10161-jlg Doc 531 Filed 06/26/20 Entered 06/26/20 15:44 ...20-10161-jlg Doc 531 Filed 06/26/20 Entered 06/26/20 15:44:31 Main Document Pg 1 of 50. 2 . PLEASE TAKE FURTHER NOTICE