950 Meat & Grocery Inc., 617 B.R. 224

Background:

Debtor (950 Meat & Grocery Corp.) entered into a 2012 APA, Sublease, and Security Agreement with General Trading Co., Inc. (GTC) and affiliate Grocery Leasing Corp. (GLC); all agreements governed by New Jersey law.
Agreements included a Supply Covenant requiring the Debtor to purchase all store inventory from GTC; Security Agreement cross‑secured affiliate obligations.
In October 2017 the Debtor began purchasing ~95% of inventory from Key Food instead; General issued default notices and GLC terminated the Sublease effective March 13, 2018; Debtor remained in possession.
GTC/GLC sued in New Jersey state court alleging possession and contract claims; the Debtor and affiliated entities asserted counterclaims; discovery was completed and a bench trial was set for March 2, 2020.
The Debtor filed chapter 11 on Feb. 27, 2020, three days before trial, triggering the automatic stay; GTC/GLC moved for relief from stay to continue the state court action.
The Bankruptcy Court granted relief from the stay to allow the New Jersey action to proceed (finding Sonnax factors favored lifting the stay) but limited any money judgment collection to this bankruptcy proceeding.

Issues:

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether to lift the automatic stay to allow the New Jersey state court trial to proceed	General: continue the fully‑litigated, multi‑party trial where all claims and parties are present; promotes judicial economy	Debtor: continuation prejudices creditors, risks duplicate/inconsistent litigation, harms reorganization	Lifted: court found Sonnax factors (judicial economy, readiness for trial, multi‑party dispute, state court familiarity with NJ law) favor relief; stay lifted with limited caveat on collection
Whether non‑debtor claims and defendants’ counterclaims can proceed despite the stay	General: claims against non‑debtors and counterclaims are not stayed and must proceed to resolve the whole controversy	Debtor: proceeding will prejudice the estate and creditors	Proceed: court held automatic stay doesn’t bar actions against non‑debtors or debtor’s counterclaims; allowing state court trial avoids piecemeal resolution
Whether the Sublease was terminated pre‑petition and thus is not assumable by the debtor	GLC: Sublease terminated pre‑petition for defaults (including supply covenant breach), so no lease to assume	Debtor: any breach is curable by a monetary cure and lease can be assumed/assigned	State court to decide: bankruptcy court noted it cannot finally adjudicate the termination question in a business‑judgment assumption decision; if terminated pre‑petition under non‑bankruptcy law, it is not assumable
Whether equitable subordination of General’s claim applies due to alleged retaliatory conduct	Debtor: General acted in bad faith and should be equitably subordinated	General: exercised contractual rights; not an insider/fiduciary	Denied: court found no basis for equitable subordination (no fiduciary duty/insider status); factor did not support continuing stay

Key Cases Cited

Sonnax Indus., Inc. v. Tri Component Prods. Corp., 907 F.2d 1280 (2d Cir. 1990) (enumerates factors for determining “cause” to lift automatic stay)
Teachers Ins. & Annuity Ass’n of Am. v. Butler, 803 F.2d 61 (2d Cir. 1986) (automatic stay does not apply to non‑bankrupt codefendants)
In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir. 1993) (bankruptcy court’s assumption decision is a business judgment, not a final adjudication of underlying contract disputes)
Schneiderman v. Bogdanovich (In re Bogdanovich), 292 F.3d 104 (2d Cir. 2002) (not all Sonnax factors are relevant in every case)
Mazzeo v. Lenhart (In re Mazzeo), 167 F.3d 139 (2d Cir. 1999) (same principle on Sonnax factor relevance)
In re Nassau Assocs., 169 B.R. 832 (Bankr. S.D.N.Y. 1994) (discusses standards for equitable subordination)
In re Keene Corp., 171 B.R. 180 (Bankr. S.D.N.Y. 1994) (court need not assign equal weight to Sonnax factors)