Anti-Mask Diner Asks To End Ch. 11 After Health Suit Transfer

By Jeff Montgomery
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Law360 (February 2, 2021, 8:56 PM EST) -- A Pittsburgh-area restaurant that sought Chapter 11 protection while battling county health officials over COVID-19 mask mandates sought dismissal of the case Monday, arguing that the transfer of the regulatory dispute to another court rendered the bankruptcy pointless.

In a court filing with the U.S. Bankruptcy Court for the Western District of Pennsylvania, owners of The Crack'd Egg acknowledged that the casual dining restaurant's Chapter 11 filing was "primarily due" to Allegheny County Health Department demands for a shutdown pending compliance with health rules.

"With the remand of the ACHD dispute to state court, and the consequent termination of the stay of the ACHD dispute, the instant Chapter 11 case serves no purpose," the restaurant said in its motion for dismissal.

The restaurant filed for protection on Oct. 9, 2020, reporting less than $50,000 in assets at the time and more than $100,000 in liabilities. The bankruptcy was preceded by an almost two-month suspension of the restaurant's permit to operate because of repeated violations of public health protection orders.

County officials sought relief from bankruptcy's automatic stay of litigation and an order from the court to shut the restaurant down until it adopts a "satisfactory" COVID-19 protection plan. The agency said it would forgo monetary sanctions if required for the court to approve the shutdown, but the dispute was eventually transferred to the county's Court of Common Pleas.

In an opinion on Jan. 7, U.S. Bankruptcy Judge Jeffery A. Deller said the court would lift the stay and decline to enter the "fray" over the constitutionality of mask and public health mandates. The judge also observed that the restaurant's objection to the COVID-19 control measures "does not lend itself to an obvious ruling in the debtor's favor."

The decision also noted that The Crack'd Egg had the option of seeking relief in the U.S. District Court for the Western District of Pennsylvania via a civil rights complaint the restaurant already was pursuing.

"With an ability to operate, debtor does not need reorganization to address its debt obligations. If debtor is deprived of the opportunity to operate, it will not be able to propose a feasible plan," the restaurant's motion for dismissal said. It added that conversion to Chapter 7 liquidation would be no better, noting that it now has $80,000 in assets and $90,000 in liabilities.

"There is nothing left to do in this Chapter 11 case, there would be nothing to administer in a Chapter 7 case and a dismissal of this case is warranted and in the best interests of all parties in interest," the motion said.

A hearing on the dismissal motion is scheduled for Feb. 23.

Counsel for the restaurant did not immediately respond to a request for comment.

The Crack'd Egg is represented by James R. Cooney, Robert O. Lampl, Sy O. Lampl, Alexander L. Holmquist and Ryan J. Cooney of Robert O. Lampl Law Office.

Allegheny County and its health department are represented in-house by Frances M. Liebenguth. The health department is additionally represented in-house by Vijyalakshmi Patel.

The case is In re: The Cracked Egg LLC, case number 20-22889, in the U.S. Bankruptcy Court for the Western District of Pennsylvania.

--Additional reporting by Grace Dixon, Joyce Hansen and Diamond Naga Siu. Editing by Adam LoBelia.

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