Modell's Gets Pause In Chapter 11 Due To COVID-19

By Jeannie O'Sullivan
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Law360 (March 27, 2020, 6:03 PM EDT) -- A New Jersey bankruptcy judge agreed Friday to suspend Modell's Sporting Goods Inc.'s Chapter 11 case through April 30, a request the retailer made after shutdowns of nonessential businesses, prompted by COVID-19, scuttled its ability for now to conduct liquidation sales that would help fund postpetition expenses like rent.

Frequently emphasizing the unprecedented nature of the coronavirus crisis during a telephone hearing, U.S. Bankruptcy Judge Vincent F. Papalia praised the "herculean" efforts of attorneys representing Modell's and its creditors, including landlords who won't get rent that's due April 1.

Modell's had modified its original 60-day pause request to roughly a month after certain creditors balked at the length of time. Judge Papalia noted the shortened time frame, saying that "not everybody is 100 percent satisfied, but people are much more satisfied than they were."

"I have the utmost faith and confidence that we will continue to work together," Judge Papalia said during the hearing. Another hearing is scheduled April 30.

During the suspension hearing, which began Wednesday, attorneys representing Modell's store landlords expressed concern about the modified budget the retailer submitted with its suspension request. The budget delays April and May rent payments until August.

The retailer's suspension request cited U.S. bankruptcy code's Section 305, which permits suspensions if "the interests of creditors and the debtor would be better served" by the move.

Attorney Edward M. Fox of Seyfarth Shaw LLP, which represents Modell's landlords in Brooklyn, Staten Island and Philadelphia, proposed adding language to the suspension order indicating that the rent delays would be subject to Section 365(d)(3), which sets a 60-day limit on deferrals of obligations connected to unexpired leases.

"We do have concern about the effect of the approval of the modified budget," Fox told the court.

Judge Papalia said he hadn't decided yet if relief under Section 305 would suspend Section 365(d)(3) orders, adding "I don't think any of us has had enough time to research it."

The jurist also emphasized that the modified budget is only approved throughout the 30-day suspension period.

"Everything else after that is fair game, as we've said numerous times, and as I think the order already says," Judge Papalia.

However, the judge acknowledged the definite possibility that Modell's could ask for an extension on April 30.

"I think we're dealing with uncertainty on top of uncertainty," Judge Papalia said at one point.

Modell's doesn't view the landlords in "us versus them" terms, Modell's attorney Michael D. Sirota of Cole Schotz PC told the court.

Sirota noted that the company for now can't access the stores.

"Hopefully we can get relief and reopen the stores as soon as possible," Sirota said.

In its March 11 Chapter 11 petition, the 131-year-old sporting goods giant bemoaned the challenging retail environment as it detailed more than $100 million in debt and plans to liquidate all its stores. Modell's operates locations in New York, New Jersey, Pennsylvania, Connecticut, Rhode Island, Massachusetts, New Hampshire, Delaware, Maryland, Virginia and Washington, D.C.

The company has partnered with Tiger Capital Group LLC to liquidate its remaining 134 stores, according to court records. Modell's had touted the "beyond spectacular" returns from the liquidation of its first 19 stores, expressing confidence the continued liquidations would maximize return for the creditors.

But the government-mandated coronavirus shutdowns have made liquidations impossible for now, according to the retailer's March 23 suspension request, which initially asked for a 60-day pause.

Modell's is represented by Michael D. Sirota, David M. Bass and Felice R. Yudkin of Cole Schotz PC.

The official committee of unsecured creditors is represented by Jeffrey Cohen and Nicole A. Fulfree of Lowenstein Sandler LLP.

The case is In re: Modell's Sporting Goods Inc., case number 2:20-bk-14179, in U.S. Bankruptcy Court for the District of New Jersey.

---Additional reporting by Bill Wichert and Rich Archer. Editing by John Campbell.

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