By Jeannie O'Sullivan

Law360 (June 4, 2020, 9:10 PM EDT) -- A New Jersey bankruptcy judge agreed Thursday to another suspension of Modell's Sporting Goods Inc.'s Chapter 11 case, which was initially derailed by COVID-19-prompted store closures and is now complicated by the widespread unrest that followed the May 25 killing of George Floyd in Minneapolis.

Several of the retailer's locations were looted over the past week, U.S. Bankruptcy Judge Vincent Papalia noted in agreeing to extend the bankruptcy's stay until June 15. Modell's had sought the stays because the coronavirus restrictions on nonessential retail torpedoed its ability to hold going-out-of-business sales that would generate cash for post-petition costs like rent.

Thursday's order marks the second time the judge agreed to extend the stay of the case, which was filed just days before the pandemic forced the temporary closure of most shopping destinations in March. While the coronavirus restrictions on retail are now being lifted in several states, the judge said, the "undeniably difficult and unprecedented circumstances" haven't completely abated.

"Instead, they continue to exist in varying degrees in varying locations and have been exacerbated ... by the tragic events that happened in Minneapolis," Judge Papalia said.

The impacted stores were in New Jersey, New York and Pennsylvania, among other states, according to Modell's attorney Michael Sirota of Cole Schotz PC. Despite the property damage in inventory loss at those stores, the company is still moving forward with its liquidation sale plans that will be subject to social distancing and other precautions.

"We're not waiting for the green light and then react, we're reacting right now," Sirota said.

Sirota also said Modell's and its landlords have been working with a mediator to negotiate rent payments, which has been the largest bone of contention in the case. Landlords had balked at the retailer's initial budget proposal that delayed rent payments until August, and still raised objections Thursday despite a modified spending plan that would make some payments due in June.

Attorney Edward M. Fox of Seyfarth Shaw LLP, representing a group of landlords, expressed concern that the liquidation sales weren't guaranteed because the mass gatherings of protesters could prompt a resurgence of the coronavirus.

"The concern is that effectively all the promises of payment contained in the budget are ephemeral, and may end up ultimately meaningless. It could leave the landlords little or nothing of what we negotiated," he said.

Windows were smashed in one of his client's stores, he added.

"While nobody can predict anything, it does sound like the debtor is moving to get going," Judge Papalia replied.

In its Chapter 11 petition in mid-March, Modell's bemoaned the challenging retail environment as it detailed more than $100 million in debt and plans to liquidate all of its stores. The retailer operates 134 stores on the East Coast.

The coronavirus shutdowns happened shortly thereafter, and Modell's secured from the court a 30-day suspension of the case March 27. Judge Papalia agreed to a 30-day extension of the pause on April 30, given that COVID-19 retail restrictions weren't likely to be lifted anytime soon. 

The landlords represented by Fox are appealing the pause orders.

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

The landlord group appealing the pause is represented by Edward M. Fox, James S. Yu and Nascine C. Howell of Seyfarth Shaw LLP.

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 the U.S. Bankruptcy Court for the District of New Jersey.

--Editing by Bruce Goldman.

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