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Judge OKs settlement for Giordano's, franchisees

by Aviva Gat  |  Published September 7, 2011 at 5:13 PM

The relationship between Giordano's Enterprises Inc. and its franchisees has been baked to perfection.

Judge Eugene R. Wedoff of the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago approved a settlement between the Chicago pizza chain and 51 franchisees on Tuesday, Sept. 6, according to Giordano's Chapter 11 trustee, Philip V. Martino of Quarles & Brady LLP.

Martino said an order will be filed shortly.

The terms of the settlement won't be disclosed in court documents. Wedoff also granted a motion on Tuesday authorizing the debtor to file the settlement terms under seal. According to the order, the previous owners of Giordano's, John and Eva Apostolou, will have access to the settlement.

Martino filed an adversary complaint against 51 franchisees on July 27, alleging 10 counts including interference with prospective economic advantages, conspiracy, malicious breach of contract, breach of franchise agreement and violation of the automatic bankruptcy stay. Martino didn't accuse every franchisee of every charge. The only count all franchisees are allegedly guilty of is failing to pay royalties to Giordano's.

Martino moved the court to order the franchisees to pay all royalties due, find that the defendants willfully violated the automatic stay and impose sanctions for the costs incurred by the trustee in pursuing the adversary complaint.

The trustee filed two settlements with franchisees on Aug. 3, one with Pizza in Minooka Inc. and the other with Stephano's Pizza on Sheridan Inc. and John Daoulas.

Wedoff approved the Minooka settlement on Aug. 10, which dealt mostly with rental payments, and the Stephano's Pizza on Sheridan settlement was withdrawn and expanded to include the other franchisees.

Under the settlement with Stephano's and Daoulas, the franchisees agreed to pay monthly royalty payments to Giordano's. Should the franchisees fail to make a payment on time, their franchise agreement would be immediately terminated.

Martino is also finalizing a settlement with two joint venture store operators. Martino said the terms of the settlement were finalized on Tuesday and that it will be filed with the court soon.

Wedoff was also scheduled to consider a motion by Fifth Third Bank to impose sanctions against the Apostolous and their three children on Tuesday, but the hearing was continued to Sept. 21.

The bank asked the court to determine that the Apostolous and their lawyer, Zane Smith of Zane D. Smith & Associates Ltd., are in contempt of court for filing a complaint in the Circuit Court of Cook County, Ill.

The family on Aug. 3 sued the bank, along with Martino, former officers and directors and 47 Giordano's franchisees, alleging that the Apostolous have suffered "shareholder oppression," fraud and conspiracy to "weaken" the Giordano's name.

Several parties since have filed joinders to the bank's motion. Martino has also fought back, filing a motion to enforce the automatic stay against the Apostolous on Aug. 19. In the motion, Martino said the Apostolous have interfered with his administration of the Giordano's estate.

The Apostolous, who were ordered to stay away from Giordano's on May 12, filed their response to Martino and the bank on Aug. 23, asserting a court order restraining them from being involved in the debtor does not halt them from filing litigation in state court.

Giordano's and 32 affiliates filed for Chapter 11 on Feb. 16. The company blamed its filing on a 2005 failed attempt to open six new stores in Florida.

Today the company operates six company-owned stores and has four joint venture stores and 35 franchised locations. Giordano's also operates Americana Foods Inc., which is the commissary for food products purchased by the Illinois locations.

Martino is looking to sell the company or the real estate of branches in the Chicago area. No sale motion had been filed with the court as of Wednesday morning. Martino said no sale motion will be filed until all the settlements are approved by the court.

Martino's current deadline to submit an asset purchase agreement is Sept. 14, according to an amendment to the debtors' debtor-in-possession loan, which was approved by the court on Aug. 16. Martino, however, said that deadline will be extended further. He declined to disclose when the new deadline would be.

Fifth Third Bank provided the $35.98 million DIP.

In schedules filed April 1, the Chicago debtor listed $59,387 in assets and $45.5 million in liabilities.

Christopher Combest of Quarles & Brady represents Martino.
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Tags: bankruptcy | Chicago pizza | Giordano's

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Aviva Gat

Senior Reporter: Bankruptcy

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