A group of creditors still owed money from the Haggen bankruptcy is going after the grocer’s previous owner in court.
The lawsuit filed in a Delaware Bankruptcy Court on Wednesday, Sept. 7, alleges that Comvest Group Holdings covertly siphoned away valuable real estate assets that Haggen acquired from Albertsons to benefit Comvest and not be used to pay back creditors.
$100 million Amount still owed to suppliers, landlords and laid-off employees, according to lawsuit.
Describing the deal that allowed Haggen to purchase 146 stores from Albertsons in January 2015 as a “convoluted Machiavellian scheme,” the complaint says Comvest was more interested in a real estate play rather than expanding Haggen. According to the complaint, about $100 million is still owed to suppliers, landlords and laid-off employees. The lawsuit seeks to access those assets to pay those debts to unsecured creditors.
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Relying on this complex structure, “Comvest tried to slink away from the smoldering ruins of Haggen with more than $100 million dollars’ worth of real estate assets,” according to the complaint.
Comvest, a Florida-based private equity firm, bought a majority stake in Haggen in 2011. In the first two years of ownership Comvest shrunk the number of stores from around 30 to 18.
In 2014 Safeway agreed to merge with Albertsons. In order to get approval from the Federal Trade Commission, Albertsons was forced to divest some of its stores. Comvest became interested in purchasing 146 of those stores for Haggen, and a deal was announced in December 2014. The purchase price for those 146 stores was $309 million, according to court documents.
A phone message left for Louis Colosimo at Comvest Partners on Tuesday, Sept. 20 was not immediately returned. Attorneys who filed the lawsuit did not comment beyond what was written in the complaint, citing the pending case.
Expanding from 18 stores to 164 proved to be an “unmitigated disaster” for Haggen, according to the court document. Eight months after the purchase was finalized, the Bellingham-based grocer filed for Chapter 11 bankruptcy. The company closed, auctioned off or sold 135 stores between August 2015 and December 2015, leaving 29 core stores, including five in Whatcom County. Those 29 core stores were auctioned off in March to Albertsons, which was the only qualified bidder. The remaining Haggen stores joined Albertsons in June 2016, with 15 stores retaining the Haggen name.
The complaint from the unsecured creditors, known has HH Liquidation LLC, alleges that Comvest essentially financed the acquisition by quickly flipping some of the real estate it bought from Albertsons. Comvest then “concocted a series of complex and inter-dependent transactions designed to strip away the real estate assets to be acquired” from Albertsons and put them in separate entities and out of reach of potential creditors, according to the complaint.
While focusing on creating this complex group of entities, Comvest didn’t come up with a good plan for combining the Haggen and Albertsons markets to create a 164-store company, according to the complaint. In April 2015, Haggen was faced with the prospect of remodeling and opening 64 stores in an eight-week period.
“The plan for a small regional chain to acquire 146 stores and reopen them under a different brand in an abbreviated time frame was ambitious beyond reason,” the complaint stated.
As Haggen reopened the stores, many customers were unhappy with the results, the complaint indicated.
“Thousands of customers were driven away because, among other things, the price points imposed by Haggen for its products were too high for Albertson’s former customers, and Haggen failed to develop and implement a positive retail experience for the new communities it was entering,” according to the complaint.