A group of creditors still owed money from the Haggen bankruptcy had their day in court, but it did not go in their favor.
U.S. Bankruptcy Court Judge Kevin Gross ruled that while “it is unnerving” that the Haggen expansion failed in a matter of months, those involved in the project were not grossly negligent and certainly meant for the Bellingham-based grocer to succeed. That’s according to court documents released on Monday.
The creditors filed the lawsuit in September 2016, alleging that the majority owner of Haggen, Comvest Group Holdings, covertly siphoned away valuable real estate assets that Haggen acquired from Albertsons to the benefit of the private equity firm.
According to the complaint from the committee of unsecured creditors of HH Liquidation LLC, more than $100 million was still owed to suppliers, landlords and laid-off employees.
The case, which was heard in the U.S. Bankruptcy Court in Delaware, was the result of a complex and turbulent period in Haggen’s history. After Comvest bought an 80 percent stake in 2011, the Haggen grocery chain shrunk from 30 stores 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 buying 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.
Expanding from 18 stores to 164 proved to be an “unmitigated disaster” for Haggen, according to the original complaint. Eight months after the purchase was finalized, Haggen filed for Chapter 11 bankruptcy in September 2015. 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 2016 to Albertsons, which was the only qualified bidder. The remaining Haggen stores joined Albertsons in June 2016, with 15 stores retaining the Haggen name.
Gross ruled that to some degree the people in charge of the Haggen expansion were not prepared to follow through. However, people who enter into “foolish” transactions but who are acting in good faith are protected.
“The Committee made a strong case but, at the end of the day failed to establish gross negligence or self-dealing or the existence of any fraudulent transfers,” Gross said in the 166-page court ruling.
Emails sent to the lead attorneys involved in the case were not immediately returned.