IN THE UNITED STATES BANKRUPTCY COURTbb liquidating inc., et al.,1 ... case no. 10-14997 (brl) (jointly administered) response to debtors’ sixth omnibus objection to claims and request

555 West 59th

Street

New York, New York 10019

Telephone: (508) 320-4956

[email protected]

Gino G. Tonetti, Esq.

Counsel for Gino and Dione Tonetti

d/b/a Tonetti Enterprises, LLC

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

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In re:

BB LIQUIDATING INC., et al.,1

Debtors.

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Chapter 11

Case No. 10-14997 (BRL)

(Jointly Administered)

RESPONSE TO DEBTORS’ SIXTH OMNIBUS OBJECTION TO CLAIMS

AND REQUEST FOR PAYMENT OF GINO TONETTI AND DIONE TONETTI

D/B/A TONETTI ENTERPRISES LLC’S ADMINISTRATIVE EXPENSE CLAIM

Gino Tonetti and Dione Tonetti d/b/a Tonetti Enterprises LLC (collectively, “Tonetti

Enterprises” or “Lessor”), by and through their undersigned counsel, hereby file this response

(the “Response”) to Debtors’ Sixth Omnibus Objection to Claims (the “Objection”), and request

(a) payment of administrative expense claim No. 5250 (the “Administrative Expense Claim”),2

incurred by the above-captioned debtors and debtors-in-possession (the “Debtors”) during the

Debtors’ Post-Petition (as defined below) operating period between September 23, 2010 and

December 17, 2010, and prior to rejection of the Lease (as defined below), (b) payment of

reasonable attorney’s fees incurred by Tonetti Enterprises in connection with this Response, and

1 The Debtors, together with the last four digits of each Debtor’s federal tax identification number, are: BB

Liquidating Inc. (5102); BB Liquidating Canada Inc. (1269); BB Liquidating Digital Technologies Inc. (9222);

BB Liquidating Distribution, Inc. (0610); BB Liquidating GC, Inc. (1855); BB Liquidating Global Services Inc.

(3019); BB Liquidating International Spain Inc. (7615); BB Liquidating Investments LLC (6313); BB

Liquidating Procurement LP (2546); BB Liquidating Video Italy, Inc. (5068); BB Liquidating ML, LLC (5575);

BB Liquidating Trading Zone Inc. (8588); and BB Liquidating B2 LLC (5219).

2 The Administrative Expense Claim should be amended from $19,769.86 to $19,770.85. See Exhibit C

containing estimates of the Damage (as defined below).

10-14997-brl Doc 2354 Filed 10/13/11 Entered 10/13/11 13:11:00 Main Document Pg 1 of 11

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1014997111013000000000004

Docket #2354 Date Filed: 10/13/2011

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(c) grant such other and further relief deemed appropriate under the circumstances. In support of

this request, Tonetti Enterprises states as follows:

Background

1. Pursuant to that certain Indenture of Lease dated as of October 31, 1991, as

amended from time to time (the “Lease”), attached hereto as Exhibit “A,” by and between Gino

Tonetti and Dione Tonetti, as Lessor, and Blockbuster, Inc., as successor lessee to Northeast

Management, Inc. (“Blockbuster” or “Lessee”), and that certain Lease Termination Agreement

(the “Termination Agreement”), attached hereto as Exhibit “B,” dated as of July 24, 2010, by

and between Gino Tonetti and Dione Tonetti, and Blockbuster, Blockbuster was required to

vacate the premises (the “Premises” or “Demised Premises”) occupied by Blockbuster under

the Lease “on or before 11:59 p.m. on [September 30, 2010] . . . in the manner set forth in the

Lease.” See Termination Agreement at ¶ 2. Section 6 of the Lease provides that Blockbuster

may install trade fixtures on the Premises, provided, however, that “[s]aid fixtures and equipment

may be removed by the Lessee or its agent at any time during the term of this Lease, provided

Lessee promptly repairs any damage to the Demised Premises as a result of such Removal.” See

Lease at Section 6. Section 9 of the Lease further provides that “Lessee shall be responsible for

exterior structural damage or repairs to the Demised Premises (as defined in the Lease) caused

by the Lessee’s construction on the Premises. Id., at Section 9.

2. On September 23, 2010 (the “Petition Date”), Blockbuster filed for chapter 11

protection pursuant to 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”). On the Petition Date

and following Blockbuster’s filing of a petition for bankruptcy relief, Blockbuster vacated the

Premises as required pursuant to the Lease and Termination Agreement. In the process of

vacating the Premises Blockbuster, through its moving-agent Facility Maintenance (the


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“Agent”), caused damage (the “Damage”), to the fabric and aluminum awning printed with the

name “Blockbuster” attached to the exterior wall of the building and the area along the sidewalk

at the Premises, when the Agent’s moving-truck hit the awning. See Declaration of Gino Tonetti

in Support of Response to Debtors’ Sixth Omnibus Objection to Claims and Request for Payment

of Gino Tonetti and Dione Tonetti d/b/a Tonetti Enterprises LLC’s Administrative Expense

Claim, at ¶ 3. Damages caused by such incident total $19,770.85 (the “Post-Petition

Damages”), id., at ¶ 4; see also estimates, attached hereto as Exhibit “C” prepared by local

contractors on behalf of Tonetti Enterprises for purposes of repairing the damage caused by

Blockbuster in its efforts to vacate the premises. A copy of the estimates was also included as an

exhibit to Tonetti Enterprises’ Administrative Expense Claim.

3. On July 22, 2011, this Court entered its Order Pursuant to 11 U.S.C. §365(d)(4)

Rejecting Unexpired Leases of Non-Residential Real Property That Were Not Assumed and

Assigned to the Purchaser (Docket No. 2117) (the “Rejection Order”). The Rejection Order,

attached hereto in relevant part as Exhibit “D,” provides for rejection of the Lease as of July 20,

2011 (the “Rejection Date”), Post-Petition and following the Damages caused by Blockbuster.

Moreover, the Debtors have not rejected the Termination Agreement which, though incorporates

certain terms of the Lease, was a separate contract from the Lease. The Termination Agreement

provides not only that Blockbuster would vacate the premises upon the terms of the Lease (as

described above) but that “the prevailing party [of a dispute under the Termination Agreement]

will be entitled to receive from the non-prevailing party, reasonable attorneys’ fees . . . . See

Termination Agreement at Section 8.

4. On June 8, 2011, Tonetti Enterprises filed its Administrative Expense Claim. In

response the Debtors filed their Objection. Tonetti Enterprises files this Response and


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respectfully requests entry of an order directing the Debtors to (a) pay the Administrative

Expenses Claim for Damages in the amount of $19,770.85, (b) pay reasonable attorney‟s fees

incurred by Tonetti Enterprises in connection with this Response, and (c) grant such other and

further relief deemed appropriate under the circumstances.

Argument

The Damages Were Incurred as Actual Necessary

Costs and Expenses of Preserving the Debtors‟ Estates

5. Tonetti Enterprises‟ Administrative Expense Claim is entitled to the highest level

of priority as “actual, necessary costs and expenses of preserving the estate . . .,” 11 U.S.C. §

503(b)(1), because the Damages were caused by the Blockbuster during removal of its property

from the Premises. Under the prevailing test, a creditor should be afforded administrative

priority for a debt owed to it if the debt both (1) arises out of a transaction between the creditor

and debtor-in-possession, and (2) the consideration supporting the creditor‟s right to payment

was supplied to and benefited the debtor-in-possession in the operation of business. See

Amalgamated Ins. Fund v. McFarlin’s, Inc., 789 F.2d 98, 101 (2d Cir. 1986); see also In re

Jartran, Inc., 732 F.2d 584, 587 (7th Cir. 1984) (quoting In re Mammoth Mart. Inc., 536 F.2d

950, 954 (1st Cir. 1976)); In re Worldcom Inc., 308 B.R. 157, 166 (Bankr. S.D.N.Y. 2004).

Tonetti Enterprises meets both these criteria.

6. There can be no doubt that the Damages caused on September 23, 2010 were

Post-Petition and pre-Rejection Date. Blockbuster clearly believed that it was beneficial to take

advantage of its rights under the Lease and Termination Agreement and vacate the Premises

Post-Petition, collect its property, and reduce the need to expend money and efforts on the

termination and/or rejection of the Lease Post-Petition. If Blockbuster did not believe these

benefits existed it would not have agreed to and then availed itself of such benefit. Accordingly,


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where as here, “the debtor-in-possession elects to continue to receive benefits from the other

party to an executory contract pending a decision to reject or assume the contract, the debtor-in-

possession is obliged to pay for the reasonable value of those services.” NLRB v. Bildisco &

Bildisco, 465 U.S. 513, 531 (1984); see also Am. Anthracite & Bituminous Coal Corp. v.

Leonardo Arrivabene, S.A., 280 F.2d 119, 124 (2d Cir. 1960); In re WorldCom, Inc., 308 B.R. at

166; Goldin v. Putnam Lovell, Inc. (In re Monarch Capital Corp.), 163 B.R. 899, 908 (Bankr. D.

Mass. 1994). Any other result would be inequitable.3 Accordingly, under these circumstances,

this Court should order, and Tonetti Enterprises plainly is entitled to an Administrative Expense

Claim for the Damage caused by Blockbuster and its Agent.

The Damages Were Caused by

the Debtors‟ Post-Petition Negligence

1. The Damages caused when Blockbuster vacated the Premises were inflicted by

the negligence of the Blockbuster‟s Agent for which the Blockbuster is vicariously liable. “It is

settled doctrine that tort claims arising during the course of a Chapter 11 proceeding are „actual

and necessary‟ administrative expenses within the meaning of 11 U.S.C. § 503(b)(1)(A).” In re

United Puerto Rican Food Corp, 41 B.R. 565, 573-74 (Bankr. E.D.N.Y. 1984); see also

Reading Co. v. Brown, 391 U.S. 471, 482 - 485, (1968) (It is also well-established that “damages

resulting from the negligence of a receiver” during the post-Petition period give rise to

administrative expense claims., Id. at 485. In reaching this conclusion, the Supreme Court

reasoned that where a tort victim-in essence, an involuntary creditor of the estate-“suffer[s] grave

financial injury” as a result of the negligence of the bankrupt‟s estate, id. at 477, it is “natural and

3 During the Post-Petition, pre-Rejection Date period, Blockbuster clearly used the Premises to remove its

property. Tonetti Enterprises respectfully requests that this Court provide additional amounts as an

administrative expense claim as appropriate to compensate Tonetti Enterprises for the post-petition, pre-

Rejection Date use of the Premises. Tonetti Enterprises suggests that such amount should be $47,000.00 as

provided for in the Termination Agreement.


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just” to afford such claims priority of distribution, id. at 482); Carter-Wallace, Inc. v. Davis-

Edwards Fhrmakal Corp., 443 F.2d 867, 874 (2d Cir. 1971) (tort claims arising during the

course of a chapter 11 case are actual and necessary administrative expenses within the meaning

of 503(b)(a)(A)). Moreover, tort claims arising during the course of a chapter 11 case are “actual

and necessary” administrative expenses within the meaning of Section 503(b)(1)(A) of the

Bankruptcy Code even though, as the leading treatise notes, such “claims d[o] not arise from

transactions that were necessary to preserve or rehabilitate the estate.” 4 Collier on Bankruptcy ¶

503.06[3][b][i]. The Damages were caused by the negligence or other tortious conduct of

Blockbuster and its Agent during the removal of the Blockbuster‟s assets from the Premises.

Accordingly, the Post-Petition Damages are entitled administrative expense priority. See e.g., In

re Bayou Group, LLC, 431 B.R. 549, 558 (Bankr. S.D.N.Y. 2010) (“the case law is clear that the

[administrative] expense must, among other things, derive from a post petition transaction with

the debtor in possession or trustee or post petition tort by the debtor in possession or trustee”)

(emphasis added).

2. It is beyond contestation that Blockbuster had both a contractual duty in the Lease

and in the Lease Termination Agreement as well as a general obligation to remove its property

from the Premises without causing damage to the Premises. Blockbuster hired its Agent to

perform those duties on its behalf. During removal of Blockbuster‟s property, Blockbuster‟s

Agent‟s caused the Damage to the Premises. This is not at issue nor can Blockbuster in good

faith challenge these facts. Accordingly, Blockbuster‟s negligent removal of its property from

the Premises caused the Damages. See e.g., Martin v. Marciano, 871 A.2d 911, 915 (R.I. 2005)

(“Because there is no set formula for finding a legal duty, such determination must be made on a

case-by-case basis”); Volpe v. Gallagher, 821 A.2d 699, 705 (R.I. 2003) (same); Mills v. State


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Sales, Inc., 824 A.2d 461, 467 (R.I. 2003) (To properly set forth “a claim for negligence „a

plaintiff must establish a legally cognizable duty owed by a defendant to a plaintiff, breach of

that duty, proximate causation between the conduct and the resulting injury, and the actual loss

or damage”) (internal citations omitted).

3. This court should also find Blockbuster vicariously liable for the negligence of its

Agent. Even though, on information and belief, the Agent was an independent contractor and

not an employee of Blockbuster, the Agent acted as an apparent agent of Blockbuster and, as

such, the Agent‟s negligence in performing the duties and obligations of Blockbuster to remove

the Debtors‟ property without damaging the Premises should be imputed to the Debtors. See

e.g., Calenda v. Allstate Insurance Co., 518 A.2d 624 (R.I.1986) (recognizing the doctrine of

apparent authority in the context of contractual transactions); Petrone v. Davis, 118 R.I. 261, 373

A.2d 485 (1977) (same)

4. The principles of apparent authority are set forth in the Restatement (Second)

Agency § 267 (1958):

One who represents that another is his [or her] servant or other

agent and thereby causes a third person justifiably to rely upon the

care or skill of such apparent agent is subject to liability to the

third person for harm caused by the lack of care or skill of the one

appearing to be a servant or other agent as if he [or she] were such.

5. Viewing the restatement in conjunction with prior Rhode Island case law, which

governs the relationship between Blockbuster and Tonetti Enterprises, this Court should find that

Blockbuster is vicariously liable for the negligence of its Agent during the removal of the

Blockbuster‟s property from the Premises.

6. Accordingly, consistent with Reading Company v. Brown, 391 U.S. 471 (1968)

(administrative expense claim allowed when receiver caused fire to non-debtor‟s property


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regardless of whether it was the receiver‟s intention to preserve property of the estate), Tonetti

Enterprises should be entitled to the full amount of its Administrative Expense Claim. See also

Chemical & Atomic Workers v. Hanlin Group, Inc. (In re Hanlin Group, Inc.), 176 B.R. 329,

333 (Bankr.D.N.J.1995) (“[c]laims resulting from injury caused by the continued operation of

the business by the debtor-in-possession are also classified as administrative expenses,

notwithstanding the lack of benefit to the estate”) (citations omitted).

The Debtors‟ Objection Does Not Refute

the Factual Basis of the Administrative Expense Claim

7. The Debtors have not provided any evidence which, if believed, would refute at

least one of the allegations essential to the Administrative Expense Claim. Instead, the Debtors’

Objection to the Administrative Expense Claim is based on vague allegations of “no liability.”

These mere general averments are insufficient to puncture the prima facie presumption of

validity of the Administrative Expense Claim. Moreover, Debtors’ counsel have provided that

the Debtors likely objected to the Administrative Expense Claim because the Lease was not a

lease between Tonetti Enterprises and the Debtors and the Debtors’ records did not include the

Transfer Agreement between Blockbuster and its franchisee. The Debtors, however, were

provided with the Lease Termination Agreement as an exhibit to Tonetti Enterprises proof of

claim, which states that Blockbuster Inc., is “successor in interest to Northeast Management”, the

original lessee. Thus, the Debtors’ Objection was based on their failure to read the

documentation included in Tonetti Enterprises proof of claim, and lack of knowledge of its own

internal documentation. Accordingly, the Debtors’ Objection is misplaced and therefore should

be denied.

8. A claim is a “right to payment . . . or . . . right to an equitable remedy.” 11 U.S.C.

§ 101(5). Creditors with claims for payment or equitable relief may file a proof of claim. 11


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U.S.C. §501(a). “To overcome this prima facie evidence, the objecting party must come forth

with evidence which, if believed, would refute at least one of the allegations essential to the

claim.” Sherman v. Novak (In re Reilly), 245 B.R. 768, 773 (2d Cir. BAP 2000) (citing In re

Allegheny Int'l, Inc., 954 F.2d 167 (3d Cir.1992); In re Giordano, 234 B.R. 645, 650 (Bankr.

E.D. Pa. 1999)). Specifically, a proof of claim in a bankruptcy proceeding “cannot be defeated

by mere formal objection and the sworn proof is to be treated as some evidence even when it is

denied.” In re Sabre Shipping Corp., 299 F.Supp. 97, 99 (S.D.N.Y. 1969). If the objector does

not “introduce[ ] evidence as to the invalidity of the claim or the excessiveness of its amount, the

claimant need offer no further proof of the merits of the validity and the amount of the claim.” 4

Collier on Bankruptcy 502.03[3][f] (rev. ed. 2007).

9. The Debtors have not provided any evidence which, if believed, would refute at

least one of the allegations essential to the Administrative Expense Claim. In re Reilly, 245 B.R.

768, 773 (B.A.P. 2d Cir. 2000). Moreover, the Debtors‟ have admitted that the basis of their

Objection is inconsistent with the facts. Accordingly, the Debtors‟ Objection is without merit

and Tonetti Enterprises Administrative Expense Claim should be allowed in full.

This Court Should Award Tonetti Enterprises

Attorney‟s Fees in Connection with this Response

10. Bankruptcy Rule 3001(f) establishes that a validly executed and filed proof of

claim is prima facie evidence of the validity and amount of the Administrative Expense Claim.

The exact basis for the Debtors‟ Objection of Tonetti Enterprises‟ Administrative Expense Claim

is not set forth in the Objection and the Objection is not sufficient to overcome the prima facie

presumptive validity of the Administrative Expense Claim. Moreover, the Debtors have

admitted that they did not fully review the basis of the Administrative Expense Claim and the

Debtors‟ related contractual obligations in full prior to filing their Objection.


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11. Tonetti Enterprises respectfully requests reimbursement of all attorneys‟ fees for

being required to respond to the Objection. Tonetti Enterprises‟ Administrative Expense Claim

is only $19,770.85 and it has incurred attorney‟s fees for approximately 20.3 hours at a rate of

$500/hr for a total of $10,150.00 in connection with filing this Response. Accordingly, as a

result of the attorney‟s fees incurred in connection with this Response, the benefit of Tonetti

Enterprises Administrative Expense Claim has been reduced by more than 50%. Based on

Debtors‟ counsel‟s experience, counsel to Debtors would know that an Objection to an

administrative expense claim of $19,770.85 would not likely draw a response based on the cost

of such response. The Debtors were therefore well aware of the fact that their baseless Objection

would likely wipe out the Administrative Expense Claim. Such inequitable behavior should not

be tolerated. Moreover, the Termination Agreement provides not only that Blockbuster would

vacate the premises upon the terms of the Lease (as described above) but that “the prevailing

party [of a dispute under the Termination Agreement] will be entitled to receive from the non-

prevailing party, reasonable attorneys‟ fees . . . . See Termination Agreement at Section 8.

12. Accordingly, the Debtors should be required to reimburse Tonetti Enterprises

for its attorney‟s fees incurred in connection with this Response.

The Administrative Expense Claim Should be Immediately Paid

13. Tonetti Enterprises is entitled to immediate payment of its Administrative

Expense Claim and related attorney‟s fees, if allowed. Tonetti Enterprises acknowledges that the

time of payment for section 503(b) claims is within the discretion of the court. See Sapir v.

C.P.Q. Colorchrome Corp. (In re Photo Promotion Assocs., Inc.), 881 F.2d 6, 9 (2d Cir. 1989)

(internal citations omitted). Insofar as Blockbuster has paid other Post-Petition operating period

administrative claims in the ordinary course, Tonetti Enterprises should be included as well.


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14. Tonetti Enterprises expressly reserves all rights and remedies that it has or may

have against the Debtors or any other person or persons liable for all or part of the

Administrative Expense Claim.

WHEREFORE, Tonetti Enterprises respectfully requests entry of an order directing the

Debtors to (a) pay the Administrative Expenses Claim for Damages in the amount of $19,770.85,

(b) pay reasonable attorney’s fees incurred by Tonetti Enterprises in connection with this

Response, and (c) grant such other and further relief deemed appropriate under the

circumstances.

Dated: New York, New York

October 13, 2011

/s/ Gino G. Tonetti_______

Gino G. Tonetti

555 West 59th

Street

New York, New York 10019

Telephone: (508) 320-4956

[email protected]

Gino G. Tonetti, Esq.

Counsel for Gino and Dione Tonetti

d/b/a Tonetti Enterprises, LLC


10-14997-brl Doc 2354-1 Filed 10/13/11 Entered 10/13/11 13:11:00 Exhibit A - Lease Pg 1 of 25

























10-14997-brl Doc 2354-2 Filed 10/13/11 Entered 10/13/11 13:11:00 Exhibit B - Termination Agreement Pg 1 of 7







10-14997-brl Doc 2354-3 Filed 10/13/11 Entered 10/13/11 13:11:00 Exhibit C - Estimates Pg 1 of 3



10-14997-brl Doc 2354-4 Filed 10/13/11 Entered 10/13/11 13:11:00 Exhibit D - Rejection Order Pg 1 of 5





10-14997-brl Doc 2354-5 Filed 10/13/11 Entered 10/13/11 13:11:00 Exhibit Declaration of Gino Tonetti in Support of Response to Debtors Sixt Pg 1 of 2

10-14997-brl Doc 2354-5 Filed 10/13/11 Entered 10/13/11 13:11:00 Exhibit Declaration of Gino Tonetti in Support of Response to Debtors Sixt Pg 2 of 2

Documents

IN THE UNITED STATES BANKRUPTCY COURTbb liquidating inc., et al.,1 ... case no. 10-14997 (brl) (jointly administered) response to debtors’ sixth omnibus objection to claims and request