Price Chopper Sues Penn Traffic for Breach of Contract

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Price Chopper Sues Penn Traffic for Breach of Contract

After some contemplation as to how to proceed, Price Chopper has filed a lawsuit against the Penn Traffic Co. for $1.6 million for breach of contract and other legal issues in connection with Price Chopper’s unsuccessful offer to buy 22 of the bankrupt grocer’s P&C Foods supermarkets for $54 million. The suit was filed this week in U.S. Bankruptcy Court in Wilmington, Del., where Syracuse, N.Y.-based Penn Traffic’s Chapter 11 bankruptcy case is being heard.

The suit came on the heels of the court’s approval of Williamsville, N.Y.-based Tops Markets’ $85 million bid for all 79 of Penn Traffic’s supermarkets, as well as other assets of the company.

In its complaint, Price Chopper, which is owned and operated by Schenectady, N.Y.-based Golub Corp., said it initially wanted to buy four Penn Traffic stores soon after that grocer filed for Chapter 11 bankruptcy protection last November. Subsequently, Price Chopper’s suit alleged, on Dec. 10, Tops and it “began discussing the prospects for the submission of a joint bid that would include all 79” of Penn Traffic’s supermarkets.

According to the complaint, the two grocers had a letter of understanding saying they had a short time period to submit a joint bid, which Penn Traffic subsequently rejected. Penn Traffic then suggested a “private sale” of the 22 P&C Foods locations to Price Chopper for $54 million, the lawsuit said, to which the corporation agreed.

That offer would have been filed with the bankruptcy court Jan. 8, which turned out to be the day Tops submitted its own bid. Just before that date, however, Price Chopper alleged that Penn Traffic, working with its creditors committee, the unions and the pension fund, began “negotiations, discussions and extensive communications with Tops” about a sale of all of Penn Traffic’s stores. Price Chopper maintained that such negotiations would have violated the terms of its private sale agreement with Penn Traffic.

Besides breach of contract, Price Chopper’s suit claims negligent misrepresentation and unjust enrichment. Price Chopper said that the $1.6 million asked for in the suit is a “standard 3 percent breakup fee” based on its $54 million offer.

Earlier this month, Golub president and CEO Neil Golub was of the opinion that a lawsuit wouldn’t be “worth it,” as he phrased it to the Albany, N.Y., Business Review.