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September 23, 2019Cart

Business

by Westchester County Business Journal
by WCBJ

Payment of $20,000 in Mount Vernon bankruptcy case yields $2.6M

A $20,000 payment has yielded a $2.6 million to $4.9 million payoff for a Mount Vernon businessman who was forced into bankruptcy by the city’s failure to fulfill its side of a deal to open a supermarket in Fleetwood.

An arbitrator ruled on July 27 that the City of Mount Vernon has to pay Salvatore Gizzo $2.6 million, plus interest, for breach of contract. Interest payments could add nearly $2.3 million to the payout, according to Gizzo’s attorney, Jonathan D. Kraut, for a total of $4,892,175.

Creditors who filed nearly $5.6 million in claims against his company got nothing in the bankruptcy case.

The dispute goes back to 2008, when Gizzo owned Samba Na Brasa, a Brazilian steakhouse at 42 Broad St. Clinton Young, the city’s mayor at the time, told Gizzo that residents of Fleetwood were unhappy because the only local supermarket was closing.

“Do me a favor,” Young told Gizzo, according to a 2015 lawsuit. “I need to give them a supermarket. We’ll give you whatever you need.”

Gizzo said success would depend on “safe and inviting parking.” He negotiated for exclusive rights to 60 parking spaces in the Fleetwood Municipal Parking Garage, next to the restaurant, for $2,053 a month.

The city also agreed to remove parking meters, install lighting and security cameras, repair an elevator, paint parking stripes, and sandblast and paint the exterior.

He closed Samba Na Brasa, negotiated a deal with Key Food Stores Co-operative Inc. to open a market and renovated the building, spending more than $3 million on the project.

Young, according to the lawsuit, had begun a “public campaign of lauding his accomplishment of bringing a supermarket to Fleetwood.”

But the city never allocated the parking spaces or repaired the elevator. What’s more, according to the lawsuit, Gizzo fired his architect Nima Badaly, who had been married to Soraya Ben-Habib, the city’s deputy building commissioner. Gizzo claimed that the building department then began a campaign of holding up permits and inspections that delayed the supermarket’s opening.

The supermarket opened in July 2010. Inadequate parking, Gizzo claimed, deterred customers and “immediately began to impact” profits.

Eight months after the supermarket opened, Gizzo’s Fleetwood Food Corp. filed for Chapter 11 bankruptcy reorganization.

U.S. Trustee Tracy Hope Davis asked bankruptcy court to appoint a trustee and convert the case to Chapter 7 liquidation.

Gizzo, she noted in a memorandum, had a fiduciary duty to maintain the business records. Instead, he had vacated the building at 42 Broad St. and abandoned the records.

She accused Gizzo of gross mismanagement.

The court appointed Marianne T. O’Toole as the trustee and converted the case to Chapter 7.

O’Toole struck a deal in 2012. For $20,000 paid to the bankrupt company’s estate, according to a settlement agreement, she would release Gizzo from all claims and she would assign the Mount Vernon claim to him.

O’Toole’s attorney reasoned that a claim against the city was unlikely to produce more than $20,000, “due to the costs that would be incurred and the uncertainties of litigating the claims to final judgment.”

Gizzo sued Mount Vernon, Young and Ben-Habib in federal court in 2013 for breach of contract and violations of his civil rights. U.S. District Judge Kenneth Karas dismissed the claims.

In 2015, Gizzo sued the city for breach of contract in Westchester Supreme Court.

Last year, Gizzo and the city agreed to take the matter to binding arbitration.

In announcing the $2.6 million award, Richard Thomas, the city’s current mayor, said it could have been worse because Gizzo got $1.2 million less than he had been seeking.

Actually, the two sides had stipulated that the award could go no higher than $3 million and no lower than $100,000. Gizzo was awarded $400,000 less than the maximum but $2.5 million more than the minimum. For every dollar he paid for the right to pursue the claim, he is getting $130 to $245 back.

The award is not necessarily a windfall.

Gizzo has to pay legal fees. He also lost money on the supermarket project.

Fleetwood Food Corp., for instance, borrowed $750,000 from 146 Gramatan Avenue LLC, managed by Gaetano Gizzo, whose former erotic venue, Sue’s Rendezvous, operated out of the same building as the LLC.

He also paid Key Food Stores $100,000 to settle a $540,862 civil court judgment. And he agreed that when he won a judgment against the city, the first $225,000 would go to Key Food.

The city is also reviewing whether it can appeal the arbitration award, Thomas said in a news release.

The bankruptcy case that led to the arbitration closed last year. More than $2.8 million in assets were abandoned, according to O’Toole’s final account.

The estate had taken in $23,520, including the $20,000 from Gizzo. The entire amount was paid in administrative fees.

The court acknowledged nearly $5.6 million in unsecured claims, ranging from $1.9 million by the property landlord, Fleetwood Park Development LLC, and $111 by Paychex Inc. The unsecured creditors got nothing.

The location of the Brazilian steakhouse and ill-fated supermarket is now a construction site for 42 Broad, a $90 million, 16-story apartment building.