In Re: Sports Authority Holdings, Inc et al.

Filing 22

MEMORANDUM re 21 Order on Motion to Stay. Signed by Judge Sue L. Robinson on 5/27/2016. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
IN RE:
SPORTS AUTHORITY HOLDINGS, INC.,
et al.,
Debtors.

ASICS AMERICA CORPORATION

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Appellant,
v.
SPORTS AUTHORITY HOLDINGS, INC.,
et al.,
Appellees.

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) Bank. No. 12-13262 (BLS)
)
)
)

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) Civ. No. 16-386-SLR
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MEMORANDUM
At Wilmington thisJ-1fciay of May, 2016, having reviewed the emergency motion
for stay pending appeal filed by ASICS America Corporation ("ASICS") and the papers
filed in connection therewith, and having considered the representations of the parties
during the teleconference held on May 25, 2016, the court's decision of May 26, 2016 is
based on the following reasoning:
1. Standard of review. A party seeking a stay pending appeal must prove, by
clear and satisfactory evidence, that (a) it is likely to prevail on the merits of its appeal;
(b) it will suffer irreparable injury absent a stay; (c) a stay will not cause substantial
harm to other interested parties; and (d) a stay will not harm the public interest. See

Republic of the Philippines v. Westinghouse Elec. Corp., 949 F.2d 653, 658 (3d Cir.
1991 ). Although none of the above factors is determinative, courts rarely exercise their

discretion in favor of a moving party who has failed to demonstrate a likelihood of
success on the merits or irreparable harm. With respect to the former, a movant must
demonstrate that it has "a substantial issue to raise on appeal." In re Countrywide
Home Loans, Inc., 387 B.R. 467, 480 (Bankr. W.D. Pa. 2008). With respect to the
latter, equitable mootness of an appeal, without more, does not constitute irreparable
harm. See In re Global Home Products LLC, Civ. No. 06-508-JJF, 2006 WL 2381918
(D. Del. Aug. 17, 2006).
2. Background. ASICS is an athletics company, with its primary assets being
its production of sports equipment and apparel. Sports Authority Inc. ("Sports
Authority") is a retailer for athletic products. On or about March 17, 2015, Sports
Authority entered into a consignment agreement to sell ASICS' merchandise. ASICS
consigned ASICS-branded athletic apparel to Sports Authority with a cost value
represented by Sports Authority of no less than $13,333,592. Sports Authority enters
into relationships with consignment vendors, which allows it to receive and resell a wide
range of popular goods in its stores without the need to commit working capital up front
to cover the cost of selling such inventory. Sports Authority stores, maintains, and
insures the consigned goods at its own expense. It relies on consigned goods to
provide a wide selection of goods in order to meet customers' needs and drive
customer traffic.
3. On March 2, 2016, Sports Authority, as debtor-in-possession, filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code. Concurrent with the
commencement of the Chapter 11 cases, Sports Authority filed a motion to approve

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GOB sales 1 at approximately 142 of its stores, including the one located on Concord
Pike in Wilmington, Delaware. The GOB sales motion was approved on an interim
basis on March 3, 2016, and on a final basis on May 3, 2016. Since March 3, 2016,
Sports Authority has conducted the GOB sales subject to the GOB sales motion, which
sales have included the sale of ASICS branded products, some of which were part of
the Sports Authority inventory and some of which were prepetition consigned goods.
(D.I. 15; D.I. 16; D.I. 18, ex. 5)
4. Also as part of the first day motions filed by Sports Authority was a
Consignment Motion. On March 11, 2016, the bankruptcy court entered an interim
order detailing the sale of consigned goods, including the following provision:
Upon the filing of a Consignment Challenge, absent written
consent of the Consignment Vendor, the Debtors shall
immediately (i) cease, desist, and refrain from selling any of
the Consignment Vendor's Prepetition Consigned Goods; and
(ii) segregate and account to the Consigned Vendor for all
remaining Consigned Vendor's Prepetition Consigned Goods.
(Bankr. Civ. No. 16-10527, D.I. 278

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6) The above directive is consistent with Third

Circuit precedent. See, e.g., SLW Capital, LLC v. Mansaray-Ruffin, 530 F.3d 230 (3d
Cir. 2008); In re Whitehall Jewelers, 2008 WL 2951974 (Bankr. D. Del. July 28, 2008).
On that same date, ASICS reconfirmed by letter with Sports Authority that it did not
consent to the sale of ASICS consigned property. On March 15, 2016, Sports Authority
filed a "Consignement Challenge" against ASICS by initiating an adversary proceeding,
consistent with the above case law.
5. On April 6, 2016, the bankruptcy court entered a supplemental order, which

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Going out of business sales.

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permitted Sports Authority to sell the prepetition consigned goods upon vendor consent,
with vendor consent being defined as "[a] Consignment Agreement that was not
terminated prior to the Petition Date .... To the extent that any of the Debtors are a
party to a Consignment Agreement that was terminated prior to the Petition Date, the
Debtors shall comply with applicable law." (D.I. 18, ex. 3

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3, 4)

6. The hearing on the final order was held on May 3, 2016. At the hearing, the
bankruptcy court confirmed that Federal Rule of Bankruptcy Procedure 7001 requires
an adversary proceeding to determine title to goods and priority of liens. The
bankruptcy court, therefore, declined to hear evidence on issues relating to interests in
the consigned goods, including ASICS' "disputed termination" and whether Sports
Authority could continue to sell ASICS products. In sum, although the bankruptcy court
recognized the need for a determination through an adversary proceeding, that court
decided to resolve ASICS' challenge post-GOB sales in the context of a motion practice
in the adversary. 2
7. Analysis. As to the likelihood of success, it is not evident that ASICS
effectively terminated its consignment agreement with Sports Authority pre-petition. 3

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0n May 13, 2016, ASICS filed a motion for preliminary injunction in the
adversary, which will be heard by the bankruptcy court on June 28, 2016.
3

The parties disagree on the applicable law governing the termination. ASICS
asserts that the termination is governed by bailment law, pursuant to which "the Debtors
were in unlawful possession of the ASICS Property and such property was not property
of the estates." (D.I. 2 at 20-21, citing In re Valley Media, Inc., 279 B.R. 105, 142-143
(Bankr. D. Del. 2002) (debtors have no rights in nor authority to sell inventory consigned
under terminated agreements)) Sports Authority states that ASICS' alleged termination
... is the subject of a pending adversary proceeding" and relies on Articles 2 and 9 of
the Uniform Commercial Code to argue that the consignment agreement was not
terminated. (D.I. 15 at 3-4)

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Nevertheless, by allowing the GOB sales to go forward without a determination of title,
the bankruptcy court failed to follow the precedent noted above. This factor weighs in
favor of ASICS.
8. ASICS' allegations of irreparable harm, however, are less than compelling. By
ASICS' own admission, a request of monetary damages rarely warrants the imposition
of a stay pending appeal. (D.I. 2

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78) Moreover, the fact that the bankruptcy court

has the ability to fashion monetary relief at a later date calls into doubt ASICS' claim of
irreparable harm. In re Revel AC, Inc., 802 F.3d 558, 571 (3d Cir. 2015). ASICS
products have been sold at a discounted price since March 2, 2016. The decision to
wait until the eve of the Memorial Day sale to file a stay motion also casts doubt on
ASICS' claim of harm to its brand. Similarly, ASICS' refusal to expedite the schedule
for the adversary proceedings cuts against its request for an emergency motion.
9. Conversely, the harm to Sports Authority is irreparable. Memorial Day
weekend is a major shopping holiday and a stay would be greatly disruptive to Sports
Authority's operations at a critical time. Significantly, a stay would materially alter the
agreement signed by the Liquidating Agent who anticipated ASICS-brand goods would
be included as part of a Memorial Day sale. (D.I. 13 at 4) Creating such a drastic
change at such a late time would create an unanticipated burden for Sports Authority
employees and possibly affect the sale of other products.
10. The balance of harms weighs in favor of Sports Authority. The public
interest is largely neutral.

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11. Conclusion. For the foregoing reasons, ASICS' stay motion is denied. An
order has issued.

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