Koffee Kup

The Vermont Bread Company in Brattleboro, a subsidiary of Koffee Kup, shuttered operations in April.

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BRATTLEBORO — Four months after Koffee Kup closed its three bakeries, about 440 former employees are still waiting to receive their final paid time off balances.

In mid-July, Chittenden County Superior Court Judge Samuel Hoar authorized a payout of nearly $840,000 to the employees, more than 90 of whom used to work at Vermont Bread in Brattleboro, a subsidiary of Koffee Kup.

However, the next day, when the receiver who was appointed to oversee Koffee Kup’s assets attempted to make the payout, a glitch in payroll software prevented it.

According to documents filed by the Vermont Attorney General’s Office, the receiver notified the judge that the matter would be resolved by Aug. 19.

But on Aug. 16, attorneys for four of Koffee Kup’s creditors filed a petition for involuntary bankruptcy with the U.S. District Court for the District of Vermont.

“As a result of the recent bankruptcy filing, the state court proceeding, including the court’s order concerning the PTO payment, is stayed pursuant to the provisions of the bankruptcy code,” wrote Justin Heller, attorney for the receiver, Ronald Teplitsky, in an email to the AG’s Office. “Accordingly, it is our view that Ron is stayed from processing the PTO claim, unless the bankruptcy court modifies the stay to permit the payment.”

On April 26, about 500 employees at Koffee Kup in Burlington, Vermont Bread in Brattleboro and Superior Baking in North Grosvenor Dale, Conn., arrived to work to discover they no longer had jobs.

Employees received their final paychecks, but money deposited along with those checks for paid-time-off balances was rescinded, which created financial problems for many employees.

On June 8, Koffee Kup’s assets were purchased by Flowers Foods, which is based in Georgia and operates a distribution facility in Brattleboro for Country Kitchen and other products. Although Flowers Foods supported paying the former employees the rest of their money, it said it had no plans at this time to restart operations at the three bakeries.

Prior to authorizing the payment of the PTO balances, Hoar approved a payment to KeyBank, the primary lender, of $7.6 million.

The purchase price has been kept confidential, but along with the balances owed to the former employees, other creditors are asking for money, including close to $690,000 for Bernadino’s Bakery, $500,000 for Ryder Truck Rental, $660,000 for Lily Transportation, $176,000 for Hillcrest Bakery, and $275,000 for Eastern Packaging.

Eastern Packaging is not listed as a creditor petitioning for involuntary bankruptcy.

Attorneys for the four petitioners did not respond to an email request for comment.

On Aug. 27, the AG’s Office filed a motion to intervene or as a friend of the court, in support of Koffee Kup’s former employees.

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The motion notes that the creditors who have filed the involuntary bankruptcy petition against Koffee Kup did not oppose the payment of the paid-time-off balances on July 14 and, in fact, “expressly agreed” to it.

Assistant Attorney General Justin Kolber, writing on behalf of Attorney General TJ Donovan, contended the petition is an attempt to unjustly “claw back” money belonging to the former employees.

Kolber wrote that the AG’s Office should be allowed to participate in the bankruptcy proceedings because previous court rulings have stated that states have “an interest ensuring that labor laws are fully complied with and in protecting the ‘the health and well-being — both physical and economic — of its residents in general.’”

“There can be no question here that the Petitioner-Creditors are attempting to affect the economic well-being of hundreds of Vermont employees, by stalling the payment of the employees’ PTO, and worse, apparently trying to reclaim the pool of PTO money for themselves, after they agreed to paying it out,” wrote Kolber.

And because the creditors didn’t object to the payment on July 14 in state court, wrote Kolber, they should not be now allowed to oppose it in federal court by including it in the petition for involuntary bankruptcy.

“The PTO money left the station as of July 15,” he wrote.

The attorney general also maintains the PTO amounts to a constructive trust whereby the money already belongs to the employees and is no longer an asset of Koffee Kup.

The AG’s Office is asking the bankruptcy court to allow the receiver to make payment of the PTO balances because “the PTO belongs to the employees ... [T]o allow the PTO to be placed back into a general pool of assets to be re-divided under the bankruptcy stay, after the PTO was already litigated, agreed on, and ruled on as being necessary to pay now, could constitute a breach of the Receiver’s loyalty duty to the employees.”

Not only that, wrote Kolber, Vermont law requires the payment of PTO.

“The plain meaning of [state statutes] requires all employer debts to be discharged within seventy-two hours of termination, which includes accrued vacation time,” wrote Kolber, quoting from previous state court rulings.

Koffee Kup has separately applied for a voluntary dissolution.

Linda Joy Sullivan, of Dorset, was appointed the dissolution receiver after the July 14 hearing.

She wrote in an email to the Reformer that a dissolution is a winding down and distribution of remaining funds to the unsecured creditors, which she will oversee.

“The involuntary bankruptcy as filed by the alleged creditors will be in federal court and is asking the case be considered a Chapter 7, which will be a complete liquidation of the assets,” she wrote. “There will be hearings scheduled in the bankruptcy proceeding for pleadings filed and we await the resolution in order to see how to proceed.”

Bob Audette can be contacted at raudette@reformer.com.


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