Published: March 25, 2008 09:46 am         

Doors are closed at Folgarelli's Market

New owners have filed for bankruptcy; lawsuits pending

TRAVERSE CITY -- A popular downtown market and deli closed indefinitely after its owners filed for bankruptcy amid two lawsuits.

Folgarelli's Market, 424 W. Front St., and an adjoining wine shop closed late last week after a company that bought the market two years ago filed for Chapter 7 bankruptcy protection Friday in federal bankruptcy court.

The move froze the market's assets and stalled two recent lawsuits filed by former market owner Donna Folgarelli that aimed to regain control of the family business.

"All the business assets are now in the hands of the bankruptcy court and the bankruptcy trustee," said Traverse City attorney Wallace Tuttle, the bankruptcy lawyer for Newco 424 W. Front St. LLC. "At this point, all the property is in his hands."

The closing disappointed the market's longtime customers.

"I can't believe it's closed," said Gregory Stone of Traverse City as he drove up to the shuttered market Monday afternoon. Stone said he's shopped at Folgarelli's for 15 years for specialty items like imported Provolone cheese and hand-cured pepperoni.

"You just can't get that stuff anywhere else," said Stone, calling the closing "a real loss" for the downtown area.

"Hopefully, it will get worked out and they can open again," he said.

Folgarelli was in 13th Circuit Court Friday seeking a court order to regain control of the business, after she filed two lawsuits against Newco and principals Virginia Powell and Eileen Cochrane. The suits allege the new owners defaulted on several lease payments in recent months, and on a $425,000 promissory note that transferred assets of the business to Newco.

Circuit Judge Thomas Power adjourned a hearing Friday on Folgarelli's motion because of the bankruptcy filing. The parties said it could take several months to sort through the proceedings and determine the fresh food market's future.

The deli was popular with locals and tourists and dates to the late 1970s downtown.

"I'm hoping it works out to be something where we can absorb things and move on," Folgarelli said Monday. "Hopefully, we can get in a situation where we can get up and running again, serving our customers the way we used to."

Local attorney James Boyd, appointed as bankruptcy trustee, said he hopes to resolve the proceedings soon so the market can re-open.

"We'll certainly try to move it as quickly as possible as far as preserving any value that's there," Boyd said. "There is an incentive on the part of everyone involved to resolve it sooner than later."

The legal dispute began in January when Folgarelli filed suit alleging Newco breached an agreement in March 2006 that transferred the market's assets to the new owners. That included a consulting agreement between the parties, and a non-compete clause with Folgarelli.

Folgarelli filed another suit in March, alleging Newco was behind on a three-year lease agreement that paid her $2,100 per month.

Folgarelli said the lawsuits only involve the business, and that she retains ownership of the building and the property.

A court document filed this month by Powell alleges that Newco was not in default of the purchase agreements, based on Folgarelli's "actions or inactions that were inconsistent with the parties' agreement." In that filing, Newco offered to settle the dispute for $200,000.

Attorney Kevin Washburn of Traverse City, who represents Powell and Cochrane separately from the bankruptcy case, said his clients allege Folgarelli violated a non-compete clause between the parties that pre-dated the two lawsuits.