After shuttering stores, Shoe Mania faces lawsuit

Bank Leumi USA has filed a lawsuit against Shoe Mania Holding Inc., alleging the retailer quietly shuttered its three Manhattan stores on the night of July 17 and, despite being in default on a $2 million loan, cleaned out the inventory without permission.

Christopher Goll, the bank’s first vice president, said that he found out about the shutdown while walking past the chain’s 331 Madison Avenue store, in Midtown, on July 19, which had been shuttered. Goll then learned that the main store at 853 Broadway, at Union Square, and last existing store at 654 Broadway, in Noho, had also been closed, according to an affidavit filed Tuesday in New York State Supreme Court.

Bank officials said the struggling retail chain, led by owner Mark Cohen, had previously requested a July 25 meeting to negotiate a deal to pay off the loan, after missing payments under a forbearance agreement. Goll, in the filing, said the bank had agreed to the meeting, but its “good faith efforts and accommodations were met by a stab in the back.”

On June 20, the bank received a letter from Shoe Mania’s attorney Paul Sod claiming that the store had closed all its stores and was in the process of liquidation. Sod, in the letter, said he would serve as a “Non Court-appointed receiver.” The letter stated the company had formed an entity called SM Dissolution Corp., but court records show the entity was formed on June 22. The bank is claiming that Shoe Mania knew that it was going out of business a month ago, but never provided any warning.

The lender is demanding an injunction against the retailer to block it from paying out any money or sell assets, and to force the firm to hand over any financial records. Shoe Mania has been in financial straights for several years amid the economic downturn, and has shuttered previous stores at 11 West 34th Street and 30 East 14th Street. In 2009, 150 current and former employees filed suit alleging the chain owed them $3 million in back wages and overtime.

The store later settled for about $600,000 and by March of this year workers ratified a deal in to join the Retail, Wholesale and Department Store Union, which provided annual raises and commission payments. “It’s obvious that throughout this process the company was not doing great,” said Phil Andrews, director of the retail organizing project for the union.

The Real Deal previously reported that 654 Broadway, a 19,929-square-foot residential building, was sold for $10 million to Acadia Realty Trust after a March foreclosure auction by CIT Group, the lender for a condominium conversion project there. Shoe Mania leased a 2,900-square-foot commercial space in the building.

Andrews said the lawyer contacted the union and promised to hand over final checks and belongings to the workers, adding that nearly 60 are unionized and estimated that another 10 worked in management, online and office staff.

Sod declined comment. Lawyers for Bank Leumi said they did not have permission to comment on the case. A spokesman for Bank Leumi was not immediately available for comment. A spokesman for Acadia was not immediately available.