On October, 12, 2022, a New York bankruptcy judge ruled on Morgan Stanley and other defendants’ motions to dismiss a lawsuit filed by the litigation trustee for Tops Market LLC and allowed the lawsuit and all of its over $375 in damages to proceed. The case alleges that Morgan Stanley, which was a private equity owner of Tops, drove the grocery store chain into Chapter 11 bankruptcy after it paid out more than $375 million in dividends to itself and Tops’ other private equity owners, while ignoring the company’s massive unfunded pension liabilities that Tops’ employees depended upon. The suit seeks to hold the private equity owners accountable, while recouping money for Tops creditors.

Kyle Lonergan of McKool Smith, lead counsel for the plaintiff in Alan D. Halperin v. Morgan Stanley Investment Management Inc., et al, stated, “We are happy with the decision and look forward to prosecuting the case for the benefit of the creditors of Tops.”

There has been widespread media coverage of the decision.  

"Creditors of a bankrupt US grocery chain, Tops, have sued the chain's one-time owner, the private equity arm of Morgan Stanley."

"The Southern District of New York bankruptcy judge whose notable cases includes the Purdue Pharma restructuring used his parting ruling after two decades on the bench to call on Congress to tighten laws that he says give private equity a “broad free pass” to plunder businesses.

U.S. Bankruptcy Judge Robert Drain allowed a trustee in the bankruptcy for upstate New York grocery store chain Tops Market to proceed with a lawsuit alleging that Morgan Stanley, which had a controlling stake in Tops from 2007 to 2013, and other investors pushed Tops into Chapter 11 proceedings by paying themselves more than $375 million in stock dividends while neglecting to address the chain’s unfunded pension liabilities."

"A trustee for Tops Friendly Markets creditors can move forward with a lawsuit against Morgan Stanley and other company backers over dividends paid before the grocery chain filed for chapter 11, WSJ Pro Bankruptcy reported. The creditors filed the claims in 2020 against Morgan Stanley Investment Management and other former owners of Tops, alleging the private-equity owners paid themselves $375 million in dividends while leaving Tops insolvent, unable to cover its debts and pension obligations. Bankruptcy Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y., on Wednesday declined to dismiss the lawsuit, saying the trustee made a plausible argument to support the case despite the private-equity owners’ objections. The judge went beyond the Tops case to comment on how the Bankruptcy Code allows private-equity owners to “loot privately-held companies to the detriment of their non-insider creditors with effective impunity.” The lawsuit alleged that the private-equity owners made four separate dividend payments to themselves worth hundreds of millions of dollars while they were aware the company’s pension plans were significantly underfunded. The first $105 million paid out in October 2009 was made when the company was insolvent, the lawsuit said."

"A trustee for Tops Friendly Markets creditors can move forward with a lawsuit against Morgan Stanley and other company backers over dividends paid before the grocery chain filed for chapter 11."

"Morgan Stanley must face $375 million Tops creditor lawsuit. A bankruptcy judge declined to dismiss a $375 million lawsuit alleging Morgan Stanley Investment Management Inc. and other private equity investors bankrupted grocery chain Tops Friendly Markets."

"A trustee for Tops creditors filed the lawsuit in 2020 against Morgan Stanley and other former owners of the grocery chain, alleging they paid themselves dividends that left Tops insolvent, unable to cover its debts and pension obligations."

"Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y. denied the Tops owners' motion to dismiss, saying the trustee had made plausible allegations that Tops accumulated debt to pay four separate dividends worth $375 million while leaving its worker pension plans underfunded." — Akiko Matsuda and Soma Biswas

"A New York bankruptcy judge ruled Oct. 12 that a lawsuit filed by the litigation trustee for Tops Market LLC against New York-based Morgan Stanley and other defendants may proceed. The case alleges that Morgan Stanley, a onetime private-equity owner of Tops, caused the supermarket chain to file for Chapter 11 bankruptcy by having it pay out more than $375 million in “lavish and illegal dividends” to Morgan Stanley and Tops’ other private-equity owners, while running up $426 million in debt and saddling the grocery company with $515 million in liabilities from underfunded pension plans."

"A litigation trustee's $375 million in Chapter 11 fraudulent transfer claims against private equity investor Morgan Stanley can continue after a New York bankruptcy judge denied motions to dismiss the suit over a series of dividends that allegedly left debtor Tops Markets insolvent."

"A Morgan Stanley unit and other previous owners of the Tops Friendly Markets must face the bulk of a lawsuit accusing the investors of rendering the grocery chain insolvent while paying themselves $375 million in dividends."

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