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BURLINGTON — A federal judge dismissed an involuntary bankruptcy petition filed against Koffee Kup Bakery on Tuesday after two days of hearings.

Colleen A. Brown, chief judge for the federal bankruptcy court in Vermont, sent the case back to the state court, finding the petitioning creditors had not made their case about how much the former crueller maker owed them.

Because the amounts Lily Transportation and Ryder Truck Rental say they are owed are in dispute, Brown said, they have not met the thresholds to continue their case in federal court.

On April 1, American Industrial Acquisition Corp. announced it had obtained a majority interest in Koffee Kup and its subsidiaries, Vermont Bread in Brattleboro and Superior Baking in North Grosvenor Dale, Conn. On April 26, though, employees arrived at all three locations arrived to find themselves locked out and out of jobs.

“For each of the last four years Koffee Kup has suffered substantial financial losses and was unable to find a way out of their troubles,” states a news release that came from Jeff Sands, a “turnaround” specialist at Dorset Partners and the senior adviser in North America for AIAC. “Employees, lenders, suppliers and customers all went above and beyond to support Koffee Kup during that time.”

A dissolution receiver was appointed by Chittenden Superior Court Judge Samuel Hoar to insure the primary lender, KeyBank, received the nearly $8 million it was owed by Koffee Kup. When that debt was paid off, Hoar approved Dorset accountant Linda Joy Sullivan, who is also a state legislator, as the dissolution receiver overseeing the rest of Koffee Kup’s assets.

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Two other creditors, Hillcrest Foods, a product distributor, and Bernardino’s Bakery, which made Koffee Kup products in Massachusetts, signed on to the involuntary petition.

What is owed them, $176,000 and $690,000 respectively, is not in dispute, Brown noted.

And while Brown noted that Lily’s claim for $660,000 for past services was not in dispute, its contention that Koffee Kup’s breach of contract might mean it is actually owed nearly $3 million is in dispute. While Ryder’s claim for $477,000 for past services was also not in dispute, its claim for upwards of $2 million for vehicles under contract that were not purchased by Koffee Kup was derailed by a dispute over how Ryder devaluates its vehicles.

Brown found that the most appropriate venue to assure all creditors get their fair share was the state court, overseen by Hoar and conducted by Sullivan.

Bob Audette can be contacted at

Bob Audette can be contacted at