26 B.R. 1009 (S.D.N.Y. 1983), 82 Civ. 5712 , Matter of Braten Apparel Corp.
|Docket Nº:||No. 82 Civ. 5712 (GLG).|
|Citation:||26 B.R. 1009|
|Party Name:||In The Matter of BRATEN APPAREL CORPORATION, Debtor-Appellant, Bankers Trust Company, Petitioner-Appellee.|
|Case Date:||February 03, 1983|
|Court:||United States District Courts, 2nd Circuit, Southern District of New York|
Garrity, Connolly, Lewis, Lowry & Grimes, New York City, for debtor-appellant; Bernstein & Obstfeld, P.C., New York City, of counsel.
Moses & Singer, New York City, for petitioner-appellee; David B. Eizenman, New York City, of counsel.
GOETTEL, District Judge:
Appellate fact-finding is an atrocity. Whether such review is based upon the parties' briefs, a law clerk's bench memorandum, or even a personal reading of the record (which in this case consists of 2700 pages of trial testimony and 275 documents), it is always inferior to the original consideration of the evidence that has been given by the judge who personally presided over the trial. Despite this inherent shortcoming in appellate fact-finding, the debtor in this bankruptcy action asks this Court to overturn as "clearly erroneous" the factual findings of Bankruptcy Judge Roy Babitt, who, before deciding in a sixty-five page opinion that fraud had been practiced upon his bankruptcy court, listened to eighteen days of vague and conflicting testimony.
Hopefully, the following summary of the evidence and the findings of fact, which are discussed in greater detail by Judge Babitt, does no injustice to his well written opinion.
The debtor-appellant, Braten Apparel Corporation ("BAC"), is a clothing manufacturer which was incorporated by Milton Braten in 1968 and owned by him and his father-in-law. In 1971, the petitioner-appellee, Bankers Trust Company ("Bankers Trust"), entered into an agreement with BAC by which the latter obtained financing through a revolving credit arrangement. BAC prospered until the spring of 1974, when it began to experience financial difficulties, due in part to industry conditions.
In the summer of 1974, BAC learned of a potentially lucrative opportunity: the chance to purchase the Brookfield Division (the "Division") of the Philips Van Heusen Corporation, which was to be divested after several years of operating at a loss. Because the Division had previously been independently owned and operated by Herman Soifer, a friend of the Braten family who was then in retirement, he too was contacted regarding the acquisition. Unwilling from the outset to invest any of his own money in the venture, Soifer soon reached an agreement with the Bratens whereby he would manage the business, once it was acquired, but the Bratens alone would be responsible for raising all of the capital necessary for closing the deal and starting the operation. Soifer claims that because of this arrangement he never discussed any financial details with the Bratens and, until the very end of August, remained unaware of BAC's unsound financial condition. The same reason was offered to explain why, although both Soifer and BAC's president, Milton Braten, negotiated the terms of the deal with Philips Van Heusen, only Braten approached Bankers Trust in search of credit for the new venture.
Bankers Trust was aware of BAC's problems, however, and refused to extend the company further credit. Nonetheless, because the Division could be acquired in exchange for an agreement to assume its substantial debts and without the payment of cash, the acquisition negotiations continued and a closing date of August 7, 1974, was set. The papers that were prepared stated that Philips Van Heusen was the seller, BAC the acquirer, and "Brookfield Industries," a wholly owned subsidiary of BAC, the acquiring entity. The documents made no mention of Soifer, and he has since testified that, as of that time, he believed that he had no ownership interest in Brookfield Industries.
When soon thereafter a problem arose with respect to the use of the name "Brookfield Industries," a new subsidiary of BAC, "MBC Apparel Corporation," was created to serve as the acquiring entity. A few days later yet another name was adopted, and the acquiring entity became, once and for all, "Brookfield Clothes, Incorporated" (hereafter referred to simply as "Brookfield"). Delays caused by these name changes resulted in a postponement of the closing until August 12.
At about that time, Chase Manhattan Bank ("Chase") insisted that if it were to continue as Brookfield's factor, Milton Braten and Soifer would have to give personal guarantees of $250,000 each. Soifer agreed to do this after Braten allegedly advised him that BAC had no money available to invest in the new business. Both personal guarantees were given on August 13, at which point Brookfield began operations under Soifer's management, even though no specific agreement as to Soifer's precise place in the business appears to have been reached.
During the last stages of the negotiations and the closing itself, an attorney by the name of Walter Feldesman, who was both a friend of the Bratens and an acquaintance of Soifer, appeared on the scene to assist with the acquisition. Two questions about his role at that time were not convincingly answered by Feldesman and the others during the trial. First, there was disagreement about who his client had been: while at one point he had appeared to be representing both Soifer and Braten, it was later claimed that he had been representing only Soifer. Second, no one offered a credible explanation of why Feldesman's expertise had been needed approximately two weeks
before Soifer had allegedly learned of BAC's unsound financial condition.
It appears that the seriousness of that condition began to become known on August 23, when BAC's independent auditors reported very heavy losses and a substantial negative net worth for the company. 1 By August 26, it was clear that BAC would have to follow the advice of its regular counsel, Jules Hessen, to inform Bankers Trust of the auditors' findings and request further financing. (Hessen then resigned as counsel for BAC, purportedly because his firm did not customarily represent debtors.) When Braten followed Hessen's advice later that day, Bankers Trust again indicated that it would extend...
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