In re Barney's, Inc.

• Decision Date: 05 August 1996
• Docket Number: Bankruptcy No. 96 B 40113 to 96 B 40133.
• Citation: 197 BR 431
• Parties: In re BARNEY'S, INC., et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

197 B.R. 431 (1996)

In re BARNEY'S, INC., et al., Debtors.

Bankruptcy Nos. 96 B 40113 to 96 B 40133.

United States Bankruptcy Court, S.D. New York.

June 21, 1996.

As Amended August 5, 1996.

COPYRIGHT MATERIAL OMITTED

LeBoeuf, Lamb, Greene & MacRae L.L.P., New York City, for Debtors.

Stroock & Stroock & Lavan, New York City, for Official Committee of Unsecured Creditors.

Marcus Montgomery, P.C., New York City, for Amalgamated Insurance Fund.

MEMORANDUM DECISION ON DEBTORS' MOTION FOR AN ORDER REMOVING THE AMALGAMATED INSURANCE FUND FROM THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS

JAMES L. GARRITY, Jr., Bankruptcy Judge.

Barney's Inc. ("Barney's") and its 19 debtor affiliates (collectively, the "Debtors") have moved by order to show cause for an order pursuant to § 105(a) of title 11, United States Code (the "Bankruptcy Code"), removing the Amalgamated Insurance Fund (the "Fund") from the Official Committee of Unsecured Creditors (the "Committee"). The Committee supports the motion. The Fund and Office of the United States Trustee (the "United States trustee") oppose it. For the reasons stated herein, the motion is denied.¹

Facts

The facts as established during the evidentiary hearing on this motion are as follows. On January 10, 1996, Debtors filed separate petitions for relief under chapter 11 of the Bankruptcy Code in this district. Pursuant to §§ 1107 and 1108 of the Bankruptcy Code, they have been continued in possession and control of their businesses and assets as debtors-in-possession.

Promptly after these cases were commenced, the United States trustee scheduled a January 22, 1996 organizational meeting, and at its request, Debtors so notified their 40 largest unsecured creditors, on a combined basis. At that meeting approximately 40 entities submitted Creditors' Committee Acceptance/Rejection Forms to the United States trustee seeking appointment to the committee of unsecured creditors in formation. The Fund and the Amalgamated Retail Insurance Fund ("Retail Fund") were among them. The United States trustee reviewed those forms during the meeting and immediately thereafter appointed a committee consisting of the following creditors:

Connecticut General Life Insurance Co. ("CIGNA")

The Travelers Insurance Company

Teachers Insurance & Annuity Association

Allstate Life Insurance Company

Republic National Bank of New York ("Republic")

NatWest Bank, N.A.

Protective Life Insurance Company

Chemical Bank

Isetan of America, Inc.

CIT Group

Sanwa General Equipment Leasing

BNY Financial Corporation

Hugo Boss Fashions, Inc.

The Donna Karan Company

Hickey Freeman Co., Inc.

The United States trustee then advised that any disappointed creditor could explain in writing why the Committee did not adequately represent its interest. Mr. Jeffrey Warbet, as the Fund's acting Assistant Deputy Plan Administrator, did that in a letter dated January 23, 1996. In relevant part, it states:

I am writing this letter to formally request that the United States trustee reconsider its decision and appoint the Fund to the Committee. . . .

On January 22, 1996, the United States trustee appointed 15 Trade and Debt Creditors to the Committee. Based upon the present composition of the Committee, I believe that the Committee fails to represent the over 1000 Union employees, which are employed by Barneys Inc. and represented by the Union of Needletrades, Industrial & Textile Employees (hereinafter, "UNITE"), successor in interest to the Amalgamated Clothing and Textile Workers\' Union, AFL-CIO, CLC (hereinafter, the "ACTWU").

In connection with the Collective Bargaining Agreements made by Barneys Inc. and ACTWU, Barneys Inc. is currently obligated to contribute to two separate Health and Welfare and Pension Funds, the Amalgamated Insurance Fund; and the Amalgamated Retail Insurance Fund (hereinafter, the "Pension Funds"). Each one of the Pension Funds is currently in the process of preparing to file Unsecured Non-priority Proofs of Claim in the amount of $1.5 million with the Clerk of the U.S. Bankruptcy Court.

The Union employees of Barneys Inc. clearly have an interest in all actions and determinations that have or will be made by the Committee and seek to have a voice. That voice is currently not represented on the Committee.

See Objection of the United States Trustee to Order to Show Cause Why Debtors Should Not Be Entitled to Entry of an Order Pursuant to Section 105(a) of the Bankruptcy Code Removing the Amalgamated Insurance Fund from the Official Committee Of Unsecured Creditors ("United States trustee's Objection"), Ex. D.²

On or about January 25, 1996, CIGNA resigned from the Committee. The next day, the United States trustee appointed Zurich Management, Inc., f/k/a Kemper Asset Management, in CIGNA's place. See United States trustee's Objection, Ex. F.

By letter dated February 16, 1996, Warbet renewed the Fund's request for Committee appointment. In part, that letter states:

Again, I ask that the United States trustee reconsider its decision and appoint the Fund to the Committee to represent the over 1000 Union employees which are employed by Barneys Inc. and are represented by UNITE. . . .

See United States trustee's Objection, Ex. G. That day, Diana G. Adams, Esq., an attorney with the United States trustee, spoke to Warbet by telephone about the Fund's request. She followed up that conversation with a letter dated February 20, 1996. That letter reads, in part, as follows:

In response to your letter dated January 23, 1996, and as we discussed on the telephone on February 16, 1996, we have considered the request of UNITE that it be added to the Committee. . . .

As I informed you in our conversation, the Committee, as presently constituted, has fifteen members. Due to the procedural difficulties that may be encountered when an even number of members are appointed to a committee, it is the policy of this Office to form committees with an odd number of members. In view of this policy, I suggested that (i) UNITE contact the Committee directly to discuss the possibility of serving on the Committee in an ex officio capacity, or (ii) await the resignation of a member of the Committee at which time this Office would consider appointing UNITE to replace the resigning member. Please note that this Office cannot guarantee that UNITE will be appointed in such event; this Office will consider all facts that exist at the time such member resigns.

See United States trustee's Objection, Ex. H. By letter dated February 29, 1996, Warbet wrote to Committee counsel requesting that the Fund be appointed to the Committee as an ex officio member. See United States trustee's Objection, Ex. I. Apparently, the Committee did not respond to the Fund's overtures until March 18, 1996, when counsel to the Committee informed Mr. Warbet that the Committee had declined the Fund's request. However, on or about March 13, 1996, Republic resigned from the Committee. After reviewing the contents of Warbet's January 23 and February 16 letters, the United States trustee selected the Fund to take Republic's place on the Committee. See United States trustee's Objection, Exs. J and K.

By separate letters dated March 21, 1996, Debtors and the Committee objected to that appointment and requested the United States trustee promptly to remove the Fund from the Committee on the grounds that the Fund is not a creditor of the Debtors. See United States trustee's Objection, Exs. L and M. The Debtors explained that they "have no outstanding obligations to the Fund, or for that matter, any union or union related entities of the various Debtor's estates" because "all prepetition amounts owed to the Fund were paid by the Debtors pursuant to `first day' orders of the Bankruptcy Court." United States trustee's Objection, Ex. L., p. 1.

The Fund and Retail Fund responded to those letters by letter dated March 25, 1996 (the "March 25 letter"). They contested the attempts by Debtors and the Committee to minimize their role in these cases or their ability to represent the interests of all creditors. They made the following points, among others:

(i) Although the Fund does not hold a liquidated prepetition claim, the Retail Fund is owed $62,000 prepetition and both funds filed contingent proofs of claim aggregating in excess of $2.8 million.

(ii) The Retail Fund\'s collective bargaining agreement is scheduled to expire on or about April 10, 1996; the Fund\'s agreement is scheduled to expire in November 1997.

(iii) Given the Funds\' long history and knowledge of the Debtors, the Fund\'s appointment to the Committee is in the best interest of all creditors.

See United States trustee's Objection, Ex. N, pp. 1-3. Moreover, they cited In re St. Johnsbury Trucking, et al., 184 B.R. 446 (Bankr.S.D.N.Y. Conrad, J.), In re Leslie Fay Companies, Inc., et al., 181 B.R. 156 (Bankr.S.D.N.Y. Brozman, J.), and In re Leaseway Holdings, Inc., No. 92 B 22373 (Bankr.S.D.N.Y. Hardin, J.), as cases pending in this district in which multiemployer pension funds have been appointed to creditors' committees. Id., p. 3. They also noted that the Fund is a member of the creditors' committee in In re Plaid Holding Group, Nos. 95 B 43065 through 43074 (Bankr. S.D.N.Y. Abram, J.), "based upon the existence of a contingent withdrawal liability claim." Id. They cited several reported decisions in which courts allegedly appointed creditors holding contingent, disputed, unmatured or unliquidated claims to creditors' committees, and stated that additional complex collective bargaining issues under § 1113 of the Bankruptcy Code "are on the horizon which are certain to affect the Debtors' reorganization efforts and which will have an impact on all creditors". Id., pp. 3-4.

By "follow-up" letter brief dated March 26, 1996 (the "March 26 letter"), Debtors responded to the March 25 letter and "further amplified" their objection to the Fund's appointment to the Committee. See United States trustee's...