C & J Clark America, Inc. v. Carol Ruth, Inc.

C & J Clark America, Inc. v. Carol Ruth, Inc.

Opinion

 [*88]  MEMORANDUM DECISION ON APPLICATION FOR INJUNCTION OR STAY

TINA L. BROZMAN, UNITED STATES BANKRUPTCY JUDGE

Fortunately, since the issuance of the decision by our circuit court of appeals in Ross v. Kirschenbaum (In re Beck Industries, Inc.), 605 F.2d 624 (2d Cir. 1979), it is indeed rare that the bankruptcy court is confronted with an assertion that the integrity of an auction sale which it held was tainted by the conduct of a fiduciary who was a bidder for the estate's assets. This, unfortunately, is one of those rare cases. A preliminary injunction is sought to permit this court an opportunity to consider whether the fiduciary  [**2]  purchased from the estate a particular claim the existence of which was never disclosed in the debtor's schedules and statement of affairs signed by that fiduciary and, if the fiduciary did purchase the claim, whether the sale should be set aside.

Wingspread Corporation (Wingspread) and its 13 wholly owned subsidiaries were engaged in manufacturing and marketing of a broad variety of apparel products. On April 8, 1987, Wingspread and 12 of its 13 subsidiaries (the Debtors) filed chapter 11 petitions with this court and were continued in operation of their businesses and possession of their property. Efforts to obtain an equity infusion or ongoing permanent financing were not successful. Over the course of time, as the Debtors sold the assets of a number of their businesses to alleviate their financial hemorrhaging, it became apparent that, at best, a liquidating reorganization would occur. Even that was ultimately out of reach; there were insufficient monies on hand to pay all administrative creditors in full on confirmation of a plan, and those creditors and the secured creditors were unable to agree on the terms of a plan which would have divided the assets among them. On  [**3]  October 3, 1988, after the record on this motion was closed, all of the Debtors' cases were converted to chapter 7 liquidations.

The cast of characters in this unfolding drama is headed by Norman Hinerfeld (Hinerfeld), who was the chairman of the board of directors and chief executive officer of Wingspread. It was Hinerfeld who executed the Debtors' chapter 11 petitions and their schedules and statement of affairs. A number of corporations of which Hinerfeld is a principal figure prominently. The first is HDZ Corporation (HDZ), which made a written proposal to the Debtors and their Committee of Unsecured Creditors (the Committee) to purchase certain assets  [*89]  of the estates. The actual bid was made by another Hinerfeld entity, Pandora Industries, Inc. (Pandora Industries), as successor to HDZ. Title to the assets on which Pandora Industries bid was taken by a third Hinerfeld entity, Carol Ruth, Inc. (CRI), the defendant in this adversary proceeding. CRI's counsel represented to the court that CRI is a group composed of Pandora Industries, a Mr. Paul Jones and a Mr. William Shasky. The plaintiff in this adversary proceeding is C & J Clark, Inc. (Clark), also a purchaser of assets  [**4]  from the Debtors. Clark had a pre-existing relationship with one of the Debtors, Champion Pants, Inc. (Champion), pursuant to which Champion sold certain goods to Clark.

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