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IN RE UNISHOPS

March 4, 1974

In the Matter of UNISHOPS, INC., Debtor

Brieant, District Judge.


The opinion of the court was delivered by: BRIEANT

BRIEANT, District Judge.

Debtor and debtor in possession (hereinafter "Unishops") appealed to this Court from an order of Hon. Roy Babitt, Bankruptcy Judge, made February 6, 1974, denying its application to restrain all creditors of 13 so-called "first tier" operating subsidiaries and numerous "sub-subsidiaries" of Unishops (hereinafter collectively called "subsidiaries") from continuing with or instituting plenary actions in various state courts against subsidiaries to recover for goods sold and delivered and services rendered, allegedly to the subsidiaries, prior to the filing of the petition by their parent Unishops.

 The Bankruptcy Judge denied the application as a matter of law, holding that he lacked jurisdiction to grant at the instance of Unishops a stay of all state court proceedings, existing or contemplated against the subsidiaries.

 Because of the admittedly drastic effect which denial of this relief will have upon the debtor's estate and affairs, the Bankruptcy Judge granted a temporary stay until this appeal could be heard.

 On the argument of the appeal on February 28, 1974, this Court modified the stay so as to exclude therefrom actions against subsidiaries for goods sold or services rendered prior in time to the issuance of the "assumption letter" (see infra p. 427), but continued the stay as to all other actions, pending this decision.

 The Bankruptcy Judge held that no evidentiary hearing was required, since he was denying the application as a matter of law and after assuming the truth of Unishops' allegations, and taking them in the most favorable light.

 Accordingly, the sole question before us is whether the Bankruptcy Judge erred in so deciding as a matter of law, without an evidentiary hearing, that he lacked jurisdiction so to protect the interest of Unishops in its subsidiaries.

 No proceedings have been commenced in this Court or elsewhere by any of the subsidiaries to obtain the benefit of any chapter of Title 11 of the United States Code. Their affairs, unlike that of the parent, have not been brought within the umbrella of protection granted by that statute to debtors and to general creditors.

 We will summarize briefly what we consider to be the material facts. Apparently, these facts are not seriously disputed. It became clear on the oral argument before me that the Bankruptcy Judge was amply justified in treating the Unishops allegations as beyond dispute, and there was no need for an evidentiary hearing.

 Unishops, which filed its petition for an arrangement on November 30, 1973, and has since continued business as a debtor in possession, pursuant to an order of the Bankruptcy Judge, operated, through subsidiaries, several chains of discount stores, specialty stores and leased departments in retail stores. These included Bobbie Sue, Inc., a/k/a Famous Fashions; Perry's Shoes, Inc.; Unishops of Clarkins, Inc.; Nescott, Inc.; Terial Stationers, Inc.; Goldfine's, Inc.; Central Textile, Inc.; White Department Stores, Inc.; Unishops of Modell's Inc.; Unishops of Stars, Inc.; J.Z. Sales Corp.; Unishops of Giant Automotive, Inc.; and Uniquip, Inc.

 Through its subsidiaries, it was engaged in the sale at retail of various articles of clothing, cosmetics and paper goods. These activities included 39 free standing retail, so-called "discount" stores, 37 specialty stores, and 281 leased departments in stores owned by others.

 In May, 1973 Unishops agreed with certain financial institutions [hereinafter the "banks"], at their behest, that all merchandise intended for public sale by the subsidiaries would, in the future, be purchased by the parent, Unishops, Inc. Prior to that time, the various subsidiaries had purchased their inventory for public sale from their respective trade suppliers, each upon its own faith and credit. The obvious purpose of this change in procedure was to give the banks an "edge" in the event of fiscal collapse of the parent, which in fact did occur less than six months later.

 At the behest of the banks, each of Unishops' subsidiaries issued a disingenuous "assumption letter" dated June 1, 1973. The letter, signed by each applicable operating subsidiary, and sent to all its suppliers on the subsidiary's letterhead, ...


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