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FORDE v. KEE-LOX MFG. CO.

September 19, 1977

Cleveland FORDE, Plaintiff,
v.
KEE-LOX MANUFACTURING COMPANY, INC. and Burroughs Corporation, Defendants



The opinion of the court was delivered by: CURTIN

CURTIN, Chief Judge.

 This is an employment discrimination case in which the plaintiff alleges that the defendant, Kee-Lox Manufacturing Company, Inc., discriminated against him in violation of Title VII of the Civil Rights Act of 1964 and 42 U.S.C. § 1981. Until it ceased business operations in 1976, Kee-Lox manufactured carbon paper, typewriter ribbons, ditto masters, and similar materials in Rochester, New York. The plaintiff was employed by Kee-Lox from November 11, 1952 until October 30, 1974. During that time he worked as a material handler, a reel operator, a lacquer machine operator, a shipping clerk, and a foreman.

 On December 19, 1974, Kee-Lox filed a petition for an arrangement under Chapter XI of the Bankruptcy Act in the Eastern District of Pennsylvania. Receivers were appointed shortly thereafter. The arrangement apparently failed because, on August 12, 1976, Kee-Lox was adjudicated a bankrupt, and a trustee was appointed. Two days later, on August 14, 1976, Kee-Lox discontinued its business operations and terminated all of its remaining employees.

 At a special meeting of the creditors held on September 22, 1976, defendant Burroughs Corporation offered to buy most of the noncash, nonpersonal assets of Kee-Lox. The offer was approved by the Bankruptcy Court in an order dated September 28, 1976, in which the court directed the trustee in bankruptcy to transfer the noncash, nonpersonal assets of Kee-Lox to Burroughs "free and clear of liens, including tax liens, if any, claims, encumbrances, demands and rights of creditors, or any other person. . . ."

 The plaintiff filed this lawsuit on October 12, 1976, against both Kee-Lox and Burroughs Corporation. The Bankruptcy Court on October 27 restrained the plaintiff from continuing his action against Kee-Lox. The plaintiff is now proceeding against the Burroughs Corporation, alleging that Burroughs plans to continue the Kee-Lox business without substantial interruption, or change in its operations, and therefore has succeeded to Kee-Lox's liability for employment discrimination. The plaintiff does not allege that Burroughs has itself discriminated against him, but only that Burroughs is responsible for discrimination committed by Kee-Lox up until the time of the plaintiff's termination in December, 1974.

 This case is before the court on defendant Burroughs' motion to dismiss or, in the alternative, for summary judgment. The plaintiff has filed a cross motion for summary judgment. Since matters outside the pleadings have been presented to and considered by the court, the defendant's motion shall be treated as one for summary judgment under Rule 56 of the Federal Rules of Civil Procedure.

 The court heard oral argument on both motions on February 14, 1977, and the issues have been extensively briefed by the parties. In reaching its decision, the court has carefully considered the following supporting papers: the affidavits and accompanying exhibits of Gerald L. Paley, Esq., J. Roy Henry, John W. O'Leary and Val E. Coluni, for the defendant; the defendant's memorandum of law; the letter briefs of the defendant's attorneys dated February 24, March 7, and April 19, 1977; the affirmations and accompanying exhibits of Emmelyn Logan-Baldwin, Esq., dated January 13, 1977 and February 14, 1977, for the plaintiff; the affidavit of Cleveland Forde, plaintiff; and the letter briefs of the plaintiff's attorney dated January 13, February 9, February 16, March 1, and May 16, 1977. For the reasons stated below, summary judgment is granted to the defendant.

 The defendant bases its motion on three grounds. First, it asserts that it purchased the Kee-Lox assets through the Bankruptcy Court free of all claims, and therefore cannot be held liable for employment discrimination by Kee-Lox. Second, Burroughs argues that it cannot be treated as Kee-Lox's "successor" because it has not continued Kee-Lox's business operations without substantial interruption or change. Finally, Burroughs claims that the plaintiff's failure to file a charge against Burroughs with the Equal Employment Opportunity Commission is a jurisdictional defect compelling dismissal of the complaint. Because the court believes that its ruling on the first ground renders consideration of the other two unnecessary, the following discussion is limited to the first set of arguments raised by the parties.

 Under § 70 of the Bankruptcy Act, the trustee in bankruptcy takes title to all non-exempt property of the bankrupt by operation of law. 11 U.S.C. § 110(a). One of his responsibilities is to liquidate the estate and distribute the proceeds to the bankrupt's creditors. 11 U.S.C. § 75. Included among the trustee's liquidation powers is "the power to sell the bankrupt's property, free of all claims, liens, or incumbrances." Van Huffel v. Harkelrode, 284 U.S. 225, 227, 52 S. Ct. 115, 116, 76 L. Ed. 256 (1931); 4A Collier on Bankruptcy para. 70.97, at 1133 (14th ed. 1976). Once the sale is approved by the bankruptcy court, the purchaser acquires legal and equitable title to the property purchased. The rights and quantum of property acquired by the purchaser depend on the terms of the sale as ordered by the court. 4A Collier, supra, para. 70.98, at 1198.

 In this case, Burroughs offered to purchase the Kee-Lox assets from the trustee at a private sale. The offer was accepted by the trustee, and approved by the Bankruptcy Court in an order providing in pertinent part:

 
ORDERED AND DECREED:
 
* * *
 
3. That Alfred Blasband, Trustee, be, and he hereby is, authorized, empowered and directed, upon receipt of the consideration above mentioned and hereinafter mentioned, and in accordance with the provisions of said Agreement, to grant, convey, sell, transfer and assign, at private sale, to Burroughs, free and clear of liens, including tax liens, if any, claims, encumbrances, demands and rights of creditors, or any other person, all of his right, title and interest, in and to: [the purchased Kee-Lox assets] . . . .

 The plaintiff's claim against Burroughs stems exclusively from its acquisition of the Kee-Lox assets and not from any employment relationship between Burroughs and the plaintiff. According to the express terms of the court's order, Burroughs acquired title to the Kee-Lox property free of all claims. ...


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