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ZEILER v. WORK WEAR CORP.

April 7, 1978

NORMAN ZEILER, Plaintiff,
v.
WORK WEAR CORPORATION, Defendant



The opinion of the court was delivered by: WERKER

MEMORANDUM DECISION

 HENRY F. WERKER, D.J.

 Plaintiff Norman Zeiler brings this action to recover principal and accrued interest on a series of 5% convertible subordinated debentures (the Debentures) which were issued to him by defendant Work Wear Corporation (Work Wear). Zeiler alleges that the occurrence of several specified events of default entitles him to accelerate Work Wear's obligations under the provisions of the debentures. The matter comes before the Court on Work Wear's motion for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, but inasmuch as both parties have submitted affidavits with their papers, that motion has been treated as one for summary judgment under Rule 56(b), in accordance with Rule 12(c), Fed. R. Civ. P.

 The circumstances giving rise to this lawsuit are as follows: In June of 1968, the United States filed a civil antitrust action against Work Wear in the United States District Court for the Northern District of Ohio, claiming that Work Wear, a manufacturer and supplier of work clothes also engaged in industrial laundering and garment rental, had violated section 7 of the Clayton Act, 15 U.S.C. ยง 18, by acquiring twenty-five affiliated industrial laundries and three manufacturers of work clothing. After issue was joined in that suit, the parties entered into a consent agreement requiring that Work Wear, at its option, divest itself of either eight designated manufacturing facilities or eleven designated industrial laundries by September 23, 1974, and Judge Robert B. Krupansky of the Northern District of Ohio, entered that agreement as a Final Judgment (the Final Judgment). Subsequently, Work Wear filed a notification of its intention to divest itself of the laundries rather than the manufacturing facilities, as part of an agreement under which Judge Krupansky, on September 27, 1974, extended the deadline for divestiture to June 30, 1975. As of July 1, 1975, Work Wear had yet to dispose of seven of the laundries specified in the Final Judgment. Accordingly, the United States, on that date, filed a petition for an order to show cause why Work Wear should not be found in civil contempt, fined and directed to comply with the Final Judgment, as modified. Work Wear filed an opposing petition seeking an extension of time for compliance, a reduction in the number of laundries to be divested and appointment of a trustee if necessary in order to effect the more limited divestiture proposed by Work Wear. On August 15, 1975, Judge Krupansky granted Work Wear a further extension of time to December 31, 1976, based on what he termed "Work Wear's sincere efforts to timely accomplish complete divestiture," but he warned that failure to comply fully by that date would constitute a contempt of court for which a fine of $5,000 per day would be imposed. All other relief requested by the parties was denied.

 When Work Wear again proved unable to complete the necessary divestiture by the modified deadline, Judge Krupansky, by order dated January 15, 1977, found Work Wear in civil contempt and imposed a daily fine of $5,000 commencing January 1, 1977. Work Wear finally sold its laundries on June 26, 1977, pursuant to a June 13, 1977 agreement with ARA Services, Inc. (ARA). By that date, Work Wear had incurred a fine of more than $1 million under Judge Krupansky's January 15, 1977 order.

 The July 26, 1977 divestiture was accomplished through several transactions as follows:

 
(1) the transfer of Work Wear's domestic and foreign manufacturing operations and Canadian rental service business to Work Wear Corporation, Inc. (New Work Wear), its wholly-owned subsidiary;
 
(2) the spin off of all of New Work Wear's common stock to Work Wear common shareholders; and
 
(3) the merger of Work Wear's industrial laundry subsidiary (then its only asset) into ARA.

 Upon completion of these transactions, on August 3, 1977, the United States and Work Wear entered into a stipulation that Work Wear's divestiture obligations under the Final Judgment had been "fully and finally performed on July 26, 1977." Judge Krupansky adopted that stipulation in an order filed the next day.

 The instant action was commenced in October of 1976. In his original complaint, Zeiler asserts two causes of action. In the first such cause of action, it is claimed that an event of default has occurred under paragraph 4(f) of the debentures, which reads as follows:

 
4. In case one or more of the following Events of Default shall have occurred and be continuing, that is to say:
 
* * *
 
(f) if [Work Wear] shall, on a petition in bankruptcy filed against it, be adjudicated a bankrupt or a court of competent jurisdiction shall enter an order or decree appointing, without the consent of [Work Wear], a receiver of [Work Wear] or of the whole or substantially all of its property, or approving a petition filed against it seeking reorganization or arrangement of [Work Wear] under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or ...

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