Lawyers call
trial move a win for
‘old’ Liberty House

A judge says the battle
for control of the store belongs
in Hawaii

By Peter Wagner
Star-Bulletin

Attorneys for the "old" Liberty House board of directors -- in clear control of the company before a "new" board was appointed by the Bank of America Group last month -- are claiming victory after a Philadelphia court sent their dispute to Hawaii.

"It's clear the banks fought tooth and nail to keep this dispute away from Hawaii," said Larry Wolfson, attorney for Liberty House owner JMB Realty Corp. in Chicago yesterday. "We can only speculate as to their reasons."

U.S. District Judge William H. Yohn Jr. in Pennsylvania yesterday denied a request by the lending group to hear the case in Pennsylvania, where Liberty House is incorporated. He said the case belongs in Hawaii, where Liberty House operates, and where bankruptcy proceedings are in progress.

"It would be extremely burdensome and inefficient to both the court and the parties to litigate these two actions on opposite ends of the United States," he wrote in his order.

The case yesterday was ordered to U.S. District Court in Honolulu.

The Bank of America-led group of lenders, which says it is owed $173 million, argued Pennsylvania would be more convenient for principals based in Illinois and Massachusetts.

But the real battle -- which of the two boards is in control of Liberty House -- lies ahead.

The issue before the Hawaii court will be whether the lending group was justified in its abrupt boardroom takeover on March 19. The bank group that day obtained an injunction from the Pennsylvania Court of Common Pleas barring the old board from acting in behalf of Liberty House.

That action angered the JMB-backed board and triggered a hasty bankruptcy filing to protect the company's assets from liquidation.

"They effectively gave us no notice whatsoever," Wolfson said of the bank's takeover attempt. "They had all the Philadelphia papers prepared to be filed first thing on March 19 while they were talking to us about cooperation and working with us in the future on March 18."

The old board responded to the injunction by having the case moved to a Philadelphia federal court, where it asked the matter be transfered to U.S. District Court in Hawaii.

Attorneys for the bank group say it was justified in appointing a new board of directors because Liberty House defaulted on a January loan payment of more than $1 million. The lending agreement allows such action when payments are in default, they say.

Bank of America Group, which is not contesting the company's bankruptcy, recently extended $50 million in emergency financing to Liberty House, money the company desperately needs to resume business.