JMB sues
for control of
Liberty House

It seeks a court order declaring
a competing board has no right
to run the chain

By Peter Wagner
Star-Bulletin

A $50 million loan to Liberty House has yet to fully materialize as the retailer continues to struggle, says Liberty House parent JMB Realty Corp., which has filed a complaint in U.S. District Court accusing lender Bank of America Group of trying to "hijack" the company.

"Liberty House's business already has suffered grievous injury, and is being injured further each day, because delays and uncertainties inherent in the bank's financing proposal have prevented Liberty House from using funds to obtain new merchandise that it desperately needs," says the complaint.

JMB is seeking a federal court order declaring that it's board of directors is the only panel with the right to run the Hawaii retail business.

The lawsuit, which seeks a jury trial, charges that another board appointed by banks that lent money to Liberty House is wrongfully trying to seize control of the company and is interfering with its bankruptcy reorganization effort.

Attorneys for Bank of America Group this morning declined comment on the matter, saying they hadn't seen the complaint.

The new suit adds yet another level of complexity to Liberty House's mounting legal woes, this one initiated by the JMB-backed board of directors seeking to invalidate a "new" board appointed by the bank in March. A closely related civil case recently transfered to Hawaii from a Philadelphia District Court was initiated by the bank-appointed board seeking to keep the other board from taking action in behalf of Liberty House. The former case has been assigned to District Judge Alan Kay and the latter to District Judge David Ezra.

JMB attorney Larry Wolfson said today the bank-initiated suit is moot because all Liberty House assets are currently under the control of the U.S. Bankruptcy Court. Wolfson said JMB has moved to dismiss the suit.

Continuing a dispute that became public on March 19, the day Liberty House filed for protection from its creditors in bankruptcy court, the lawsuit says that the board struggle may determine the success or failure of the reorganization effort. JMB also alleges that the bank group, led by Bank of America, does not have the retailer's best interests in mind.

The new complaint contends that the "banks' board has no rightful authority over Liberty House, but is acting to benefit a single group of Liberty House creditors (the banks) to the detriment of Liberty House itself and its other creditors, employees, customers and shareholders."

JMB bought Liberty House parent company Amfac Inc. in 1988 and since then the Chicago company has appointed directors to run the retailer. When the JMB-appointed board decided to file for Chapter 11 bankruptcy protection, the banks and a board of directors they named tried to stop the filing, JMB said.

Bank of America said at the time that it had a right to step in because Liberty House missed a $1 million payment on a $173 million loan.

Yesterday's lawsuit says that after the bankruptcy filing was made, the banks continued to try to "sabotage the proceedings" in court and also tried to stop Liberty House from getting an essential $50 million loan from General Electric Capital Corp.

In the end, Bankruptcy Court Judge Lloyd King last month did approve a $50 million loan for Liberty House, but the lender was Bank of America. JMB has since appealed that ruling, arguing that the GECC offer was a better deal.

John Monahan, Liberty House president, said he would not comment directly on yesterday's legal action but he issued a statement saying: "This is now a matter for the courts to decide. The management and employees of Liberty House are concentrating on the current restructuring and eventual successful reorganization of the company. We are focusing on our customers, our merchandise and our service."

Liberty House used an interim $13 million loan to restock its stores. But delays in the full financing, contingent on lenders' approval of planned appraisals of Liberty House assets, has left the retailer unable to fully compete, the JMB complaint says.

"Spring is a critical time for ordering clothing and other merchandise for the autumn," says the compliant. "If Liberty House were unable to persuade suppliers to accept and process its orders for those goods during the critical period of March and April, it would be at risk of falling into a disastrous competitive position later this year."