La Mode: Assets, $50K; Debts, $1M to $10M

Defunct garment firm La Mode, Inc. has declared the value of its assets at no more than $50,000 in its petition for bankruptcy before the U.S. Bankruptcy Court in the Central District of California in Los Angeles.

La Mode told the bankruptcy court that liquidation of its assets would not be enough to pay off all its creditors. Estimated number of creditors range from 200 to 999.

In contrast to the low value of assets, the company’s declaration of estimated debts range from $1 million to $10 million.

“[The] debtor estimates that, after any exempt property is excluded and administrative expenses paid, there will be no funds available for distribution to unsecured creditors,” La Mode declared in its bankruptcy petition.

The company, through lawyer David W. Levene, filed the petition Monday (L.A. time). U.S. bankruptcy judge Theodor C. Albert presides over the case.

The company said it has been domiciled at California’s central district for 180 days immediately preceding the filing of the petition.

La Mode is seeking a bankruptcy declaration under Chapter 7 of the Bankruptcy Code, which involves the liquidation of assets to pay off creditors to the extent possible and to free itself as debtor so it can start anew.

La Mode stopped its Saipan operations on April 25. It has an affiliate company in California, Golf Apparel Brands Inc.

La Mode’s creditors include the Commonwealth government, local suppliers and vendors, and some workers, according to the company’s Saipan-based attorney, Richard W. Pierce.

Joe Hill, attorney for some 121 workers who have filed a multi-million-dollar lawsuit against La Mode before Saipan’s federal court, said he is considering several options in the face of the company’s bankruptcy petition. The filing of the bankruptcy petition automatically stopped other court proceedings that involve claims against La Mode.

Hill said he is studying whether he would oppose the petition or request the bankruptcy court for relief from the temporary stay on the workers’ lawsuit before Saipan’s federal court.

Earlier this month, some 121 workers filed a lawsuit against La Mode, alleging illegal termination of employment, unpaid wages and overtime and illegal wage deductions or kickbacks.

The workers are seeking a multi-million-dollar judgment against La Mode and its owners, Edward and Barry Kahn. The workers also impleaded Golf Apparel Brands Inc. as defendant, saying that both companies operated as single employer.

The workers claimed that La Mode failed to provide 60-day advance notices to them about mass layoff as required by the Worker Adjustment and Retraining Notification Act. Hill asked the court to impose a civil penalty of $500 for each day of alleged WARN Act violation. He added that the terminations violated most of the workers’ employment contracts.

Hill also said some of the workers were required by La Mode’s agents in China to pay substantial sums of money as recruitment fees as a condition of employment. La Mode allegedly required some of the workers to pay for employment processing fees and medical expenses in violation of the Nonresident Workers Act and in breach of their employment contracts.

Hill also said some of the workers were required to work more than 40 hours per workweek without paying them overtime in violation of the Fair Labor Standards Act. He said the company failed to compensate the workers for all regular and overtime hours worked each week.

He said the workers received paychecks below the minimum wage for certain pay periods when La Mode made unauthorized deductions for employment processing fees, which violated not only the NWA but also the Minimum Wage and Hour Act and the Alien Labor Rules and Regulations.

Hill said the defendants should be made to pay the workers the amounts of unauthorized deductions plus damages. He also said the defendants should pay for the repatriation costs of the workers.

La Mode has resigned from the monitoring program of the Garment Oversight Board, which came to existence after Saipan’s U.S. District Court approved a $20-million settlement agreement in consolidated class actions by thousands of garment workers against manufacturers and other apparel companies.

La Mode’s resignation came about following the GOB’s decision to have a special inspection to monitor the company’s compliance with settlement conditions.