In a precedent-setting move, a U.S. bankruptcy judge has granted employees of the Levenson & Klein furniture chain the right to be active participants in the liquidation of the bankrupt company.
U.S. Bankruptcy Judge James F. Schneider and other bankruptcy attorneys say it's the first time they can recall employees of any bankrupt company in Maryland getting such a status.
"As a whole, these employees have a case," Schneider ruled earlier this week. "Employees in cases such as this are creditors just as other creditors."
Schneider said the Levenson & Klein case was different from others because the company had so many long-time employees. Also at issue is the disposition of the employee's pension plan, severance pay, vacation pay and sick pay.
The concept of an employees' committee is unusual in bankruptcy. Normally, the only parties actively involved are secured creditors, the U.S. Trustee's office and a committee of unsecured creditors.
"A lot of individuals were hurt by this bankruptcy," said Robert B. Scarlett, who is representing the employees. "I don't know of any other employee's committee appointed by this particular bankruptcy court. And, I think it's an example of the care and consideration that the judges of this particular bankruptcy court have for individuals and their rights."
About 70 employees packed the courtroom at the U.S. District Court during a hearing Tuesday on whether the employees' committee should be involved.
"It makes you sick that after working for a company all those years you have nothing," said Robert Adams, 57, who worked for Levenson & Klein for 19 years, the last eight as its warehouse manager. Adams said the company still owes him $5,000 in severance pay.
Nearly 400 employees of the 72-year-old company were gradually let go over a two year period before the company filed for bankruptcy in July. By the end of December, only a handful were left.
"It's hard out here trying to find another job," said Lynwood Keene, 57, who worked 24 years as a delivery driver. "Everybody wants to pay you $5 or $6 a hour. I was making $8."
Shortly after the company filed for bankruptcy, a few employees contacted Scarlett about making sure they received all the money to which they were entitled.
"We were really shooting in the dark, hoping the impossible would happen, and it did," said Ron Beaumont, 60, who was director of interior design and had worked for Levenson & Klein for 39 years. "We knew we would be setting a precedent."
Scarlett credits the committee with making sure the last of medical-benefit payments were paid. He said the employees have also been questioning administrative expenses in the bankruptcy, such as dry-cleaning bills and a $69,000 accountant's bill.
"The point is, there is a committee trying to look after the interest of the employees. There seems to be a need in this bankruptcy for this type of committee," Scarlett said.
Immediately at issue is severance pay. The court has already approved the payment of more than $39,800 to 14 employees. The court also agreed that four senior employees could be paid $29,000 in "retention bonuses" they were promised as an inducement to stay on until the company closed.
Neither severance pay nor bonuses have been paid as promised.
Marilyn Simon, a New York-attorney who is representing Levenson & Klein in the bankruptcy, said there is about $49,000 in an escrow account. But she objected to paying employees while other claims such as lawyers' and accountants' fees are outstanding.
Her remarks were met with angry rumbles in the courtroom. "The attorneys should wait in line after the employees," Scarlett countered.
Naresh Mirchandani, 29, the firm's controller and one of the employees promised a bonus to stay on, said he felt betrayed when when he was finally fired in December. He said he has six children and only stayed on because of the bonus.
"I was relying on that money for Christmas," Mirchandani said. "What could I tell my children? That Santa didn't have money for gifts because it was in an escrow account?"
Lawyers for other parties also objected to the employees' committee.
"There is no question there are many employees and they have an interest. The question is, is it a sound interest?" asked Stanford Harris, an attorney representing a committee of unsecured creditors.
Simon and Harris argued that an employees' committee was just an added expense to Levenson & Klein's estate. Lawyers and accountants hired by such committees are paid by the debtor and are considered administrative expenses. These have a first priority and are paid before other creditors.
Before going bankrupt, Levenson & Klein had three stores located at Monument and Chester streets, on U.S. west of Rolling and on Pulaski Highway.