Ex-CEO denied access to $2 million payment MGR money frozen until negligence claim is settled

June 15, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

The former head of Merry-Go-Round Enterprises still can't have unfettered access to almost $2 million that he says he is owed under his employment contract with the bankrupt retailer, a Baltimore-based bankruptcy court judge has ruled.

Judge E. Stephen Derby said former Merry-Go-Round chief Richard P. Crystal can draw on a letter of credit the company established to guarantee payment of his salary only if he puts the money in a court-controlled escrow account.

In effect, the judge's order on Wednesday continues to bar Crystal from withdrawing the $1.6 million to $1.9 million to which he says he is entitled. The order is designed to keep the money within the court's reach until Crystal and the company's bankruptcy trustee, Baltimore attorney Deborah Devan, finish litigating Devan's claim that Crystal ran Merry-Go-Round so negligently in its final days that he breached his contract.

Under usual circumstances, Crystal would be able to get the money now and pay it back if he lost the case later. But Derby found that Devan met a key legal test for an injunction to secure the money by showing she "has a likelihood of success" in her bid to overturn the contract.

The judge also granted the injunction because creditors might be irreparably hurt if Crystal gets the money without restrictions and later can't pay it back, while Crystal is unlikely to be hurt if he has to wait for the money until after he wins the case.

"[Crystal] will not incur irreparable harm if relief is granted because defendant has another job, the premature obtaining of which is a subject of the trustee's complaint," Derby wrote. "[The] defendant does not need immediate access to the funds."

The order continues temporary injunctions that have been in place since March.

Crystal is now chief executive of Lerner New York, a division of

Limited Inc. with $1 billion in an-

nual sales and 835 stores geared toward working women. His appointment was announced March 20.

The judge's reasoning failed to impress Crystal's attorney, John M. Callagy, who said he has already appealed the order to the U.S. District Court in Baltimore.

Devan and her attorneys could not be reached yesterday.

Callagy said Crystal did not breach the contract he signed when he was recruited last year, a year after the company sought bankruptcy court protection.

Crystal has said that the contract called for the letter of credit so his money would be put aside and he would be paid even if saving Merry-Go-Round proved impossible.

On the other side, attorney Price Gielen has claimed that Crystal "washed his hands" of Merry-Go-Round about Feb. 15, shortly after the Feb. 2 announcement that the company would abandon reorganization efforts and close the last 536 stores of what was once a 1,500-store chain.

The trustee has claimed Crystal's actions cost Merry-Go-Round's creditors up to $3 million.

Pub Date: 6/15/96

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