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In Re: Adamson Apparel, Inc. v. Arnold H. Simon

August 14, 2012

IN RE: ADAMSON APPAREL, INC. DEBTOR,
THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF ADAMSON APPAREL, INC., APPELLANT,
v.
ARNOLD H. SIMON, APPELLEE.



ADVERSARY Case No. 2:06-AP-01953 ER

The opinion of the court was delivered by: VIRGINIA A. Phillips United States District Judge

JS-6

ORDER AFFIRMING BANKRUPTCY COURT'S JUDGMENT

The Court has received and considered all papers filed in support of Appellant The Official Committee of Unsecured Creditors of Adamson Apparel, Inc.'s Appeal from the United States Bankruptcy Court's judgment on January 14, 2011. This matter is appropriate for resolution without hearing. See Fed. R. Civ. P. 78; L.R. 7-15. For the reasons set forth below, the Court affirms the Bankruptcy Court's judgment.

I. BACKGROUND

Appellant The Official Committee of Unsecured Creditors of Adamson Apparel, Inc. ("Appellant") appeals from the January 14, 2011, judgment of the United States Bankruptcy Court for the Central District of California in favor of Appellee Arnold H. Simon ("Appellee" or "Simon") and against Appellant. (Appeal Opening Br. ("Appellant's Opening Br.") (Doc. No. 19) at 1.)

A. Factual Background

Adamson Apparel, Inc. ("Debtor") manufactures and sells clothing and accessories bearing the "Members Only," "Baby Phat," and "XOXO" trademarks. (Appellant's Excerpt of R. ("R.") at 2.) On April 18, 2002, Debtor entered into a number of agreements with CIT Group/Commercial Services, Inc. ("CIT") under which Debtor secured a loan from CIT with a lien on its assets and inventory. (Id. at 2-3.) Appellee Simon guaranteed the loan, signing a series of guaranties, including:

1) Limited Guaranty and Cash Collateral on November 12, 2002 (respectively, "11/12/02 Guaranty" and "11/12/02 Cash Collateral");

2) Limited Guaranty on February 11, 2003 ("2/11/03 Guaranty");

3) Amended and Restated Limited Guaranty on April 9, 2003 ("4/9/03 Guaranty");

4) Amended and Restated Cash Collateral Pledge Agreement and Amendment to Guaranty on April 25, 2003 ("4/25/03 Guaranty and Cash Collateral" or "4/25/03 Guaranty"); and

5) Limited Guaranty on August 5, 2003 ("8/5/03 Guaranty"), which was then amended by a Letter Agreement on December 2, 2003.

(R. at 3; 100-154.)

On December 18, 2003, BP Clothing LLC purchased $4,989,934.65 of inventory from Debtor. (Id.) Debtor directed BP Clothing to pay the purchase price to CIT so as to reduce the amount Debtor owed CIT on the debt. (Id.)

On September 28, 2004, Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code. On September 27, 2006, the Bankruptcy Court entered its order authorizing Appellant to prosecute certain litigation claims of Debtor's estate, including those claims against Simon which are the subject of this appeal.

B. Procedural Background

On September 28, 2006, Appellant filed its Complaint seeking to recover $4,898,934.65 as a preference under 11 U.S.C. ยง 547 from Simon because the Debtor directed this amount as ...


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