In Re Arlco, Inc.

239 B.R. 261 (1999)

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Nature of the Case

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Facts

Arley Corporation (D) and Home Fashions Outlet, Inc. (Home Fashions) each filed a petition under chapter 11 (June 6, 1997). D was engaged in the business of manufacturing, importing, and wholesaling home furnishings, window coverings, bedcoverings, and linens which were sold to retailers, one of which was Home Fashions, D's wholly-owned subsidiary. Home Fashions operated retail outlet stores in Massachusetts and California. Since early 1995, CIT Group/Business Credit Inc. (CIT) held a perfected security interest in substantially all D's assets, including accounts receivable and inventory. On September 15, 1997, the Court approved an asset purchase agreement for the sale of substantially all of the D's assets as a going concern. The asset purchase agreement included a requirement that Ds change their corporate names contemporaneously with the closing of the sale transaction. D changed its name to Arlco, Inc. and Home Fashions changed its name to HFO, Inc. On August 6, 1998, the chapter 11 cases were converted to chapter 7. Galey & Lord, Inc. (P) is a fabric manufacturer. P sold textile goods on credit to D. On May 16, 1997, P sent a letter to by fax, overnight courier, and certified mail demanding that D return the merchandise it 'received during the applicable periods referred to in [§ 2-702 of the Uniform Commercial Code]' and notifying D that 'all goods subject to P's right of reclamation should be protected and segregated and not used for any purpose whatsoever.' Subsequently, on May 21, 1997, P sent an additional notice detailing each invoice issued to Arley within the 10-day period prior to May 16, 1997, for the goods allegedly subject to reclamation. On June 9, 1997, P commenced an adversary proceeding against D seeking reclamation of the textile goods referred to in the May 16th Letter. Currently, before the Court are motions for summary judgment filed by P and by the Chapter 7 Trustee. The Trustee refutes P's contention in that 1) the reclamation notice was legally deficient, 2) P failed to prove what goods D still had on hand when P made its demand, and 3) P's right to reclamation is subject to CIT's perfected security interest.