American National Bank and its parent company, Bank One, have filed a claim in Connecticut bankruptcy court seeking ownership of $1.2 million in cash receipts earmarked for the publisher clients of the LPC Group and frozen by the bank's lien earlier this month. The bank's action forced the book distributor into Chapter 11 bankruptcy last month (News, Apr. 8).
David Wilk, president of LPC, and his publisher clients counter that the bulk of the money, about 75%, doesn't belong to LPC, but represents the sales of books consigned to LPC to distribute. However, the attorney for Common Courage Press, a member of the creditors' committee, told PW he is confident that the publishers will ultimately regain control of that 75% stake.
The case could turn on whether or not the bank knew the books and receipts in question were consigned goods. If it did, the publishers would likely have a strong argument that the money belongs to them. The bank is also claiming that the publishers did not file a notice under the state's uniform commercial code that would have formally notified creditors that the books and receipts in question were on consignment. The publishers are claiming that there is no requirement for such a filing.
Attorney Tracey Saxe of the firm Saxe, Doernberger and Vita, who is representing Common Courage, told PW that he had previously been involved in a similar bankruptcy case. In 1989 Saxe represented a group of small independent publishers whose books and receipts were seized by a bank lender after Key Book Services, a Connecticut warehouse, filed for bankruptcy. Ultimately, a Connecticut judge ruled that the books and cash receipts seized were the property of the publishers (News, Aug. 4, 1989). In the judge's decision, he wrote, "where a secured creditor knows that goods rightfully belong to a consigner... the consigned goods are not subject to that creditor's lien."
Saxe told PW, "13 years later, it's the same kind of case." He said the bank's suit will force the court to hold a hearing (a date has not been announced) to rule on the seized receipts. "Since LPC never owned these books or the proceeds, it can't really transfer them," said Saxe. "The bank can't get a greater share of the proceeds than LPC is entitled to." Saxe also emphasized that the bank knew all along that the seized receipts were from consigned goods.
Wilk declined to give details of the negotiations with American National Bank. "It's still too early. The issues are complicated and there are a lot of lawyers involved. I prefer to remain vague and positive." He told PW that LPC continues to ship books ("ironically, April will be one of our best months") and said that the bank has agreed not to seize payments for titles received after LPC's filing.
