Petition for Writ of Certiorari — Urban Brands Inc. v. Oquendo, 127 S. Ct. 949 (2007) (No. 06-557)

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Supreme Court, oS.

. “ (!) FILER.

No. 06- 06-557 0CT 20 2006

se OFFICE OF THE CLERK

Supreme Court of the United States

URBAN BRANDS, INC.,

Petitioner,

EVELYN RODRIGUEZ-OQUENDO,

—

Respondent.

On PETITION FOR A WRIT OF CERTIORARI TO THE

SUPREME CouRT OF PUERTO RICO

<1 ste ae

ee atte a ttn re ene re a RN

PETITION FOR A WRIT OF CERTIORARI

AGUSTIN COLLAZO-MOo)IcA PREETA D. BANSAL

JorGeE E. PEREZ Counsel of Record

PIETRANTONI MENDEZ Jay B. KASNER

& ALVAREZ LLP Tmortuy G. NELSON

Popular Center, 19th Floor SKADDEN, ARPS, SLATE,

209 Mufioz Rivera Avenue MEAGHER & FLomM LLP

San Juan, Puerto Rico 00918 Four Times Square

(787) 274-1212 New York, New York 10036

(212) 735-3000

Attorneys for Petitioner

COUNSEL PRESS

(800) 274-3321 * (800) 359-6859

QUESTION PRESENTED

Whether a federal bankruptcy court's order made

pursuant to Section 363(f) of the Bankruptcy Code, which

authorizes a debtor's property to be sold "free and clear of all

interest in such property," as well as pursuant to the

incidental powers .conferred by Section 105(a) of the

Bankruptcy Code, may validly extinguish state common law

successor liability claims asserted against a purchaser of such

property of the debtor. :

STATEMENT OF PARTIES AND

STATEMENT PURSUANT TO RULE 29.6

Pursuant to Supreme Court Rule 29.6, Petitioner Urban

Brands Inc. states that it has no publicly traded parent, and

no publicly traded company holds 10% or more of the stock

in Urban Brands, Inc.

Except that the defendant in the proceedings below was

named as “Petrie Retail Inc. (Debtor in Possession) and/or

Centro Retail Corporation D/B/A Marianne," the caption

names all parties and/or participants in the proceedings

below.

ili

TABLE OF CONTENTS

Ace art iceightiniileinaiatinadiaactncnasiniassetnchenpensietcs l

' STATUTORY PROVISIONS INVOLVED................. 1]

STATEMENT OF THE CASE.......... DE ET AEN ER 2

REASONS FOR GRANTING THE PETITION.......... 8

I. The Decision Below Squarely Conflicts With

Precedent of the Third and Fourth Circuits.............. 9

A. The Third and Fourth Circuits Have Held that

Section 363(f) Orders Can Extinguish

"Successor Liability" Claims...............::csseceseesere 9

B. The Split in Authority on this Issue is Wide and

Deep, and Ripe for Resolution by this Court .... 14

II. The Interpretation of Section 363(f) By the Court

Below Undermines Important Federal Statutes and

PANN cis cc cciscinsiboileniaptisticnubadatidccbaeseiulzamlecd sass 16

SID ccisiecivnnicirsstinteniacaakvischasescnpeuscedsdbbeininbs 16

B. The Decision Below Undermines Important

Public Policies Enshrined in the Bankruptcy

C. The Decision Below Frustrates Congress's

Goal of Integrating Puerto Rico into the

PURINE TINY oo ciincchicsevesensoenesicteniomiceieceoss 21

CONCLUSION .........ccscsscsssssessesersserssssreseseeserssesensnssere 23

TABLE OF AUTHORITIES

CASES

In re All American of Ashburn, Inc., |

56 B.R. 186 (Bkrtcy. N.D. Ga. 1986)....... Wty the ae

In re Dow Corning Corp., 198 B.R. 214

(Banteh. ED. MiGH: 1996) vvvviscicccsossiscissseccesscvisscasses 11

Examining Board v Flores de Otero, 426 U.S.

FI LAE) icixintoinmladieiuiaehbinianaamunnets 21,22

Fairchild Aircraft, Inc. v. Cambell (In re

Fairchild Aircraft Corp.), 184 B.R. 910

CEG. WEL TE, TP heise cscsescdectecncoicsscejssocassessnss 15

Forde v. Kee-Lox Manufacturing Co., Inc.,

437 F. Supp. 631 (W.D.N.Y. 1977)............. 5, 19, 12

International Shoe Co v. Pinkus, 278 U.S.

BOE CEDEG) vitestiineaio skein destiatnesaestadtbeactiashcasticivanatn 20

Lefever v. K.P. Hovnanian Enterprises, Inc.,

FEM B28 LIE: TDD vvsssicsatsadsshesisscarapsvvetes 10, 17

In re Medical Software Solutions, 286 B.R.

431-CBankr. D. Uta 2002) sccsssicsscscsscescscsssreaese 12, 18

Myers v. United States, 297 B.R. 774 (S.D.

CHR, BOA ccctsvdncecibdccadssoocetndielciatdiisinaianasesactoins 13, 20

Nathanson v. Labor Board, 344 U.S. 25

CRE sis iacisiiihenivetattentvemic basement 4, 20

In re P.K.R. Convalescent Ctrs., 189 B.R. 90

CERRY. FEED VG. TIOSD seivissscscserncocacnptisesesessaisinacives 1]

Puerto Rico Department of Consumer Affairs

v. Isla Petroleum Corp., 485 U.S. 495

EE PES sonsrveststsscccbacciatadip oidatastied cavunatitalapiraclancisabie 24

Rubenstein v. Alaska Pac. Consortium (In re

New England Fish Co.), 19 B.R. 323

(Bankr. W.D. Wash. 1982)...........cccccessseeeeeees 5,9, 21

In re Segarra, 14 B.R. 870 (D.P.R. 1981).............. 8, 24

Simmons v. Mark Lift Industrial, Inc.,.622

TRAE CEP Clee BID Doescorsckeosbinep cctasipennieneneds 10, 17

Torres v. Puerto Rico, 442 U.S. 465 (1979) .........0000. 21

Trailer Marine Trans. Corp. v. Rivera

Vazquez, 977 F.2d 1 (1st Cir. 1992)...........ccssccceres 21

In re Trans World Airlines, 322

Fe ee Ge Gi AI sear hansanesncccepecressiesnenniet passim

UMWA 1992 Benefit Plan v. Leckie

Smokeless Coal Co. (In re Leckie

Smokeless Coal Co), 99 F.3d 573

“ ecle big g| OR nek EE BUR Aa cicada passim

Used Tire International Inc.

v. Diaz Saldana, No. 97-1028, 1997 U.S.

Dist. LEXIS 14016 (Sept. 8, 1997) 0.0.0... eee 21

Van Huffel v. Harkelrode, 284 U.S. 225

ERIE AD iatscecssscinssiidssccre ioe hasnssicatibasedasiabdsiiinarnpeacsaiiobadunis 12

Volvo White Truck Corp. v. Chambersburg

Beverage, Inc. (In re White Motor

Credit Corp.), 75 B.R. 944

CPOIEE. Deslals Sa AEE Picrsecisiviccsscnisenivsbsicineinvevies 12

WBO Partnership v. Commonwealth of

Virginia Department of Medical

Assistance Services (In re WBQ

Partnership), 189 B.R. 97 (Bankr. E.D.

AE Darra icttisksdeatlevelabiesstrtntasinciacihainatackins 11, 18, 22

Western Automobile Supply Co. v. Savage

Arms, Inc. (In re Savage Industrial, Inc.),

BS PSG TEAC Ce, SII sec vcitisrecsiiescevicinintarsnin 14

Zerand-Bernal Group, Inc. v. Cox,

23-F.36 159 (Tih Cir. 1994)....<...corsverersseovseseses passim -

CONSTITUTIONAL PROVISIONS

Sa COE. OG © BE Bins ctiitiemeioncdiinecies 20

STATUTES

BE UBC. © BOGE) vac ceccccnsccsccvens pshsheestenipenlianadiiuand passim

BAe ce ese ssvchineichcedininiditigniing hesiigsinteel passim

OUR BURR

PECEC: 8 188 21

AGE E58) Sy 2” SPRRM no tianete ort Meee Noe Sena Nee 21

MD SE Astaas SE FIO scisacacessnsaviphaoiamcesbedtacklesane srsensensenesaess 21

EG FO ci siccectsiseckianction ensccbesesesaticeacotrosonsons 21

BO Re TIE OO iciknisikvisisisctininminttviiniscoonsins 10

U.S. Sup. Ct. Rule 10(b).......... eisai eae 13

OTHER

Collier Bankruptcy Manual, 3d ed. 2002............ 4, 6, 13

William T. Bodoh & Michelle M. Morgan,

Inequality Among Creditors: The

Unconstitutional Use of Successor

Liability to Create a New Class of Priority

Claimants, 4 Am. Bankr. Inst. L. Rev. 325,

PO, Se CUE ccirsieasiccecsbinsdiiensevucinseneaivt 13,18

OPINION BELOW

The or ..»n of the court below is reported at Decisions

of the Su; .° .e Court of Puerto Rico, 2006 TSPR 26. A

certified English translation is enclosed in the Appendix.

(App. A. )

JURISDICTION

The judgment of the Supreme Court of Puerto Rico was

entered on April 11, 2006. The Supreme Court of Puerto

Rico issued an order denying a timely petition for -

reconsideration on May 23, 2006. (App. F.) On July 16,

2006, this Court granted Petitioner an extension of time

through October 20, 2006 to file this Petition.

The jurisdiction of this Court is invoked under 28 U.S.C.

§ 1258.

STATUTORY PROVISIONS INVOLVED

Section 363(f) of the United States Bankruptcy Code, 11

U.S.C. § 1 et seq. (the "Bankruptcy Code"), provides:

The trustee may sell property under subsection (b) or

such property of an entity other than the estate, only

if — |

(1) applicable nonbankruptcy law permits sale of

such property free and clear of such interest;

(2) such entity consents;

(3) such interest is a lien and the price at which

such property is to be sold is greater than the

aggregate value of all liens on such property;

(4) such interest is in bona fide dispute; or

(5) such entity could be compelled, in a legal or

equitable proceeding, to accept a money

satisfaction of such interest.

11 U.S.C. § 363(f). (See App. H at 80a.)

Section 105(a) of the Bankruptcy Code states that a court

may “issue any order . . . necessary or appropriate to carry

out the provisions of [title 11]."_ 11 U.S.C. § 105(a). (See

App. H at 73a.)

STATEMENT OF THE CASE

This Petition asks the Court to resolve a deep conflict

within the state and federal courts on the important federal

question concerning a federal bankruptcy court's power,

pursuant to Section 363(f) and 105(a) of the Bankruptcy

Code, to extinguish successor liability claims for purchasers

of a debtor's assets.

In late 1998, Petitioner Urban Brands purchased

Marianne Stores, a Puerto Rico department store chain, from

Petrie Retail, Inc. ("Petrie"), a debtor then undergoing a

reorganization pursuant to Chapter 11 of the Bankruptcy

Code. As part of that reorganization, Petrie's creditors'

committee sought and obtained permission from the United

States Bankruptcy Court for the Southern District of New

York (the "SDNY Bankruptcy Court") to sell various Petrie

assets, including Marianne Stores, to an affiliate of Petitioner.

On December 1, 1998, the SDNY Bankruptcy Court issued

an order authorizing such sale and providing that:

Pursuant to Sections 105(a) and 363(f) of the

Bankruptcy Code, the Purchased Assets [including

Marianne Stores] shall be transferred to the Purchaser

upon the Closing free and clear of all Liens and

Claims of any kind or nature, with all such Liens and

Claims and Interests released, terminated and

discharged as to the Purchased Assets, which Liens

and Claims shall attach to the net proceeds of sale, in

the order of their priority, with the same validity,

force and effect that they now have against the

Purchased Assets except for the Permitted Liens.

(App. E (Dec. 1, 1998 Order of U.S. Bankruptcy Ct. for the

Southern District of New York ("SDNY Bankruptcy Order")

at 62a § 8 (emphasis added).) For purposes of this Order,

"Claims" were defined as

all debts arising in any way in connection with any

acts of the Debtors, claims (including but not limited

to "claims" as that term is defined in the Bankruptcy

Code), obligations, demands, guaranties, interests and

matters of any kind and nature, whether arising prior

to or subsequent to the commencement of these

Chapter 11 cases, and whether imposed by agreement,

understanding, law, equity or otherwise.

(Id. at 57a.)

; The "free and clear" sale of Marianne Stores from debtor

Petrie to Petitioner was consummated on December 17, 1998,

and Marianne Stores continued in business under Petitioner's

stewardship from that date forward.

Respondent Evelyn Rodriguez-Oquendo, a resident of

Puerto Rico and an ex-employee of Petrie, worked between

1980 and 1988 at the Marianne Store at the Centro del Sur

Shopping Center in Ponce, Puerto Rico. (App. A at 2a).) On

October 5, 1998, before the sale of Marianne Stores to

Petitioner, Petrie dismissed her from employment. (/d.)

On September 29, 199°, almost a full year after Petrie

had terminated her employment, and more than nine months

after Petitioner- purchased Marianne Stores from Petrie,

Respondent commenced civil proceedings against Petrie in

the Court of First Instance of the Commonwealth of Puerto

Rico, Ponce Superior Court (the "Ponce Court"), seeking

$50,000 in damages for unjust dismissal, nonpayment of

sums due under Puerto Rican labor statutes and age

discrimination. (App. G (Complaint) at 7la-72a J 4-11.)

After a "default hearing," the Ponce Court issued judgment

against Petrie on May 18, 2001 in the sum of $41,204.67

i eas 4

plus attorney's fees. (App. D at 47a.)

In October 2002, well after the "free and clear" sale of”

Marianne Stores had been made to Petitioner, Mrs.

Rodriguez-Oquendo attempted to execute the judgment

against Petrie by attaching two of Petitioner's bank accounts.

(App. A at 3a.) Shortly thereafter, Petitioner appeared

before the Ponce Court and moved to set aside this

attachment on the grounds, inter alia, that Petitioner was not

responsible for Petrie's liabilities. (/d.)

On January 16, 2004, the Ponce Court held that the

judgment could properly be executed against Petitioners’

assets on the basis that Petitioner was a "successor

employer." (App. C at 45a.) Rejecting Petitioner's

contention that the SDNY Bankruptcy Order extinguished

any such liabilities, the Ponce Court held that "a contract

executed outside this jurisdiction cannot contravene the

public labor policy of Commonwealth of Puerto Rico

jurisdiction." (/d. at 43a n.12.)

On June 4, 2004, the Puerto Rico Court of Appeals

reversed, holding, by reference to the SDNY Bankruptcy

Order and Section 363(f) of the Bankruptcy Code, that

successor liability could not be established against Petitioner.

(App. B at 24a-28a, 34a.) The Court of Appeals found

Section 363(f) to have preclusive effect, endorsing Collier's

observation that "{cjourts have provided protection to

purchasers of assets, who would otherwise be subject to

these claims under the successor liability doctrine, by way of

the approval of sales free of all present and future claims

against the debtor or the estate." (App. B at 24a; see also id.

n.2 (Section 363(f) protects "purchasers of assets, who might

otherwise be subject to such claims under principles of

successor liability’) (quoting 3 Collier on Bankruptcy at

363-16).) The Court of Appeals continued:

In Nathanson vy. Labor Board, 344 U.S. 25, 29 (1952),

the United States Supreme Court held that the

purpose of the Bankruptcy Act was to achieve

equality of distribution among the claimants. That is

why bankruptcy courts have held that a sale of the

debtor's assets, approved by the United States

Bankruptcy Court as free and clear of all claims,

precludes the application of the successor doctrine

against a purchaser of those assets in a suit based on |

the debtor's alleged employment discrimination and

violations of employees’ civil rights. See Jn re All

American of Ashburn, Inc., 56 B.R. 186, 190 (Bkrtcy.

N.D. Ga. 1986); Rubinstein v. Alaska Pacific

Consortium [(In re New England Fish Co.)], 19 B.R.

323, 328-329 (Bkrtcy. W.D. Wash. 1982); Forde v.

Kee-Lox Mfg. Co., Inc., 437 F>Supp. 631 (W.D.N.Y.

1977).

(App. B at 27a (footnote omitted).) Respondent thereupon

appealed to the Supreme Court of Puerto Rico.

The Decision Below

The Supreme Court of Puerto Rico reversed,’ with one

justice dissenting. It held that a bankruptcy sale of property

free and clear of any interest in such property will not bar

the application of the successor liability doctrine." (App. A

at 15a.) -

The court below recognized that a sale order issued

pursuant to Section 363(f) might, if it were broadly

construed, operate to "preclude[] the application of the

successor liability doctrine against the asset purchaser."

(App. A at 12a.) The court held, however, that "our caselaw

precedents” on the doctrine of successor liability were not

rendered inapplicable by the federal Bankruptcy Code or the

SDNY Order. (/d. at 15a.) It rejected the Court of Appeals’

reliance upon Section 363(f) (and case law decided

thereunder) as a bar to successor liability, finding that

"another string of weightier federal cases has questioned the

bankruptcy courts' authority to override the application of the

successor liability doctrines developed by state courts." (/d.

at 13a (citing Collier Bankruptcy Manual, 3d ed. 2002, §

363.02[3], p. 363-10); Western Auto Supply Co. v. Savage

Arms, Inc. (In re Savage Indus., Inc.), 43 F.3d 714 (Ast Cir.

1994); and Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159

(7th Cir. 1994)).

The court below noted that there were "two main

reasons" commonly proffered in support of a broad view of

Section 363(f): (1) the need to preserve the scheme of

priorities established by the Bankruptcy Code; and (2) "that

the implementation of the successor liability doctrine would

have a negative impact on the trustee's ability to sell assets of

the estate at a fair price." (Jd. at 13a-142.) In dismissing

these concerns, the court quoted at length the Seventh

Circuit's opinion (written by Judge Posner) in Zerand-Bernal:

If the [bankruptcy] court could do all these nice

things the result would indeed be to make the

property of bankrupts more valuable than other

property — more valuable to the creditors, of course,

but also to the debtor's shareholders and managers to

the extent that the strategic position of the debtor in

possession in a reorganization enables the debtor's

owners and managers to benefit from bankruptcy.

But the result would not only be harm to third

parties . . . but also a further incentive to enter

bankruptcy for reasons that have nothing to do with

the purposes of bankruptcy law.

(App. A at 14a-15a (citing Zerand-Bernal, 23 F.3d at 163).)

The court below embraced the Seventh Circuit's

reasoning and the cases that "refuse[] to acknowledge a

limitation in the application of different successor liability

doctrines simply because the sale of assets took place in the

context of a bankruptcy proceeding." (/d. at 15a.) The court

concluded that cases rejecting federal bankruptcy limits to

successor liability were “better supported by federal

caselaw" in the bankruptcy area. (App. A at 15a.)

The court below also found such cases refusing to

abrogate the doctrine of successor liability to be "in tune

with ‘important labor-related public policies that conform to

our economic, social, and cultural reality." (/d.) The court

noted its regard for "the successor employer doctrine as it

has been applied in our jurisdiction" and its unwillingness to

"ignore completely . . . our own precedents on a doctrine

adopted in our jurisdiction since he 1960's." (/d. at 10a-1 1a.)

We therefore hold that the sale of assets under a

federal bankruptcy proceeding, though free of liens,

will not bar the application of the successor employer

doctrine as developed by our caselaw precedents.

(App. A at 15a (emphasis in original).)

Finding no federal bankruptcy law bar to successor

liability, the court below proceeded to apply its own

common law precedents concerning the doctrine to conclude

that Respondent could seek to hold Petitioner liable under

the doctrine of successor liability because Respondent "had

no knowledge of the transfer of [Marianne Stores] assets" to

Petitioner and "the employer's corporate structure was

unknown to [Respondent].". (/d. at 17a (emphasis in

original). '

On April 27, 2006, Petitioner moved for reconsideration

of this decision, repeating its argument that federal circuit

| The court below, having dispensed with all federal issues, held that

Respondent had not received sufficient notice of the SDNY Bankruptcy

Order, but this finding was confined to a separate state law issue, i.e.,

whether Puerto Rican "successor employer" liability applied to Petitioner.

Cf In re All American of Ashburn, Inc., 56 B.R. 186, 190 (Bkrtcy. N.D. Ga.

1986) ("The Court will, however, consider the issue of notice to the

[successor liability claimants] to the extent that it may be relevant to the

application of the successor doctrine [under Georgia law}.").

precedent required that the court give effect to the SDNY

Bankruptcy Order as barring successor liability claims. On

May 23, 2006, the Supreme Court of Puerto Rico issued its

decision denying Petitioner's reconsideration motion. (App.

F.) Twojustices would have granted reconsideration. (/d.)

REASONS FOR GRANTING THE PETITION

The court below held that a federal bankruptcy court's

sale order, made pursuant to Sections 105(a) and 363(f) of

the federal Bankruptcy Code, may not validly extinguish the

successor liability of the purchaser of those assets. Thus the

decision below squarely and expressly conflicts with

decisions of the Third and Fourth Circuits, which have

construed Section 363(f) as empowering a district court to

authorize a sale of debtor property "free and clear" of any

"claims" that otherwise might have attached to the purchaser

under common law or similar doctrines of "successor

liability." See In re Trans World Airlines, 322 F.3d 283,

289-90 (3d Cir. 2003); UMWA 1992 Benefit Plan v. Leckie

Smokeless Coal Co. (In re Leckie Smokeless Coal Co), 99

F.3d 573, 582 (4th Cir. 1996), cert. denied, 520 U.S. 1118

(1997). | \

The narrow effect given to Section 363(f) by the court

below, which joins the Seventh Circuit, see Zerand-Bernal

Group, Inc. v. Cox, 23 F.3d 159 (7th Cir. 1994), and two

other state supreme courts” on this issue, ignores the plain

language of the statute. Section 363(f) expressly authorizes

bankruptcy sales "free and clear” of competing "interests" in

the subject "property" and, therefore, on its face confers

2 See Simmons v. Mark Lift Indus., Inc., 622 S.E.2d 213, 215 (S.C.

2005) (court holding that "successor liability” claims survive bankruptcy

sale) see id. at 225 (Barnett, J., concurring-in relevant part) (Section 363(f)

does not reach "successor liability" claims); Lefever v. K.P. Hovnanian

Enters., Inc., 734 A.2d 290, 317-18 (N.J. 1999) (Section 363(f) does not

"cut off product liability claims).

power on bankruptcy courts to issue orders cleansing assets

of potential successor claims.

The decision below frustrates important federal statutory _

policies enshrined in the Bankruptcy Code. The statutory

power to cleanse assets of successor liability not only

benefits creditors by increasing the potential value of a

debtor's assets for sale, but it is also makes bankrupt

businesses more viable going forward. In light of Congress's

long-standing goal of integrating Puerto Rico into the

national economy, the decision below is especially harmful

because it creates disincentives for a party to purchase a

debtor's assets in Puerto Rico. s

The wide circuit and state court split presented by this

Petition is now ripe for resolution. As long as the split in

authority is unresolved by this Court, there will remain

significant confusion and uncertainty in all federal

bankruptcy sales. Even when bankruptcy sales take place in

jurisdictions that allow successor liability claims to be

extinguished, enterprising litigants may bring "successor

liability" claims against the purchaser in another jurisdiction

such as that of the court below. Standing alone, this risk

depresses the potential return on any bankruptcy sale in a

Situation where, as here, the sold business operates in

different parts of the country.

The Court should grant this petition to resolve the split in

authority on this important issue of federal bankruptcy law.

q. The Decision Below Squarely Conflicts With

Precedent of the Third and Fourth Circuits

A. The Third and Fourth Circuits Have

~ Held that Section 363(f) Orders Can

Extinguish "Successor Liability" Claims

The holding of the decision below, that "the sale of assets

under a federal bankruptcy proceeding, though free of liens,

will not bar the application of the successor employer

doctrine as developed by our caselaw precedents" (App. A at

15a (emphasis in original)), is in direct conflict with

decisions of the Fourth and Third Circuits which hold that a

"free and clear" sale order issued under Section 363(f) may

validly extinguish "successor liability."

In UMWA 1992 Benefit Plan v. Leckie Smokeless Coal

Co. (In re Leckie Smokeless Coal Co), 99 F.3d 573, 582 (4th

Cir. 1996), eight coal-mining companies were subject to

Chapter 11 proceedings before a West Virginia bankruptcy

court. See id. at 577-78. Each of the mines operated by the

bankrupt companies had ongoing liabilities under the Coal

Industry Retiree Health Benefit Act of 1992, 26 U.S.C. §

9701 et seq. (the "Coal Act"), to fund retirement benefits for

former mine employees. 99 F.3d at 575-76. To prevent

these obligations from possibly attaching to the new mine

owners, the bankruptcy court was requested to grant, and

granted, a Section 363 bankruptcy sale order permitting the

mines to be sold "free and clear of [all] liabilities" under the

Coal Act. /d. at 577. The Fourth Circuit held that the

various Coal Act funds' rights to collect Coal Act payments

from the incoming mine owners were "interests in. . .

property" for purposes of Section 363(f) because those

claims were "grounded, at least in part, in the fact that those

very assets have been employed for coal-mining purposes."

Id. at 582. Thus, according to the Fourth Circuit, the

bankruptcy court had jurisdiction to make an order

"extinguish{ing] Coal Act successor liability pursuant to 11

U.S.C. § 363(f)." Id. at 585.

The Third Circuit similarly held that "free and clear"

orders pursuant to Section 363(f) may validly extinguish

successor liability claims. See Jn re Trans World Airlines,

322 F.3d 283, 289-90 (3d Cir. 2003). During a Chapter 11

reorganization, TWA negotiated to sell its airline business to

American Airlines ("AA") net of any prior liabilities arising

from past employment discrimination claims. See 322 F.3d

at 286 & n.1. The Delaware bankruptcy court granted a

requested order "extinguish[ing] successor liability on the

part of [AA]" for these liabilities. /d. at 286. On appeal, the

Third Circuit held that past discrimination claims, to the

extent they might be transferred to AA as "successor"

employer, were “interests in property" capable of being

extinguished by a Section 363(f) order because "'the term

‘any interest’ is intended to refer to obligations that are

connected to, or arise from, the property being sold." Jd. at

289 (citation omitted)). Thus, the Third Circuit held that the

Delaware bankruptcy court possessed the power, through

Section 363(f}, to extinguish successor liability for past

employment discrimination claims against TWA. Jd. at 290,

293. :

The Third and Fourth Circuits’ approach to Section 363(f)

in TWA and Leckie is in accord with considerable lower

court authority and scholarly literature. First, several

bankruptcy court decisions pre-dating Leckie and TWA held

that Section 363(f) orders could validly extinguish

"successor" liability.* Second, numerous district courts from

other Circuits have expressly followed TWA and/or Leckie,

’ The Third Circuit in TWA also held that an ursecured claim (such

as Respondent's) falls within the scope of Secties. 353(f)(5) in that they

could be "compelled" to accept monetary settlement of such claims. See

TWA, 322 F.3d at 290-91 (noting that, had the Chapter 11 debtor "liquidated

its assets under Chapter 7 of the Bankruptcy Code, the [employment

discrimination] claims at issue would have ben converted to dollar amounts

and the claimants would have received the distribution provided to other

general unsecured creditors on account of their claims").

See, e.g., In re Dow Corning Corp., 198 B.R. 214, 244-47 (Bankr.

E.D. Mich. 1996) (Section 363(f)'s conferral of power to sell property “free

and clear" of claimed "interests" should confer an "inherent" power to

"enjoin" litigation against the purchaser of that property); All Am. of

Ashburn, Inc., 56 B.R. at 189-191; Jn re P.K.R. Convalescent Ctrs., 189 B.R.

90, 92-94 (Bankr. E.D. Va. 1995); WBQ Partnership v. Commonwealth of

Virginia Department of Medical Assistance Services (In re WBQ

Partnership), 189 B.R. 97, 105 (Bankr. E.D. Va. 1995)

or construed Section 363(f) in a similarly broad manner.

Third, the result in TWA and Leckie is consistent with

decisions addressing the Bankruptcy Code's statutory

predecessors, which this Court interpreted as conferring on

the trustee an implied power to "sell property of the bankrupt

free from encumbrances." Van Huffel v. Harkelrode, 284

U.S. 225, 227 (1931). Under the old Bankruptcy Act, this

implied power had been utilized by bankruptcy courts to

craft sale orders that extinguished successor liability for past

discrimination claims.° Fourth, several courts have held that,

regardless of the reach of Section 363(f), the power to

extinguish successor liability claims may validly be derived

from Section 105(a), authorizing a court to issue any "order"

that is "necessary or appropriate to carry out the provisions

of [title 11]."_ 11 U.S.C. § 105(a).’ Fifth, Leckie and TWA

* See Myers v. United States, 297 B.R. 774, 782 (S.D. Cal. 2003)

(applying 7WA; holding that a Delaware bankruptcy court's order, issued

pursuant to Section 363(f) and authorizing a sale of debtor's asset "free and

clear of all Claims of any kind or nature whatsoever," validly extinguished

all environmental contamination claims that might have attached to the

purchaser of a parcel of real estate under California's “successor liability"

doctrine); Jn re Med. Software Solutions, 286 B.R. 431, 446-47 (Bankr. D.

Utah 2002) (Section 363(f) order validly extinguished "successor liability" -

claims).

® See Forde v. Kee-Lox Manuf. Co., 437 F. Supp. 631, 632-35

(W.D.N.Y. 1977), aff'd, 584 F.2d 4 (2d Cir. 1978) (court order stating that a

bankruptcy sale would be "free and clear of liens, including tax liens, if any,

claims, encumbrances, demands and rights of creditors, or any other person,

all of his right, title and interest, in and to [the purchased assets]" applied to,

and extinguished, any "successor" liability for the bankrupt's past Civil

Rights violations); Med. Software Solutions, 286 B.R. at 446 ("Indeed, even

before the Bankruptcy Code was enacted in 1978, courts relied on their

general equitable powers to authorize the sale of assets free and clear [of

successor liability].").

See Volvo White Truck Corp. v. Chambersburg Beverage, Inc. (In

re White Motor Credit Corp.), 75 B.R. 944, 948 (Bankr. N.D. Ohio 1987);

Rubenstein v. Alaska Pac. Consortium (In re New England Fish Co.), 19

(cont'd)

find support in the most authoritative text in bankruptcy,

Collier on Bankruptcy, which considers that they represent

the prevailing "trend."®

The court below did not find Z7JWA or Leckie

distinguishable; on the contrary, the court accepted that the _

"string of cases" of which those decisions were a part

"indeed" stood for the opposite conclusion from that reached

below. (App. A at 12a; see also App. F (denying motion for

reconsideration despite TWA and Leckie.) This Petition thus

presents an exemplary case of both "a state court of last

resort . . . decid[ing] an important federal question in a way

that conflicts with the decision of . . . a United States court of

appeals," U.S. Sup. Ct. Rule 10(b),’ and also of "a state

court .. . decid[ing] an important question of federal law that

has not been, but should be, settled by this Court... ."_ /d.

Rule 10(c). In light of the express conflict acknowledged by

the court below, a writ of certiorari is warranted.

(cont'd from previous page)

B.R. 323, 328-29 (Bankr. W.D. Wash. 1982).

* See 3 Collier on Bankruptcy 4 363.06[1}, at 363-47 (Alan N.

Resnick et al, eds.) ("[a]lthough some courts have limited the term [interests

in property] to in rem interests in the property, the trend seems to be in favor

of a broader definition that encompasses other obligations that may flow

from ownership of the property.” (footnote omitted)); see a/so William T.

Bodoh & Michelle M. Morgan, /nequality Among Creditors: The

Unconstitutional Use of Successor Liability to Create a New Class of

Priority Claimants, 4 Am. Bankr. Inst. L. Rev. 325, 345, 353 (1996)

(criticizing decisions that frustrate a debtor's decision to "cleanse" assets in

a bankruptcy sale utilizing Section 363(f); commenting that "{uJntil

Congress chooses to act, state successor liability law, which frustrates the

terms of a court-approved bankruptcy sale, is preempted by the Bankruptcy

Code and the Supremacy Clause of the Constitution").

For purposes of the Rules of this Court governing the grant of

certiorari, the Supreme Court of Puerto Rico is deemed a "state court." U.S.

Sup. Ct. Rule 47.

B. The Split in Authority on this Issue is Wide and

Deep, and Ripe for Resolution by this Court

Resolution of the conflict now is warranted. The court

below, in addition to issuing a decision that conflicts with the

Third and Fourth Circuits, joins the Seventh Circuit and the

Supreme Courts of South Carolina and New Jersey in its

resolution of the question presented.

In Zerand-Bernal, the Seventh Circuit stated that Section

363(f) may not extinguish successor “liability claims.

Plaintiff/purchaser bought a manufacturing business pursuant

to an Illinois bankruptcy court's sale order "provid{ing]} for

the enjoining of any products liability claims against [the

plaintiff/purchaser] that related to equipment sales which had

occurred before the sale to it of [the prior owner's] assets."

23 F.3d at 161. Later, an individual in Pennsylvania, who

had been injured by the prior owner's negligence, brought

products liability claims against plaintiff/purchaser based on

"successor liability." /d. Plaintiff/purchaser responded by

seeking to revive the Illinois bankruptcy proceedings in

order to enjoin those Pennsylvania products liability claims.

Id.

After rejecting plaintiff/purchaser's claims for lack of

subject-matter jurisdiction, see id., the Seventh Circuit wrote

that courts do not "enjoy[] a blanket power to enjoin all

future lawsuits against a buyer at a bankruptcy sale in order

to maximize the sale price" and that a sale of assets pursuant

to Section 363(f), "free from all liens and other

encumbrances," was not applicable to cases where a claimant

"[was] not attempting to enforce a lien." /d. at 163 (citing

Mooney Aircraft Corp. v. Foster (In re Mooney Aircraft,

Inc.), 730 F.2d 367, 374-75 (Sth Cir. 1984)).

The Seventh Circuit's observations in Zerand-Bernal on

the application of Section 363(f) are arguably dictum, but the

reasoning and statements were cited with approval by the

court below as supporting its conclusion that a bankruptcy

sale order is not capable of extinguishing "successor

liability." claims.

The decision below also joins the ranks of decisions from

the highest courts of South Carolina and New Jersey. The

Supreme Court of South Carolina has held that assets

_purchased at a bankruptcy sale are not protected from

"successor liability” claims. See Simmons v. Mark Lift Indus.,

Inc., 622 S.E.2d 213, 213 (S.C. 2005); see also id. at 225

(Burnett, J., concurring in relevant part and dissenting in

other respects) ("I find more persuasive the views expressed

by several courts which have held that a successor may be

held strictly liable in a state law product liability claim

despite a bankruptcy court order or purchase agreement

purporting to discharge such liability"; citing, inter alia,

Zerand-Bernal, 23 F.3d at 161-64, as "suggest[ing] that §

363(f) may not be used to extinguish successor product-line

claims.").

In addition, the Supreme Court of New Jersey has held

(based on a Texas federal district court case which, in turn,

cites Zerand-Bernal) that Section 363(f) does not "cut off

product liability claims." See Lefever v. K.P. Hovnanian

Enters., Inc., 734 A.2d 290, 317-18 (N.J. 1999) (citing

Fairchild Aircraft, Inc. v. Cambell (In re Fairchild Aircraft

Corp.), 184 B.R. 910, 917-78 (Bankr. W.D. Tex. 1995)

(citing Zerand-Bernal), vacated as moot on equitable

grounds, 220 B.R. 909 (Bankr. W.D. Tex. 1998)).

In light of the substantial authority on both sides of the

issue, the question presented in this Petition will not be

further refined or resolved by allowing it to further percolate

among the circuit or state courts. The conflict has fully

matured and is now ripe for review: the Third and Fourth

Circuits (and numerous district courts) give preclusive effect

to Section 363(f) with regard to common law successor

liability claims; the Seventh Circuit and the highest courts of

Puerto Rico, New Jersey and South Carolina do not.

II. The Interpretation of Section 363(f) By the

Court Below Undermines Important Federal

Statutes and Policies

A. The Decision Below Ignores the

Statute's Plain Language

To hold that Section 363(f) is incapable of extinguishing

successor liability claims is to ignore the plain language of

the statute. Section 363(f) expressly authorizes bankruptcy

sales "free and clear" of competing "interests" in the subject

"property" and, therefore, on its face confers power on

bankruptcy courts to issue orders cleansing assets of

potential successor claims.

The Third and Fourth Circuits’ decisions in TWA and

Leckie focus, first and foremost, on the operative words of

Section 363(f). They recognize that the phrase "interest

in . property,” by its plain terms, embodies a broad

concept which, while not unlimited, is not on its face

confined to in rem interests or liens. See Leckie, 99 F.3d at

583; accord TWA, 322 F.3d at 290. "Indeed, to equate

interests in property with only in rem interests such as liens

would be inconsistent with section 363(f)(3), which

contemplates that a lien is but one type of interest" that can

be extinguished in a bankruptcy sale. TWA, 322 F.3d at 290

(citing 28 § U.S.C. 363(f}(3)) (emphasis added).

In sharp contrast, neither the court below nor the Seventh

Circuit in Zerand-Bernal conducted a detailed textual

analysis in support of their conclusions that Section 363(f) is.

incapable of extinguishing successor liability. Rather, they

based their reasoning primarily on two non-textual

considerations, First, they stated that it would be socially

undesirable to permit Section 363(f) to be utilized to cleanse

debtor assets of successor liability. Second, they expressed

concern that a Section 363(f) order might be made without

giving due notice to all affected parties who might have

potential "successor liability" claims against the purchaser.

(Zerand-Bernal, 23 F.3d at 163; App. at 13a-15a.) Neither

consideration is relevant to the issue of what Section 363(f)

actually says — and means.

B. The Decision Below Undermines Important Public

Policies Enshrined in the Bankruptcy Code

The decision below undermines the carefully crafted

priority scheme and important public policies enshrined in

the Bankruptcy Code.

1. Maximizing Value of Debtors'

Assets to Further Interests of

Creditors and Employees

TWA and Leckie aptly illustrate the policy objectives

furthered by Section 363(f) orders that cleanse assets of

"successor liability" claims. In 7WA, the evidence showed

that "the sale of TWA's assets to [AA] at a time when TWA

was in financial distress was likely facilitated by [AA]

obtaining title to the assets free and clear of these civil rights

claims." Id. at 292 (emphasis added). Absent the Section

363(f) order, "[AA] may have offered a discounted bid." 322

F.3d at 293. Likewise, in Leckie, the evidence showed as to

one of the coal mines that, if the incoming purchaser had not

been able to purchase the mine (valued at $1.9 million) free

of the Coal Act obligations (which stood at $7 million), "the

assets would almost inevitably have [had] to be sold

piecemeal, thereby generating fewer funds" to satisfy

creditors. 99 F.3d at 586-87.

As the chief bankruptcy judge of the Eastern District of

Virginia observed:

the purpose behind the "free-and-clear" language is to

maximize the value of the asset, and thus enhance the

payout made to creditors. Without the "free-and-

clear" language, prospective buyers would be

unwilling to pay a fair price for the property subject

to sale; instead, the price would have to be discounted,

perhaps quite substantially, to account for the

liabilities that the buyer would face simply as a result

of acquiring the asset... . A discounted price would

reduce the return to the estate to the detriment of the

creditors involved in the case. The "free-and-clear"

language avoids this kind of prejudice by providing

the buyer with what is essentially a fully marketable

title.

WBOQ P'ship v. Commonwealth of Virginia Dep't of Med.

Assistance Servs. (In re WBQO P'ship), 189 B.R. 97, 108

(Bankr. E.D. Va. 1995) (citation omitted); accord Med.

Software Solutions, 286 B.R. at 447; William T. Bodoh et al,

supra, n.8 (describing Section 363(f)'s capacity to "cleanse"

debtor assets of all possible claims).'°

But the public policies that favor maximizing the sale

price of bankrupt assets not only benefit creditors; they also

serve broader community interests, especially when the asset

is a continuing business. Thus, in 7WA, the Third Circuit

found that the Section 363(f) order, extinguishing "successor

liability" for employee discrimination claims, inured to the ‘

benefit of TWA's workforce as a whole:

Given the strong likelihood of a liquidation absent the

asset sale to [AA], a fact which appellants do not

‘0 Courts relying on Section 105(a) as the basis ordering a sale "free

and clear" of successor liability have also based this on public policy. See

White Motor, 75 B.R. at 950-51 ("[t]he successor liability specter would

chill and deleteriously affect sales of corporate assets, forcing debtors to

accept less on sales to compensate for this potential liability[;] [t)his

negative effect on sales would only benefit product liability claimants,

thereby subverting specific statutory priorities established by the

Bankruptcy Code."); New England Fish, 19 B.R. at 328-29 (the purchaser

“would not and will not take the business burdened with civil rights

litigation. No purchaser would. Such_a prospect would chill or render

impossible any sale. . . . [Any] impediments [to the claimants] are far out-

weighed by a policy encouraging bankruptcy sales ....").

dispute, we agree with the Bankruptcy Court that a

sale of the assets of TWA at the expense of

preserving successor liability claims was necessary in

order to preserve some 20,000 jobs, including those

of [the Travel Voucher Program class] and the EEOC

claimants still employed by TWA, and to provide

funding for employee-related liabilities, including

retirement benefits.

322 F.3d at 293.

2. Maintaining Priority Scheme of

Federal Bankruptcy Code

Moreover, the decision below undermines the priority

scheme of the federal Bankruptcy Code by elevating the

claims of those pressing successor liability claims over other

general claimants of a debtor's property.

Under the Bankruptcy Code, the interests of claimants

who wish to press "successor liability" claims — which, in the

final analysis, are "general unsecured claims" ordinarily

"accorded low priority," see TWA, 322 F.3d at 292 — should

not be elevated above all other stakeholders in a bankruptcy.

To permit such claimants to "assert their claims against

purchasers of the bankrupt's assets, while relegating

lienholders to the proceeds of the sale" would "elevate

claims that have not been secured or reduced to judgment to

a position superior to those that have." /d. (quoting Forde v.

Kee-Lox Manuf., 437 F. Supp. 631, 633 (W.D.N.Y. 1977)).

Thus, "[t]o allow . . . claimants to assert successor liability

claims against [an incoming purchaser] while limiting other

creditors' recourse to the proceeds of the asset sale would be

inconsistent with the Bankruptcy Code's priority scheme."

322 F.3d at 292 (emphasis added); accord In re All American

of Ashburn, Inc., 56 B.R. 186, 190 (Bankr. N.D. Ga. 1986)

("There is no suggestion of Congressional intent to apply the

successor doctrine to elevate product liability claims above

their status under the Bankruptcy Code."). As the Puerto

Rico Court of Appeals held in the proceedings below, this

Court's decisions under the prior bankruptcy legislation

counsel against such a result. (See App. B at 27a (citing

Nathanson v. Labor Board, 344 U.S. 25, 29 (1952).)

3. Ensuring National Uniformity

The differing standards now applied by the circuits and

state courts (including the courts of Puerto Rico) undermine

the "national purpose to establish uniformity" of the

Bankruptcy Code, /nt'l Shoe Co v. Pinkus, 278 U.S. 261, 265

(1929), and foster extreme uncertainty concerning the

bankruptcy process.

The Bankruptcy Code is a statute of vital economic

importance. It serves the constitutionally-enshrined goal of

creating "uniform Laws on the subject of Bankruptcies

throughout the United States." U.S. Const., art. I, § 8, cl. 4.

So long as the effect of a Section 363(f) "free and clear"

order upon successor liability is open to debate, the price

obtainable in a bankruptcy sale will be depressed; the

potential recovery for creditors will be diminished; the

debtor (or trustee's) negotiation position will be weakened;

and the ongoing viability of a bankrupt business will be

compromised. The effect of this disparate treatment is

especially pernicious where, as here, the sold business

operates in numerous states. Even after a Section 363(f)

order has been issued, identical "successor liability” claims

in different parts of the country may generate different kinds

of exposure, an anomalous result antithetical to the

constitutional goal of having uniform bankruptcy laws.

Indeed, as long as there are some jurisdictions that permit

"successor liability" claims to survive a Section 363(f)

cleansing order, enterprising plaintiffs will contrive to bring

their "successor liability" claims in those more permissive

jurisdictions.

Cc. The Decision Below Frustrates

Congress's Goal of Integrating

Puerto Rico into the National Economy

It is Congress's intention "to accord to Puerto Rico the

degree of autonomy and independence normally associated

with States of the Union." Examining Bd. v Flores de Otero,

426 U.S. 572, 594 (1976). '' Congress has given Puerto Rico

the same functional economic status as a state.'? Thus, "[flull

economic integration is as important to Puerto Rico as to any

state in the Union." Trailer Marine Trans. Corp. v. Rivera

Vazquez, 977 F.2d 1, 8 (1st Cir. 1992).

The extension of the Bankruptcy Code to Puerto Rico is

a critical (indeed indispensable) part of that legislative

program. See In re Segarra, 14 B.R. at 872. Indeed, the

federal Bankruptcy Code is the exclusive source of

bankruptcy law throughout the United States, including

1! See 48 U.S.C. § 734 ("[t}he statutory laws of the United States not

locally inapplicable . . . shall have the same force and effect in Puerto Rico

as in the United States, except [certain] internal revenue laws"); Jn re

Segarra, 14 B.R. 870, 872-73 (D.P.R. 1981) (noting that 48 U.S.C. § 734

"codiflies]" "[t]he policy of treating Puerto Rico on the same basis as a state

for the purpose of determining if federal legislation is applicable in Puerto

Rico" and that pursuant to that section, "the Bankruptcy Reform Act of

1978 is a statutory law not locally inapplicable and thus extensive to Puerto

Rico"); 28 U.S.C. § 152 (establishing two bankruptcy court districts in

Puerto Rico)

12 Federal courts have applied core U.S. commercial legislation to

Puerto Rico on the same basis as if it were a state. Trailer Marine, 977 F.2d

at 8 (finding that dormant Commerce Clause applies within Puerto Rico);

Used Tire Int'l, Inc. v. Diaz Saldana, No. 97-1028, 1997 U.S. Dist. LEXIS

14016, at *28 (Sept. 8, 1997) (federal antitrust laws applicable within Puerto

Rico), aff'd, 155 F.3d 1 (ist Cir. 1998). In a different context, this Court

refused to permit Puerto Rico to erect a separate customs border. Torres v.

Puerto Rico, 442 U.S. 465, 472 (1979); see also, e.g., 48 U.S.C. § 738

(barring tariffs or trade blockages with the mainland); 48 U.S.C. § 74la

(same).

Puerto Rico,"

The decision below threatens to disrupt that important

federal policy by throwing Puerto Rico's interpretation of a

core bankruptcy principle into disharmony with the majority

of states, and by creating disincentives for entities to

purchase a debtor's assets in Puerto Rico. A grant of

certiorari to correct the court's anomalous construction of

section 363(f) would further the Congressional goal of

integrating and supporting the economy of Puerto Rico.

‘> The provisions of the Bankruptcy Code pre-empt any inconsistent

doctrine of Puerto‘Rican common law. "Although Puerto Rico has a unique

status in our federal system, see, e.g., Examining Board v. Flores de Otero,

426 U.S. 572, 596... (1976)... the test for federal pre-emption of the law

of Puerto Rico .. . is the same as the test under the Supremacy Clause, U.S.

Const. Art. VI, Cl. 2, for pre-emption of the law of a State." Puerto Rico

Dep't of Consumer Affairs v. Isla Petroleum Corp., 485 U.S. 495 (1988).

As to the pre-emptive effect of Section 363(f), see, e.g., Myers, 297 B.R. at

784 ("I find that the Bankruptcy Code preempts California state law in this

case regarding successor liability.”); WBQ P'ship, 189 B.R. at 108 (finding

that a Virginia depreciation-recoupment law "actually conflict[ed] with . . .

11 U.S.C. § 363(f) by 'stand{ing] as an obstacle to the accomplishment and

execution of the full purposes and objectives of Congress" and was

therefore pre-empted by Section 363(f)) (first alteration added).

CONCLUSION

The petition for certiorari should be granted.

Respectfully submitted,

PREETA D. BANSAL

Counsel of Record

JAY B. KASNER

TIMOTHY G. NELSON

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM LLP

Four Times Square

New York, NY 10036

(212) 735-3000

AGUSTIN COLLAZO-MOIJICA

JORGE E. PEREZ

PIETRANTONI MENDEZ &

ALVAREZ LLP

Popular Center, 19th Floor

209 Mufioz Rivera Avenue

San Juan, Puerto Rico 00918

(787) 274-1212

Counsel for Petitioner

Dated: October 20,

2006

APPENDIX

APPENDIX A — OPINION OF THE SUPREME

COURT OF PUERTO RICO DATED APRIL 11, 2006

IN THE SUPREME COURT OF PUERTO RICO

No. CC-2004-900 Certiorari

Evelyn Rodriguez Oquendo,

Plaintiff and petitioner

Petrie Retail Inc. D.1.P., and/or Centro Retail Apparel

Corporation, D/B/A Marianne,

Defendants

Urban Brands, Inc., :

Respondent

JUSTICE FUSTER BERLINGERI delivered the opinion of

the Court.

San Juan, Puerto Rico, April 11, 2006

We must determine, among other things, whether the sale

of assets “free of liens” under a federal bankruptcy

proceeding precludes the application of the successor

employer doctrine to a claim for wrongful discharge.

Appendix A

Evelyn Rodriguez Oquendo (plaintiff or petitioner) was

an employee of the Tiendas Marianne store located at the

Centro del Sur Shopping Center in Ponce from April 14,

1980, to October 5, 1998, when she was discharged. At the

time -of her discharge, she worked as Assistant Manager.

According to the findings of fact drawn by the Court of First

Instance, she was replaced by a younger woman.

On September 29, 1999, plaintiff filed a labor claim

against Petrie Retail, Inc. (Petrie),' the corporate owner of

Tiendas Marianne in Puerto Rico, alleging that she had been

discharged from her job without just cause and that she had

been discriminated against because of her age.

Summons was issued on October 5, 1999, in the name

of Petrie, and served on October 15 on Maritza Ruiz Vélez,

manager of the Marianne store located at Centro del Sur

Shopping Center. As said manager acknowledged in her

testimony, immediately after receiving the summons, she

contacted the main offices of Tiendas Marianne and

forwarded the mentioned documents.

Petrie did not appear at the trial and, on plaintiff’s

motion, default was entered against it on May 25, 2000. The

trial was held and the Court of First Instance, Superior Court

1. Plaintiff also included Centro Apparel Corporation because,

as shown by the income withholding statements issued by the

Department of the Treasury and the check stubs on record, the

employer occasionally identified itself as that corporate entity.

Appendix A

of Ponce, entered default judgment for plaintiff and ordered

Petrie to pay plaintiff $11,204.67 as penalty for wrongful

discharge under Act No. 80 of May 30, 1976, plus $30,000

. for age discrimination. A copy of the notice of judgment was

filed in the record of the case on June 7, 2001, and on March

13, 2002, plaintiff moved the Court of First Instance to order

the execution of said judgment. On September 16, 2002, the

court issued the order of execution of judgment, ordering

the attachment of two bank accounts as requested.

On October 23, 2002, Urban Brands, Inc. (Urban or

respondent) appeared before the Court of First Instance—

without submitting to its jurisdiction—and asked the court

to set aside the attachment and to stay the execution of

judgment. Respondent alleged that the attached bank account

belonged to it* and that it had purchased the assets of Tiendas

Marianne from Petrie as part of a bankruptcy proceeding in

the United States Bankruptcy Court for the Southern District

of New York, without assuming liability for any of the debts

of said corporation. Urban contended that the transaction was

free of liens and that the service of the summons was

insufficient because the summons was addressed to Petrie.

Respondent further argued that even if the summons had been

correctly served, the judgment was notified to Petrie—not

to Urban—and, therefore, it was not final and unappealable

and its execution did not lie.

2. 29 L.P.R.A. § 185 et seq.

3. One of the accounts was from Scotiabank de Puerto Rico

and the other from Banco Popular de Puerto Rico. The funds

deposited in the latter account were not attached because the account

number on the attachment order was incorrect.

Appendix A

Plaintiff-petitioner did not know that as part of the

bankruptcy proceedings, Petrie had transferred its assets in

Tiendas Marianne to. respondent Urban ten months before

the service of summons—that is, two months after plaintiff's

discharge. .

The Court of First Instance held several hearings to

determine whether it was proper to set aside the attachment

and the execution of judgment. At those hearings—which

Urban attended without submitting to the jurisdiction of the

court—both parties presented evidence and arguments in

support of their positions. By resolution of January 16, 2004,

the trial court determined that Urban was Petrie’s successor

employer and, consequently, denied the motion to set aside

the attachment and stay the execution of judgment.

Aggrieved by that ruling, Urban filed a brief entitled

“Civil Appeal” in the Circuit Court of Appeals, essentially

alleging that the Court of First Instance had erred in:

(1) finding that Urban had been duly summoned; (2) finding

that Urban was Petrie’s successor employer; and (3)

authorizing the withdrawal of the funds attached in execution

of the judgment before the resolution became final and

unappealable.

The Court of Appeals accepted Urban’s appeal as a

petition for certiorari and, judgment of June 4, 2004, reversed

the trial court’s decision. The appellate court was persuaded

by respondent’s contentions that: (a) the acquisition of assets

free of liens as part of a bankruptcy proceeding barred the

application of the successor employer doctrine; and (b) even

if there had been no bar to the application of said doctrine,

Appendix A

the evidence presented was not sufficient to prove that it

had to be applied to this case. The intermediate court also

determined that Urban had not been duly summoned and,

therefore, the court never acquired jurisdiction over it.

Plaintiff Rodriguez Oquendo filed a motion for

reconsideration in the appellate court, which denied it by

way of a resolution notified on September 3, 2004.

Aggrieved, plaintiff timely resorted to this Court, essentially

alleging that the appellate court had erred in reversing the

resolution of the Court of First Instance because Urban was

liable for the discriminatory discharge under the successor

employer doctrine. Petitioner also argued that Urban had been

summoned according to law and that the judgment had been

duly notified.

On January 21, 2005, we issued the writ of certiorari.

On March 18, 2005, having requested and obtained an

extension of time, petitioner filed a brief in support of her

petition for certiorari. Respondent, which also sought and

obtained an extension of time, filed its brief on April 25,

2005. We are ready to adjudicate.

A. The successor employer doctrine was incorporated

four decades ago into our legal system by caselaw—through

United States common law—to address cases in which a

change of owners in a business operation makes it necessary

4. In its judgment, the Court of Appeals discussed the contention

raised by Urban Brands, Inc. (Urban) that notice of the judgment

had not been served on it, but on Petrie Retail, Inc. (Petrie).

Appendix A

to determine the employees’ rights under the new employer.

When this doctrine is applicable, it is understood that an

employer who replaces another through a transfer of assets

or a corporate merger will assume the obligations contracted

by the previous employer. Pifieiro v. Int’l Air Serv. of P.R.,

Inc., 140 D.P.R. 343 [40 P.R. Offic. Trans. __] (1996); Bruno

Lépez v. Motorplan, Inc. y otros, 134 D.P.R. 111 [34 PLR.

Offic. Trans. __] (1993); J.R.T. v. Asoc. C. Playa Azul I, 117

D.P.R. 20 [17 P.R. Offic. Trans. 25] (1986); L.R.B. v.

Cooperativa Azucarera, 98 P.R.R. 307 (1970); L.R.B. v. Club

Nautico, 97 P.R.R. 376 (1969). The adoption and

development of this doctrine addresses “the need to establish

a balance between the employers’ right to ‘independently

rearrange their business’ and to recognize ‘some protection

to the employees from a sudden change in the employment

relationship.”’ L.R.B. v. Cooperativa Azucarera, 98 P.R.R.

at 318 (citing John Wiley & Sons v. Livingston, 376 U.S. 543

[, 549] (1964)).

The successor employer doctrine originally developed

in the United States Supreme Court and in other federal

courts, in which it is known as “successor liability.” The

doctrine was initially limited to enforcing collective

bargaining agreements, particularly in dealing with

arbitration provisions. John Wiley & Sons v. Livingston, 376

U.S. 543 (1964); United Steelworkers of Amer. v. Reliance

Univ., Inc., 335 F.2d 891 (3d Cir. 1964); Wackenhut Corp. v.

International U., United Plant Guard W., 332 F.2d 954

(9" Cir. 1964). Likewise, in Puerto Rico, we initially

incorporated the doctrine to resolve controversies involving

collective bargaining agreements and unfair labor practices.

J.R.T. v. Asoc. C. Playa Azul I, 117 D.P.R. 20 [17 P.R. Offic.

Appendix A

Trans. 25] (1986); L.R.B. v. Cooperativa Azucarera, 98 P.R.R.

307 (1970); L.R.B. v. Club Nautico, 97 P.R.R. 376 (1969).

See also 2 Demetrio Fernandez and Celina Romany, Derecho

laboral: casos y materiales 1265-1324, Rio Piedras, Ed.

U.P.R. (1987).

Federal courts subsequently extended the scope of the

successor liability. doctrine to controversies involving

discriminatory discharges under social legislation protective

of labor. EEOC v. Vucitech, 842 F.2d 936 (7 Cir. 1988);

Bates v. Pacific Maritime Ass’n, 744 F.2d 705 (9" Cir. 1984);

In re National Airlines, Inc., 700 F.2d 695 (11 Cir. 1983);

Equal Emp. Op. Com’n v. MacMillan Bloedel Containers,

Inc., 503 F.2d 1086 (6" Cir. 1974). This extension of the

doctrine was justified when it was affirmed that the public

policy against the discriminatory discharge of workers was

as important as the public policy on the right to collective

bargaining and the ban on unfair labor practices.

In Bruno Lopez, this Court held that in our jurisdiction,

the successor employer doctrine extends to claims for

discriminatory discharge, which have a higher rank in our

legal system. This type of discrimination is constitutionally

and statutorily prohibited. Thus, in Pifeiro, at 349 [40 P.R.

Offic. Trans. at __], we explained that “we have extended

the successor employer doctrine in aid of the judicial

responsibility to enforce, in concrete cases, important labor-

related public policies that conform to our economic, social,

and cultural reality.”

Since we adopted the mentioned doctrine, we have

acknowledged that “[t}he factors which have been considered

Appendix A

in order to hold an entity liable for the unfair practices

committed by another are varied.” L.R.B. v. Club Nautico,

97 P.R.R. at 390. As-a minimum, a substantial similarity is

required “in the operation and continuity of the identity of

the enterprise before and after the change .. . so that it be

considered that the new employer shall assume obligations

contracted by the previous employer.” L.R.B. v. Cooperativa

Azucarera, 98 P.R.R. at 316. In the aforecited opinion, we

held that Cooperativa Azucarera Central Juncos was the

successor employer of a company that had entered into a

collective bargaining agreement with the Asociacion de

Azucareros Profesionales and, as such, had assumed the

obligations contracted in said agreement. In so holding, we

pointed out that a combination of an adequate number of the

following factors was conclusive when attributing the

continuation of the former employer’s obligations to the new

employer:

1) [T]he existence of a substantial continuation

in the same business activity; (2) the utilization

of the same operating plant; (3) the employment

of the same or substantially the same labor force;

(4) to maintain the same supervisory personnel;

(5) to use the same equipment and machinery and

to employ the same methods of production; (6)

the production of the same products and the

rendering of the same services; (7) continuity of

identity; and (8) the opération of the business

during the transfer period.

L.R.B. v. Cooperativa Azucarera, 98 P.R.R. at 317-318.

({Footnotes}] omitted.)

Appendix A

In Bruno Lépez, at 122 [34 P.R. Offic. Trans. at ___], we

again considered the federal caselaw and stated that in order

to determine the existence of successor liability, several

factors must be weighed, among which are:

(1) [W]hether the new employer had notice of the

employee’s claim against his or her predecessor;

(2) the relative capacity of each employer to

provide adequate relief to the employee’s claim,

if valid, and (3) the benefit each employer has

derived or may derive from the acts charged

against them.

These three factors, like those set forth in Cooperativa

Azucarera, must be weighed when passing on cases that

involve a possible successor liability issue, but none of these

factors is controlling by itself. In Pifieiro, for instance, there

was no evidence that the successor employer had notice of

the employees’ claims, but we nevertheless imposed liability

“to strike a fair balance between the interests involved,”

considering “the clear continuity of identity between both

companies, the similarity in business operations, as well as

the public policy of protecting the workers in wrongful

discharge cases, especially when in these cases the employees

would otherwise be unable to obtain relief.” Pifeiro v. Int'l

Air Serv. of P.R., Inc., 140 D.P.R. at 353 [40 P.R. Offic. Trans.

at J. As we can see, what must be determined is whether in

light of the specific facts of a case, there is a concurrence of

a sufficient number of the factors considered important in

previous cases for recognizing the existence of successor

liability.

10a

Appendix A

B. As we have previously stated, in this case, the Court

of First Instance deemed proven that plaintiff had been

discriminated against because of her age and that she was

discharged without just cause. It also found that Urban was

liable for said discriminatory discharge under our successor

employer doctrine. The Court of Appeals, in turn, reversed

the trial court’s decision and concluded that none of the tests

generally required for applying the successor liability

doctrine, as developed in the United States common law

system, was present here.

Although the appellate court acknowledged that the

doctrine was subject to state law and varied from state to

state, it completely ignored the above-cited cases in which

this Court has discussed in detail the successor employer

doctrine as it has been applied in our jurisdiction. The Court

of Appeals examined four factors that have been considered

by the federal courts as exceptions to the general rule that

when a company sells its assets to another, the purchaser is

not liable for the seller’s obligations. However, it overlooked

the previously cited factors stressed by this Court in

Cooperativa Azucarera and in Bruno Lépez to establish that

the successor employer is liable to the employees for the

predecessor’s obligations.

We are not insinuating here that it is improper for our

courts to assess the factors considered in United States

5. (1) The purchaser (new employer) expressly or implicitly

agrees to assume liability; (2) the transaction is a consolidation or

merger; (3) the purchaser is a mere continuation of the seller; or (4)

the transfer of assets is for the fraudulent purpose of escaping

liability. 15 Fletcher Cyc. Corp. § 7122, at 249 (Perm. ed. 1999).

lla

Appendix A

common law to determine the existence of “successor

liability” where pertinent. But our courts cannot ignore

completely—as they did here—our own precedents on a

doctrine adopted in our jurisdiction since the 1960's.

In turn, when the Court of First Instance found that Urban

was a successor employer and, as such, was liable to plaintiff, -

it made an effort to apply the tests laid down in Cooperativa

Azucarera and ruled that “[njor all practical purposes, Tienda

Marianne ... is still in the same place, with the same

employees, engaged in the same type of business activity,

and with the same business identity.’ [(Emphasis

suppressed. )]

6. The Court of First Instance specifically arrived at the

following conclusions of fact:

“(1) [T]he Tiendas Marianne store at the Centro del Sur

Shopping Center, where Urban was summoned, was and

still is the same store it has kept; (2) it was in that store

that plaintiff worked for many years for Ticndas

Marianne; (3) Urban currently keeps that same store with

the same name, with the same concept (selling women's

clothes), and at the exact same place and physical space

in the shopping center; (4) neither in that same store

nor in the other Tiendas Marianne stores throughout

Pucrto Rico has Urban changed the type of business

activity in which it is engaged (the sale of women’s

clothes), which is the same as when plaintiff worked

for Tiendas Marianne under the former owner; (5) Urban

has kept the same store design as the former owner;

(6) it. uses the same cash register; (7) Urban keeps

essentially the same personnel; (8) Urban keeps its bank

(Cont'd)

12a

Appendix A

Although the Court of Appeals determined that it was

not proper to impose liability on respondent here based on

the factors associated with the common-law successor

liability doctrine, it also ascribed great importance to Urban’s

contention that the sale of assets in a bankruptcy proceeding

barred the application of the successor employer doctrine. A

well-pondered analysis of the subject shows that the appellate

court erred in including in its judgment a limited analysis of

the relevant federal caselaw.

Indeed, there is a string of cases in which the courts have

held that the sale of assets approved by a federal bankruptcy

court as “free and clear of all claims” precludes the

application of the successor liability doctrine against the asset

purchaser. In re All American of Ashburn, Inc., 56 B.R. 186

[(Bkrtcy. N.D. Ga. 1986)]; Rubinstein v. Alaska Pacific

Consortium (In re New England Fish Co.), 19 B.R. 323

{((Bkrtcy. W.D. Wash. 1982)]; Forde v. Kee-Lox Mfg. Co.,

Inc., 437 F. Supp. 631 [W.D. N.Y. (1977)]. Some bankruptcy

courts have attempted to enjoin claims that would interfere

not only with the sale of assets, but also with the enjoyment

of its benefits. Collier Bankruptcy Manual ¥ 363.02 [3], at

363-10 ({rev.] 3d ed. 2002).

(Cont'd)

account in the same bank as the former owner; (9) Urban

keeps the same floor design and space distribution in

the store, the same colors, logo and sign as the former

owner when plaintiff worked for it.”

Appendix to the Petition for Certiorari at 40-41. (Emphasis

suppressed. )

13a

Appendix A

However, another string of weightier federal cases has

questioned the bankruptcy courts’ authority to override the

application of the successor liability doctrines developed by

state courts. Collier, supra. Thus, the United States Circuit

Court of Appeals for the First Circuit has found that

inadequate notice to a claimant about the existence of a

bankruptcy proceeding may preclude the bankruptcy court

from granting injunctive relief against future claims.

In re Savage Industries, Inc., 43 F.3d 714 (1* Cir. 1994).

The Seventh Circuit Court of Appeals has gone even further,

suggesting that bankruptcy courts lack jurisdiction to interfere

with successor liability claims. Zerand-Bernal Group, Inc.

v. Cox, 23 F.3d 159 (7" Cir. 1994). It bears mentioning that

the caselaw on which the appellate court’s judgment rests

comes from bankruptcy court and federal first-instance court

cases, whereas the other string of federal cases mentioned

here involves decisions from different federal appellate

courts.

In general terms, the cases in which the federal courts

have held that the sale of assets “free and clear of all claims”

approved by a bankruptcy court precludes the application of

the successor liability doctrine have set forth two main

reasons for arriving at such results: (1) that if after a

bankruptcy sale a plaintiff asserts a successor liability claim,

he or she would receive a priority over those claims that

would be paid in accordance with the Federal Bankruptcy

Code, and this would rearrange the priority scheme

‘established by said code; and (2) that the implementation of

the successor liability doctrine would have a negative impact

on the trustee’s ability to sell assets of the estate at a fair

price. In re All American of Ashburn, Inc., 56 B.R. 186

l4a

Appendix A

(Bkrtcy. N.C. Ga. 1986); Rubinstein v. Alaska Pacific (In re

New England Fish Co.), 19 B.R. 323 (Bankr.W.D. Wash.

1982); Forde v. Kee-Lox Mfg. Co., Inc., 437 F. Supp. 631

(W.D.N.Y. 1977). In rejecting these arguments, the Seventh

Circuit, in the voice of Chief Judge Posner, explained:

- All this is true, but proves too much. It implies,

what no one believes, /n re American Hardwoods,

Inc., 885 F.2d 621 (9 Cir. 1989), that by virtue

of the arising-under jurisdiction a bankruptcy

court enjoys a blanket power to enjoin all future

lawsuits against a buyer at a bankruptcy sale in

order to maximize the sale price: more, that the

court could in effect immunize such buyers from

all state and federal laws that might reduce the

value of the assets bought from the bankrupt; in

effect, that it could discharge the debts of

nondebtors .. . as well as of debtors even if the

creditors did not consent; that it could allow the

parties to bankruptcy sales to extinguish the rights

of third parties ... without notice to them or (as

notice might well be infeasible) any consideration

of their interests. If the [bankruptcy] court could

do all these nice things the result would indeed

be to make the property of bankrupts more

valuable than other property—more valuable to

the creditors, of course, but also to the debtor’s

shareholders and managers to the extent that the

strategic position of the debtor in possession in a

reorganization enables the debtor’s owners and

managers to benefit from bankruptcy. But the

result would not only be harm to third parties .. .

15a

Appendix A

but also a further incentive to enter bankruptcy

for reasons that have nothing to do with the

purposes of bankruptcy law.

Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159, 163 (7" Cir.

1994).

The caselaw trend that refuses to acknowledge a

limitation in the application of different successor liability

doctrines simply because the sale of assets took place in the

context of a bankruptcy proceeding is not only in tune with

“important labor-related public policies that conform to our

economic, social, and cultural reality,” Pifieiro v. Int'l Air

Serv. of P.R., Inc., 140 D.P.R. at 349 [40 P.R. Offic. Trans.

at __], but is also better supported by federal caselaw and by

the doctrine in the field of bankruptcy. Thus, a well-known

authority on this matter points out: “Successor liability is a

nonbankruptcy state law issue, and bankruptcy should not

change the result that would otherwise obtain under

nonbankruptcy law.” Collier Bankruptcy Manual, supra, at

363-11. See also M. H. Reed, Successor Liability and

Bankruptcy Sales, L1-3 Bus. Law 653 (1996).

We therefore hold that the sale of assets under a federal

bankruptcy proceeding, though free of liens, will not bar the

application of the successor employer doctrine as developed

by our caselaw precedents.

C. We have repeatedly held that, as a rule, absent

passion, prejudice, bias or manifest error, appellate courts

must not disturb the trial courts’ weighing of the evidence.

Torres Ortiz v. Pld, 123 D.P.R. 637 [23 P.R. Offic. Trans.

16a

Appendix A

560] (1989); Valencia, ex parte, 116 D.P.R. 909 [16 P.R.

Offic. Trans. 1118] (1986); Velazquez v. Ponce Asphalt, 113

D.P.R. 39 [13 P.R. Offic. Trans. 53] (1982). We are in no

position to question the Court of First Instance’s findings

that plaintiff was discriminated against by reason of her age

and that she was discharged without just cause, but it is indeed

incumbent upon this Court to examine whether this case may

be appropriately decided by way of the successor employer

doctrine as set forth in our caselaw.

After applying to this case the tests laid down in

Cooperativa Azucarera and reaffirmed in Pifeiro, the trial

court concluded, among other things, that “Tienda Marianne

. IS Still in the same place, with the same employees,

engaged in the same type of business activity, and with the

same business identity” it had when plaintiff was discharged,

and held Urban liable for the obligations contracted by Petrie.

Appendix to the Petition for Certiorari at 41. (Emphasis

suppressed.)

The fact that apparently Urban had no knowledge or

notice of plaintiff's action against Petrie when it acquired

the assets of Tiendas Marianne weighs against the imposition

of liability under the successor employer doctrine. In fact,

the claim had not been filed when the transaction was made.

However, we have already indicated that none of the factors

to be considered when determining the existence of successor

employer liability is controlling by itself. In the last case in

which we_discussed the successorship doctrine, we imposed

liability even though there was no evidence that the purchaser

of the company had prior notice of the employees’ claims.

Pineiro v. Int'l Air Serv. of P.R., Inc., 140 D.P.R. 343 [40

P.R. Offic. Trans. __] (1996).

17a

Appendix A

An examination of the record of the instant case shows

that plaintiff had no knowledge of the transfer of the Tiendas

Marianne assets to Urban until that corporation appeared

before the trial court to question the attachment of assets

and the execution of judgment. It is clear that plaintiff was

not given an opportunity to assert her claim against Petrie

during the bankruptcy proceedings. Moreover, everything

tends to show that the employer’s corporate structure was

unknown to plaintiff. The copies of the income withholding

statements issued by the Department of the Treasury and

provided by plaintiff show that different artificial persons

had paid her during the years she worked for Marianne, thus

making it difficult for the aggrieved worker to determine who

was actually her employer.

Therefore, “to strike a fair balance between the interests

involved,” and considering “the clear continuity of identity

between both companies, the similarity in business

operations, as well as the public policy of protecting the

workers in wrongful discharge cases,” and the fact—highly

relevant in these cases—that the employee “would otherwise

be unable to obtain relief’ (Pifieiro v. Int’l Air Serv. of P.R.,

Inc., 140 D.P.R. at 353 [40 P.R. Offic. Trans. at __]), we

hold that the Court of First Instance acted correctly by

imposing liability on respondent Urban as Petrie’s successor

employer.

If]

Finally, let us consider respondent Urban’s contentions

that: (1) the service of summons was insufficient because

the summons was addressed to Petrie, plaintiff's former

18a

Appendix A

employer; and (2) even if the summons had been correctly

served, the judgment was not duly notified and, therefore, it

was not final and unappealable and its execution did not lie.

From the outset, we must point out that although

respondent Urban has indicated that it appeared before the

Court of First Instance without submitting to its jurisdiction

to question the service of summons and notice of judgment,

it is clear that in its oral and written appearances it presented

arguments on the merits as to the sufficiency of the evidence

presented by plaintiff.’ Therefore, we believe that respondent

Urban tacitly submitted to the jurisdiction of the trial court

and waived its contention of insufficient service of process.

See: Vazquez v. Lépez, 2003 TSPR 173, 160 D.P.R. __

[60 P.R. Offic. Trans. __] (2003); and Qume Caribe, Inc. v.

Srio. de Hacienda, 153 D.P.R. 700 [53 P.R. Offic. Trans. __]

(2001). In view of this situation, we need not determine

whether the imposition of successor liability to a business

concern that replaces another through the purchase of the

latter’s assets implies that the issuance of summons in the

name of the predecessor employer suffices to acquire

jurisdiction over its successor.

Lastly, Urban contends that it was not duly notified of

the trial court’s judgment because the address to which it

was sent (150 Meadowlands Parkway, [Secaucus],

NJ 07094) was not its address. However, if this is the case,

we cannot understand why Urban does not rebut plaintiff's

argument that the documents on record regarding the attached

7. These arguments were copied and developed by Urban in its

brief to this Court.

19a

Appendix A

Scotiabank account (which respondent claims as its own),

‘registered in the name of Marianne USPR, Inc., DBA

Marianne/Marianne Plus, show that the account holder’s

address is Urban Brands, Inc., “Marianne Division,

150_Meadowlands Parkway, Secaucus, NJ 07094. In view

of this fact, we must conclude not only that respondent Urban

was notified of the judgment against Petrie—for which it

must answer under the successor employer doctrine, as

previously discussed—but also that its allegation to the

contrary is meritless.

Consequently, the judgment rendered by the Court of

Appeals on June 4, 2004, is reversed, and the orders of

attachment and execution of judgment issued by the Court

of First Instance are affirmed.

Judgment will be rendered accordingly.

Justice Rivera Pérez dissents without a written opinion.

20a

APPENDIX B — JUDGMENT OF THE COMMONWEALTH

OF PUERTO RICO, COURT OF APPEALS, JUDICIAL

REGION OF PONCE DATED JUNE 4, 2004

COMMONWEALTH OF PUERTO RICO

COURT OF APPEALS

JUDICIAL REGION OF PONCE

KLCE400366

EVELYN QUINONES [sic] OQUENDO

Plaintiff-Respondent

PIETRI /sic] RETAIL INC., D.i.P., AND/OR CENTRO

APPAREL CORPORATION, D/B/A MARIANNE,

Defendants

URBAN BRANDS, INC.

Petitioner

Certiorari from the Court of First Instance,

Ponce Superior Court

Re: Wrongful Discharge

Civil Case No.

JPE 1999-0647 (605)

Panel composed of Judge Brau Ramirez, as Presiding Judge,

and Judges Hernandez Torres and Martinez Torres.

Judgment rendered by Judge Martinez Torres.

2la

Appendix B

JUDGMENT

San Juan, Puerto Rico, June 4, 2004

Petitioner Urban Brands, Inc. prays this Court to issue

the writ of certiorari and to reverse the resolution of the Court

of First Instance, Ponce Part, which denied Urban’s motion

for an order to stay an allegedly unlawful attachment. On

the grounds set forth below, we reverse the resolution

appealed from. |

On September 29, 1999, plaintiff-respondent Evelyn

Rodriguez Oquendo filed a labor claim against Petrie Retail

Inc., D.I.P., and/or Centro Apparel Corporation, d/b/a

Marianne (Petrie). In her complaint, Rodriguez Oquendo

alleged that she was discharged without just cause and that

she was the victim of discrimination by reason of age.

Summons was issued in the name of Petrie. On October

15, 1999, the summons and the complaint were delivered to

Maritza Ruiz Vélez, manager of the Tiendas Marianne store

located at the Centro del Sur Shopping Center in Ponce.

Ruiz Vélez, manager of the Tiendas Marianne store~at

Centro del Sur Shopping Center, immediately called the main

offices of Tiendas Marianne and sent them both documents.

However, petitioner Urban had acquired the assets of

Tiendas Marianne de Puerto Rico ten (10) months before

the service of summons against respondent Petrie and two

22a

Appendix B

(2) months after plaintiff-respondent Rodriguez Oquendo was

discharged. Urban acquired the assets at a sale carried out in

the United States Bankruptcy Court, Southern District of New

York, inasmuch as Petrie had filed for bankruptcy under

Chapter 11 of the Federal Bankruntcy Code in the State of

New York.

On May 25, 2000, on motion of plaintiff-respondent

Rodriguez Oquendo, default was entered against Petrie.

The trial was held, and the Court of First Instance

rendered Judgment for plaintiff and ordered defendant Petrie

to pay Rodriguez Oquendo $11,204.67 as penalty for the

alleged wrongful discharge, plus $30,000 for the alleged age

discrimination. A copy of the notice of judgment was filed

in the record of the case on June 7, 2001.

On March 13, 2002, plaintiff-respondent Rodriguez

Oquendo moved the Court of First Instance for execution of

judgment and, on September 16, 2002, the court finally issued

the order of execution of judgment, ordering the attachment

of two (2) bank accounts belonging to petitioner Urban. One

of the accounts is from Scotiabank de Puerto Rico and the

other from Banco Popular de Puerto Rico. The court issued

the writ of execution on October 4, 2002. The funds deposited

in the Banco Popular account were not attached because the

account number in the attachment order was incorrect.

Petitioner Urban appeared in the Court of First Instance

without submitting to its jurisdiction and asked the court to

set aside the attachment and to stay the execution of

judgment. In its motion, Urban adduced that the attached

23a

Appendix B

account belonged to it, and alleged insufficiency of process

and that it was not a party to the claim. Urban also asked to-

be heard.

After the hearing, the Court of First Instance denied

petitioner Urban’s motion. Aggrieved, Urban sought

certiorari before this Court, assigning four errors to the Court

of First Instance. Urban contends that said court erred: first,

in determining that Urban was indeed summoned; second,

in determining that Urban was a successor employer; third,

in not issuing an order to stay the allegedly wrongful and

illegal attachment; and, finally, in granting authorization to

withdraw the funds attached in execution of judgment before

the en became final and unappealable.

In aid dios jurisdiction, we set aside the March 10,

2004, order of\the Court of First Instance, Ponce Part (which

authorized the withdrawal of the attached funds) and banned

the issuance of similar orders. We also ordered that any funds

withdrawn in compliance with that order be deposited again

in the Court of First Instance, Ponce Part.

The Court\also ordered plaintiff-respondent Rodriguez

Oquendo to file an opposition to the petition, which she

timely did.

Having examined the record and the parties’ briefs, we

decide under the applicable law.

24a

Appendix B

Under section 363(f) of the Federal Bankruptcy Code,

11 U.S.C. § 363(f), the trustee may sell property free of

interests.' If the debtor’s assets have been liquidated, the

claimants will probably seek to recover from the purchaser

or purchasers of the assets. Courts have provided protection

to purchasers of assets, who would otherwise be subject to

these claims under the successor liability doctrine, by way

of the approval of sales free of all present and future claims

against the debtof~orthe-estate.’

As a general rule, a purchaser of assets does not assume

the, liabilities of the seller unless the purchaser expressly

agrees to do so or an exception to the rule exists. Successor

liability is an equitable exception to this rule. Successor

liability is subject to state law, and the doctrines vary from

state to state, but generally successor liability will not attach

unless (1) the purchaser expressly or impliedly assumes the

liability; (2) the transaction constitutes a merger or

consolidation of the businesses; (3) the purchaser is merely

1. “Under section 363 (f), the trustee may sell property free of

interests.” 3 Collier on Bankruptcy $ 363.02[3], at 363-15 [sic].

2. “If the debtor’s assets have been liquidated, such claimants

may seek to recover from [a purchaser of the debtor’s assets. Courts

have sought to provide protection to] purchascrs of assets, who might

otherwise be subject to such claims under principles of successor

liability, by approving sales free of all present future claims against

the debtor or the estate.” Jd. at 363-16 [sic].

25a

Appendix B

a continuation of the seller; or (4) the transaction was carried

out fraudulently to avoid liability. *

To determine whether the purchaser is a continuation of

the seller, we must examine if there is a continuation of the

seller’s corporate entity, not if there is a continuation of the

seller’s business operations.* 15 William M. Fletcher,

Fletcher Cyclopedia of the Law of Private Corporations

§ 7122.60 [sic], at 257, West Group (1999). See Cooper v.

Lakewood Eng’g & Mfg. Co., 45 F.3d 243, 245 (8" Cir. 1995);

Upholsterers Int’l Union Pension Fund vy. Artistic Furniture

of Pontiac, 920 F.2d 1323, 1325-1326 (7 Cir. 1990).

3. “As a general rule, a purchaser of assets does not assume

the liabilities of the seller unless the purchaser expressly agrees to

do so or an exception to the rule exists. Successor liability is an

equitable exception to this general rule. Successor liability depends

on state law and the doctrines vary from state to state, but generally

successor liability will not attach unless (1) the purchaser expressly

or impliedly assumed the liability; (2) the transaction amounted to a

merger or consolidation of the businesses; (3) the purchaser was

merely a continuation of the seller; or (4) the transaction was centered

into fraudulently in order to avoid liability for the obligations.”

Id. at 363-16 /sic].

4. “The mere continuation exception to the nonliability of

successors applies when the transferee corporation is merely a

continuation or reincarnation of the transferor corporation. In

determining whether one corporation is a continuation of another,

the test is whether there is a continuation of the corporate entity . . .

not whether there is a continuation of the transferor’s business

operations.” 15 William M. Fletcher, Fletcher Cyclopedia of the Law

of Private Corporations § 7122.60 /sic], at 257, West Group (1999).

26a

Appendix B

The successor liability doctrine may be applied to claims

for discrimination in employment filed under the Civil Rights

Act of 1866 (42 U.S.C. § 1981). Although successor liability

may be imposed in a particular case under § 1981, it all

depends on whether the successor knew about the charge or

pending lawsuit before acquiring the business or assets of

its predecessor. The successor liability doctrine may also be

applied to claims for discrimination in employment filed

under Title VII of the Civil Rights Act of 1964. This doctrine

is also applicable to actions filed under state civil rights acts.

Successor liability in causes of action brought under state

civil rights acts is defeated if the successor corporation had

no knowledge of the discrimination claim before the date of

purchase. What is more, the doctrine may apply to claims

brought under the Age Discrimination in Employment Act

(A.D.E.A.)2 Id. at 257-258 [sic].

5. “The successor doctrine may apply to claims for employment

discrimination brought under the Civil Rights Act of 1866, 42 U.S.C.

§ 1981. Whether successor liability should be imposed in a particular

case brought under § 1981 depends upon whether the successor

company had notice of the charge or pending lawsuit prior to

acquiring the business or assets of the predecessor.... [T]he

successor liability doctrine may also be applied to claims for

employment discrimination brought under Title VII ef the Civil

Rights Act of 1964. The successor liability doctrine is also applicable

to actions brought under state civil rights acts. Successor liability in

a cause of action brought pursuant to a state civil rights act is

foreclosed where the successor corporation had no notice of the

discrimination claim prior to the acquisition date. Furthermore, the

successor doctrine may apply to claims for employment

discrimination pursuant to the Age Discrimination in Employment

Act.” Id. at 257-258 [sic].

27a

Appendix B

In Nathanson v. Labor Board, 344 U.S. 25, 29 (1952), the

United States Supre:ne Court held chat the purpose of the

Bankruptcy Act was to achieve equality of distribution among

the claimants.° That is why bankruptcy courts have held that a

sale of the debtor’s assets, approved by the United States

Bankruptcy Court as free and clear of all claims, precludes the

application of the successor doctrine against a purchaser of those

assets in a suit based on the debtor’s alleged employment

discrimination and violations of employees’ civil nghts. See Jn

re All American of Ashburn, Inc., 56 B.R. 186, 190 (Bkrtcy.

N.D. Ga. 1986); Rubinstein v. Alaska Pacific Consortium

[(In re New England Fish Co.)], 19 B.R. 323, 328-329 (Bkricy.

W.D. Wash. 1982); Forde v. Kee-Lox Mfg. Co., Inc., 437

F. Supp. 631 (W.D.N.Y. 1977).

In In re All American of Ashburn, Inc., the United States

Bankruptcy Court in Atlanta explained that Forde, 437 F.Supp.

at 633-634, established two policies against allowing successor

liability to apply to purchasers of assets in bankruptcy sales.

The first is that if a plaintiff files a claim grounded on successor

liability after a bankruptcy sale, he or she, in effect, would receive

a priority over those claims that would be paid in accordance

with the Federal Bankruptcy Code. As a result, the successor

liability theory would modify the priority scheme established

by the Federal Bankruptcy Code. The other reason is the negative

impact that the successor liability doctrine would have on the

trustee’s ability to sell assets of the estate at a fair price.’

6. The theme of the Bankruptcy Act is ‘equality of

distribution.’” Nathanson v. Labor Board, 344 U.S. 25, 29 (1952).

7. “The Forde case sets out two policies against allowing

successor liability to follow bankruptcy sales. The first is that if a

(Cont'd)

28a

Appendix B |

This case does not satisfy the successor liability tests.

Petitioner Urban, as the purchaser, did not assume—expressly

or impliedly—defendant Petrie’s alleged liability to plaintiff-

respondent Rodriguez Oquendo. Section 2.3 of the Asset

Purchase Agreement clearly shows that Urban only assumed

the following liabilities: (a) all liabilities for on-order

merchandise; (b) all liabilities of any of the sellers accruing

or arising from and after the closing date under any and all

assigned contracts. The agreement further provides that all

the liabilities and obligations of the seller of whatever kind

or nature, known or unknown, fixed or contingent, accrued

or unaccrued, other than the liabilities assumed by the

purchaser, are considered excluded liabilities, and the

purchaser will not assume or pay, perform, discharge or be

responsible for any of the excluded liabilities. See Exhibit

XXII, at 79-80. Second, there is no such thing here as a

merger or consolidation of two businesses. Third, Urban is a

corporation different from Petrie; it is not a continuation of

Petrie’s same corporate entity. Finally, there is no assignment

of fraud in the acquisition of the assets.

_ Nevertheless, even if the successor liability tests had

been met, plaintiff-respondent Rodriguez Oquendo did not

prove that petitioner Urban had knowledge or notice of the

(Cont'd)

plaintiff asserts a claim grounded on successor liability after a

bankruptcy salc, he, in effect, receives a priority over those claims

which were paid in accordance with the Bankruptcy Code. . . The

result is that successor rearrange the priority scheme established by

the Bankruptcy Code. ... The other reason is the negative impact

that potential successor liability claims would have on the trustee’ s

ability to sell assets of the estate at a fair price.” All American of

Ashburn, Inc., 56 B.R. 186, 190 (Bkrtcy. N.D. Ga. 1986).

29a

Appendix B

alleged employmient discrimination claim at the time of

acquiring defendant Petrie’s assets. This forecloses or defeats

Rodriguez Oquendo’s cause of action for employment

discrimination against Urban under the successor liability

doctrine.

Therefore, the Court of First Instance erred in holding

that petitioner Urban was liable to: plaintiff-respondent

Rodriguez Oquendo under the successor liability doctrine

for her allegedly discriminatory discharge by respondent

Petrie.

Urban’s defenses were not waived, because it was never

appropriately summoned or joined as a party to the claim.

Service of process is a constitutional procedural mechanism

whereby the cour; acquires jurisdiction over the defendant’s

person, so that he or she may appear to be heard and to defend

himself or herself from the claim filed against him or her.

Civil Procedure Rule 4 (32 L.P.R.A. App. III); Peguero y

otros v. Hernandez Pellot, 139 D.P.R. 487, 494 (1995). (Cases

cited.)

““The main purpose of service of process is to notify the

defendant that an action has been filed against him or her, in

order to guarantee his or her right to be heard and to defend

himself or herself.” Marquez v. Barreto, 143 D.P.R. 137, 142

(1997). See also Bco. Central Corp. v. Capit{o]l Plaza, Inc.,

135 D.P.R. 760, 763 (199[4]). Since service of process is a

constitutional imperative of due process of law, we have

demanded strict compliance when its requirements are

30a

Appendix B

involved. Quinones Roman vy. Cia. ABC, opinion of October

31, 2000, 2000 J.T.S. 172, at 295; First Bank of P.R. v. Inmob.

Nac., Inc., 144 D.P.R. 901, 913 (1998). If these requirements

are not met, the court does not acquire jurisdiction over the

defendant’s person.

The concept of ‘in personam jurisdiction” is inextricably

tied to the due process of law. Marquez v. Barreto, supra, at

142 [-143]; Reyes v. Oriental Fed. Savs. Bank, 133 D.P.R.

15, 21 (1993). A court may acquire in personam jurisdiction

in two manners: (1) by adequately using the procedural

mechanisms of service of process provided in the Rules of

Civil Procedure, or (2) by the defendant’s voluntary

submission to the jurisdiction of the court. Mdrquez v.

Barreto, supra, at 143.

Moreover, for a plaintiff to acquire jurisdiction over the

person of a defendant, due process of law requires that the

defendant be adequately notified of the claim filed against

him or her, and that he or she be afforded the opportunity to

be heard before his or her rights are adjudicated. Ledn v.

Rest. El Tropical, opinion of June 7, 2001, 2001 J.T.S. 84, at

1326; Ind. Sideruirgica v. Thyssen Steel Caribbean, 114

D.P.R. 548, 559 (1983).

Section 12.01 of Act No. 144 of August 10, 1995, better

known as the General Corporations Law of 1995 (14 L.P.R.A.

§ 3126), provides the following with regard to service of

process on corporations doing business_in Puerto Rico:

31a

Appendix B

§ 3126. Service of process on corporations

(a) Service of legal process upon any

corporation organized in the Commonwealth shall

be made by personally delivering a copy of the

process to any officer or director of the corporation

in the Commonwealth, or the registered agent of

the corporation in the Commonwealth, or by

leaving it at the dwelling or usual place of abode

of any officer, director or registered agent (if the

registered agent is an individual) in the

Commonwealth, or at the registered office or other

place of business of the corporation in the

Commonwealth. If the resident agent is a

corporation, service of process may be made

through such corporation as agent, by delivery in

the Commonwealth of a copy of the process to

the president, vice president, secretary, assistant

secretary or any director of the corporate resident

agent,...

Civil Procedure Rule 4.4(e) (32 L.P.R.A. App. III, R.

4.4 (e)) also provides the following with respect to service

of process on corporations:

Rule 4.4. Personal service

The summons and complaint shall be served

together. The plaintiff shall furnish the persons

making service with the necessary copies. The

process server, upon delivering copy of the

summons, shall make proof of service on the back

32a

Appendix B

of the same, writing above his signature the date

and place of the service and the name of the person

upon whom service was made. Service shall be made

as follows:

(ec) Upon a corporation, company, partnership,

association or any other artificial person, by

delivering a copy of the summons and of the

complaint to an officer, managing or general agent,

or to any other agent authorized by appointment or

designated by law to receive service of process.

The above-stated rule shows that process may be served

on a corporation by delivering a copy of the summons and of

the complaint to an officer, managing or general agent or

any other agent authorized by appointment or designated by

law to receive service of process. Quifiones Réman v. Cia.

ABC, supra, at 295. What is truly important for a person to

qualify as managing agent through whom a corporation

authorized to do business in Puerto Rico may be summoned

is that said person be in a position of sufficient responsibility

so that it may be reasonable to presume that the person will

transmit or forward the summons and the complaint to his

or her organizational superiors. /d. See 4A Charles Alan

Wright & Arthur R. Miller, Federal Practice and Procedure

§ 1103, West Pub. (1987).

Regarding the term “managing agent,’ Quifiones Roman

cites corporate commentator Fletcher to point out that state

and federal courts are inclined to construe said term liberally

33a

Appendix B

in order to facilitate the acquisition of jurisdiction over a

corporation. See 18A William M. Fletcher, Fletcher

Cyclopedia of the Law of Private Corporations § 8746, at

97, West Pub. (1997).

To ensure compliance with the notification requirement,

the summons must be served on a natural or artificial person

who, as an officer, managing or general agent, or agent

authorized or designated by law to receive service of process

can, with reasonable certainty, receive and remit the summons

to the defendant corporation. Civil Procedure Rule 4.4 (e);

[Léon] v. Rest. El Tropical, opinion of June 7, 2001, 2001

J.T.S. 84, at 1326-1327. (Cases cited.)

In sum, the rule reiterated by Puerto Rico’s highest court

is that the defendant must be “[rJeally notified of the claim

against him or her and that his or her essential nights are not

substantially harmed.” /Léon] v. Rest. El Tropical, supra.

In this case, petitioner Urban did not submit voluntarily

to the jurisdiction of the court, The summons was addressed

to Petrie, not to Urban. The complaint makes no reference to

the fact that Petrie had sold its assets in Puerto Rico to Urban.

Although process was served on the person of a managing

agent, the manager was authorized to receive summonses on

behalf of Urban not summonses addressed to Petrie. Neither

was it alleged in the complaint that Urban had assumed

Petrie’s liabilities or obligations. What is more, Urban is not

even a party to the action.

Therefore, the Court of First Instance erred in finding

that petitioner Urban had been adequately summoned.

—

34a

Appendix B

. IV

For the foregoing reasons, the writ of certiorari is issued,

the judgment below is reversed, and the attachment order is

set aside. Therefore, it is ordered that the funds attached be

returned to petitioner Urban Brands, Inc.

It was so agreed and ordered by the Court and certified

by the Chief Clerk.

(illegible signature)

Aida Ileana Oquendo Graulau

Chief Clerk

[Handwritten: ] Deputy Clerk

35a

APPENDIX C — RESOLUTION OF THE

COMMONWEALTH OF PUERTO RICO, COURT OF

FIRST INSTANCE, SUPERIOR COURT OF PONCE

DATED JANUARY 16, 2004

COMMONWEALTH OF PUERTO RICO

COURT OF FIRST INSTANCE

SUPERIOR COURT OF PONCE

CIVIL NO. JPE1999-0647 (605)

EVELYN QUINONES [sic] OQUENDO

Plaintiff

[PIETRIE] RETAIL INC., D.LP., AND/OR CENTRO

APPAREL CORPORATION, D/B/A MARIANNE

Employer-defendant

RE: ACTION FOR WRONGFUL DISCHARGE

setabanainen te EMPLOYMENT

RESOLUTION

Plaintiff Evelyn Rodriguez Oquendo was employed by

Tiendas Marianne”! from April 14, 1980, to October 5,

7. At the time, Tiendas Marianne de Puerto Rico was owned

by Petrie Retail, Inc., although the payment stubs and withholding

(Cont’d)

36a

Appendix C

1998, when she was discharged. At the time of her discharge,

Rodriguez Oquendo was Assistant Manager of the Marianne

store that was—and still is—located at the Centro del Sur

Shopping Center in Ponce.

On September 29, 1999, Rodriguez Oquendo filed a

labor claim against her employer, Tiendas Marianne, alleging

that she had been discharged from her employment without

just cause and that she had been discriminated against because

of her age.

On October 5, 1999, the Clerk’s Office of this Judicial

Center issued the pertinent notice of the complaint filed

against the defendant employer, who was duly notified and

summoned on that same day at 1:30 p.m.

According to the service of summons or notice of the

complaint, to the oral and documentary evidence admitted

during the proceedings, and to Urban Brands, Inc.’s

admission and stipulation, the person served with summons

on that date was Maritza I. Ruiz Vélez, who was and still is

the Manager of the Tiendas Marianne store located at the

Centro del Sur Shopping Center in Ponce; this was the same

store branch owned by the defendant employer and where

plaintiff Rodriguez Oquendo worked for many years.

According to Ruiz Vélez'’s testimony before this Court,

as soon as she received the complaint and the summons, she

(Cont'd)

statements admitted in evidence show that [plaintiff] received her salary

from other corporations that apparently were subsidiaries to that

company.

37a

Appendix C

immediately called the Tiendas Marianne main offices in San

Juan and forwarded both documents.

The evidence presented by Urban Brands, Inc., shows

that by the date the manager of Tiendas Marianne in Centro

del Sur was summoned, the corporate cluster that owned

Tiendas Marianne in Puerto Rico had been sold almost ten

months earlier to a corporation called Urban Acquisition

Corp.* {sic}

Despite the summons served on the person of Manager

Ruiz Vélez, nobody appeared before this Court to answer or

object to the\complaint or to report a change of owner; thus,

on plaintiff's motion, this Court entered default against the

defendant employer on May 25, 2000. See 32 L.P.R.A.

§§ 3120 and \3121; Supermercado Grande Inc. v. Alamo

Perez, decided September 12, 2002, 2003 TSPR 116; Ruiz

Rivas v. Colegio San Agustin, decided September 15, 2000,

2000 TSPR 147; Valentin v. Housing, 146 D.P.R. 712 (1998);

Mercado Cintron v. Zeta Communications, 135 D.P.R. 737

(1994); and Rules 10.1 and 45 of Civil Procedure.

After holding the trial on the merits, this Court rendered ~—

Judgment for plaintiff and ordered the defendant employer

to pay plaintiff Rodriguez Oquendo $11,204.67 as penalty

for wrongful discharge [Act No. 80 of May 30, 1976] and

$30,000 in damages for age discrimination [Act No. 100 of

June 30, 1959].

8. ‘"*/ The evidence presented does not show clearly what

relationship, if any [other than the similarity in names] existed between

the appearing party Urban Brands Inc. and Urban Acquisition Corp.

38a

Appendix C

The Judgment in this case was filed in the record of the

case and notified to the parties, according to the amended

Notice of Judgment of June 7, 2001. As of this date, said

Judgment is final and unappealable.

On March 13, 2002, plaintiff sought execution of the

Judgment rendered in this, case.

On May 2, 2002, plaintiff requested a new order of

execution of Judgment, which was finally issued on

September 16, 2002. The corresponding writ of execution

was issued on October 4, 2002.

On October 21, 2002, a marshal from this Judicial

Center served the order and the writ of execution on the Ponce

branch of two banks: Banco Popular de Puerto Rico and

Scotiabank.

The Banco Popular de Puerto Rico account that, as

informed by plaintiff, was kept by Tiendas Marianne during

the time she was employed there, and to which she personally

made deposits as part of her duties, could not be attached.

Said bank alleged that the account number informed was

incomplete.’ /“/

9. ‘<) Plaintiff testified at the hearing that said account number

was correct and that it was there that her employer made deposits

from the Centro del Sur Shopping Center store. Witness Ivette Gomez

Rodriguez, who had of been.an executive officer of Tiendas Marianne

before the sale of its assets, and who was now Urban’s vice president

for loss control, testified that said account was opened in December

1998, after the sale of the Marianne stores assets to “Urban.”

39a

Appendix C

At Scotiabank, the marshal attached $16,177.30

deposited in account No. 00402004926385, under the name

of the defendant employer, Tiendas Marianne.

As a result of the attachment, on October 23, 2002,

Urban Brands, Inc. [Urban] appeared before this Court and,

without submitting to its jurisdiction, asked the Court to set

aside the attachment order and to stay execution of the

Judgment.

It must be mentioned that when Urban appeared before

this Court seeking several remedies, it informed that it would

not submit to, or recognize this Court’s jurisdiction to grant

relief against it. However, it seems to recognize our authority

and jurisdiction to grant relief in its favor.

Urban essentially alleges that it is the owner of the

attached bank account, because when the manager of the store

located at the Centro del Sur Shopping Center [Maritza I.

Ruiz Vélez] was summoned, Urban had already bought all

the assets of Tiendas Marianne in Puerto Rico through a

contract entitled Asset Purchase Agreement, dated December

1, 1998. Urban alleged that it had bought said assets without

assuming debts or liabilities of any kind.'® ““

Urban further alleged that it had not been summoned as

prescribed by Civil Procedure Rule 4 and that the labor claim

had been directed against the plaintiff's former employer,

10. ““? According to the Asset Purchase Agreement, it was Urban

Acquisition Corp. who purchased Marianne’s assets We must assume

by such representation that [Urban Acquisition Corp.] and Urban

Brands, Inc. are one and the same.

40a

Appendix C

not against it. Urban also alleged that it was not a party to

this case, and requested a hearing to state its position."' ““/

Plaintiff, in turn, when notified of the above-mentioned

motion, appeared of record through an Urgent Motion for

Order Directed at Urban.

In said motion, plaintiff essentially stated that although

the Judgment rendered in this case was final and

unappealable, and although the manager of the Marianne

Store located at Centro del Sur Shopping Center had been

personally summoned, it would agree to a stay of the

execution of Judgment until the contentions set forth in

Urban’s motion were clarified.

Plaintiff also alleged that if what Urban claimed in its

motion with regard to the sale of assets was true, Urban, in

keeping with the decision in Berrios v. U.P.R., 116 D.P.R.

[88 (1985)], had the obligation to promptly resort to the Court

instead of doing nothing to clarify what it is now claiming.

Plaintiff further alleged that if Urban’s pleadings prevailed,

its acts would harm her. Plaintiff subsequently stated that if

Urban did not submit to the court’s jurisdiction, it would

not be entitled te relief.

With the issue thus joined, this Court held several

hearings to determine the tenability of setting aside the

attachment and the execution of Judgment. Both parties

11. ‘“*/ Urban’s position underwent several changes during the

hearing; its last position was that the Judgment rendered in this case

should be set aside to allow Urban to present evidence that plaintiffs

discharge was justified.

4la

Appendix C

presented evidence in support of their positions, and Urban

always made clear that it was not submitting to the

jurisdiction of this Court.

Having examined and weighed the testimony given in

Court, based on the credibility afforded by the Court to each

witness, and with the benefit of the documents presented by

the parties, as well as their pleadings, we resolve Urban’s

motion. Trinidad Garcia v. Chadfe], decided January 18,

2000, 2000 TSPR 7; Aquelio Lopez v. Arquelio Garcia [sic],

decided August 31, 2001, 2001 TSPR 124.

To begin, we must make several remarks.

In the first place, the Judgment rendered in this case is

final and unappealable as of today. No motion has been filed

against it to release one of the parties, nor has any

independent action been brought to set it aside because one

of the parties was not summoned for fraud to the Court, as

provided by Civil Procedure Rule 49.2; Banco de Santander

v. Fajardo Farms, 141 D.P.R. [237] (1996); Rios Moya v.

Industrial Optics, 2001 TSPR 117.

In this case, Urban has appeared, without submitting to

the jurisdiction of this Court, to have us set aside the order

for execution of the Judgment rendered in this case and the

attachment of assets registered in the defendant employer’s

name, and which, as alleged by Urban, belong to it.

42a

Appendix C

In second place, as shown by the certificate of service of

summons in this case, by the admission made by Urban’s

counsel, and by the testimony given by Urban’s manager at

the Marianne store located in Centro del Sur Shopping Center

[Maritza I. Ruiz Vélez], on October 15, 1999, said manager

was personally served with the complaint or suit and with a

copy of the summons or notice of the complaint on behalf of

Tiendas Marianne. Therefore, Urban was duly notified and

summoned through one of its managers. Civil Procedure Rule

4.4 (e); Roman v. Compania, decided October 31, 2000, 2000

TSPR 160; Leon Garcia v. Restaurante El Tropical, decided

June 7, 2001, 2001 TSPR 81.

According to the testimony given in open court by

Urban’s manager, Maritza I. Ruiz Rivera, as soon as she

received the documents regarding this complaint, she

immediately contacted the Tiendas Marianne main offices

in the metropolitan area and, as instructed by said office,

sent them the documents. Ledn v. Rest. El Tropical, supra.

Urban did nothing with these documents.

In third place, it comes forth from the testimony of

plaintiff Evelyn Rodriguez Oquendo, of Urban’s manager,

Martiza |. Ruiz Rivera, and of Urban’s executive officer,

Ivette Gomez Rodriguez, that: (1) the Tiendas Marianne store

at the Centro del Sur Shopping Center, where Urban was

summoned, was and still is the same store it has kept; (2) it

was at that store that plaintiff worked for many years for

Tiendas Marianne; (3) Urban currently keeps that same store

with the same name, with the same concept (selling women’s

clothes), and exactly at the same place and physical space in

the shopping center; (4) neither in that same store nor in the

43a

Appendix C

other Tiendas Marianne stores throughout Puerto Rico has

Urban changed the type of business activity in which it is

engaged (the sale of women’s clothes), which is the same as

when plaintiff worked for Tiendas Marianne under the former

owner; (5) Urban has kept the same store design as the former

owner; (6) it uses the same cash register; (7) Urban keeps

essentially the same personnel; (8) Urban keeps its bank account

in the same bank as the former owner; (9) Urban keeps the

same floor design and space distribution in the store, the same

colors, logo, and sign as the former owner when plaintiff worked

for it.

For all practical purposes, Tienda Marianne in Puerto Rico

is still in the same place, with the same employees, engaged in

the same type of business activity, and with the same business

identity. In Law, this is known as a successor employer. /L.R.B./

v. Cooperativa Azucarera, 98 [P.R.R. 307] (1970); J.R.T. v. Asoc.

Playa Azul, 117 D.P.R. [20] (1986); Bruno Lopez v. Motorplan,

134 D.P.R. 111 (1993); Pineiro v. Int'l Air Service, 140 D.P.R.

343 (1996).

The Judgment rendered here under Acts Nos. 80 and 100 is

protected by the public policy of the Commonwealth of Puerto

Rico on labor claims to the point that the claim for compensation

Act No. 80 is unwaivable. See 29 L.P.R.A. § 185i.'° “7

12. ‘“? Urban alleges that the purchase, free and clear of liens, of

Tiendas Marianne’s assets in Puerto Rico that took place in the United

States Bankruptcy Court relieves it from the effects of the Judgment

rendered in this case. It suffices to say that a contract executed outside

this jurisdiction cannot contravene the public labor policy of

Commonwealth Puerto Rico jurisdiction. On the other hand, what Urban

really wants is to have the Judgment set just cause for the discharge.

44a

Appendix C

Urban knew since October 15, 1999, that a labor claim

had been filed against it as the successor employer of Tiendas

Marianne in Puerto Rico, but did nothing about it. It did not

answer the complaint, did not seek dismissal, and did not ask to

intervene in order to clarify any defense it may raise. With its

silence and inaction, it allowed the complaint to follow its

course. At the hearing, Urban did not present evidence that it

had notified the previous owner so that the latter would assume

its own defense of the case or state whatever it deemed proper

at law in defense of its rights.

if Urban deemed that the claim against it was not

actionable, in the discharge of its obligation to act with due

diligence and clarity, it should have appeared of record, as it

now does, to allege what it now alleges, or what it deemed was

proper at law, thus alerting plaintiff and this Court that there

had been a transfer of assets between the former employer and

the new employer. Its silence and idleness cannot be rewarded.

Nemo auditur propiam turpitudinem allegans. Berrios v. U.P.R.,

116 D.P.R. 88 (1985); Velilla v. Pueblo Supermarkets, 111 D.P.R.

585 (1981); Morales v. Municipio de Toa Baja, 119 D.P.R. 682

(1987); Municipio de Ponce v. Autoridad de Carreteras, decided

December 20, 2001, 2001 JTS 3; Rodriguez v. Banco Desarrollo,

decided January 9, 2001, 2001 TSPR 2.

By remaining idle and doing nothing, Urban knew or

should have known that with its behavior it was admitting

the fact that it was a successor employer. This was thus

acknowledged by Urban by the way it acted in this incident,

because its briefs and pleadings in Court show that the true

reason for appearing in this case is to have the Judgment set

aside so that it may present evidence that plaintiff's discharge

was justified. Urban’s plan is four years too late.

45a

Appendix C

Urban is what in law is known as a successor employer.

Bruno Lopez v. Motorplan, supra; Pite[i]ro v. Int'l Air Services,

supra. Therefore, it is liable to plaintiff not only because of this

juridical figure, but also because of the breach of its legal

obligation to diligently appear in Court. Berrios v. U.P.R., supra;

Velilla v. Pueblo Supermarkets, supra.

‘ Since Urban has not submitted to the jurisdiction of this

Court, it has no right to seek relief, because someone who does

not recognize the Court’s authority to grant relief cannot, at the

same time, seek such relief. Even if Urban was entitled to appear

before this Court without submitting to our jurisdiction, its

contentions are wrong, because as a successor employer, it was,

and still is liable to plaintiff under Act No. 80 (Pifeiro v. Int'l

Air Services, supra), and for the discrimination committed

against her (Bruno Lopez v. Motorplan, supra).

In this respect we must also stress that this Court

must not tolerate the efforts and stratagems employed

by unscrupulous employers to evade the jurisdiction

of the courts when evidently such acts are utterly

improper. Our main duty is to impart justice and to

resist being misled by technicalities.

We think it is high time /itigants realized that

this Court will do everything in its power to see that

cases are decided on their merits instead of on

legalistic niceties of pleading and procedure. . . . The

courts have long since abandoned the sporting theory

of justice. Litigants should do the same. No party_

has a vested interest in the grammatical and

ieee

46a

Appendix C

procedural errors of his adversary. Serra v.

Transportation Authority, 68 P.R.R. 581, 585 (1948).

Leon Garcia v. Restaurante El Tropical, 2001 TSPR 81.

Based on the aforementioned factual and legal grounds,

the Motion for Order to Stay Wrongful Attachment filed by

Urban on October 23, 2003, is hereby denied.

Consequently, the Court authorizes the continuation of the

execution of the Judgment rendered in this case against the assets

of the successor employer Urban.’ “’

In Ponce, Puerto Rico, this 16" day of January 2004.

To be notified.

(Illegible signature)

EDUARDO R. ESTRELLA MORALES

SUPERIOR COURT JUDGE

7. (se) After the evidentiary hearing on this issue was held, the

court determined that this case strikes the necessary balance between

the “unequivocal public policy” that covers workers and employces

with respect to the “technicalities game” and the constitutional

imperative of due process of law regarding the adequate, provable, and

reasonable service of process on a defendant employer. Lucero Cuevas

v. The San Juan Star, decided May 16, 2003, 2003 TSPR 80.

47a

APPENDIX D — JUDGMENT OF THE

COMMONWEALTH OF PUERTO RICO COURT OF

FIRST INSTANCE, SUPERIOR COURT OF PONCE

DATED MAY 18, 2001

COMMONWEALTH OF PUERTO RICO

COURT OF FIRST INSTANCE

SUPERIOR COURT OF PONCE

CIVIL NO.: JPE1999-0647

RE:

COMPLAINT FOR WRONGFUL

DISCHARGE AND

DISCRIMINATION IN EMPLOYMENT

EVELYN RODRIGUEZ OQUENDO

PLAINTIFF

PETRIE RETAIL INC., D.L.P. AND/OR CENTRO

APPAREL CORPORATION, D/B/A MARIANNE

EMPLOYER-DEFENDANT

JUDGMENT

The default hearing on this case was called and plaintiff

appeared represented by counsel. Having heard plaintiff's

48a

Appendix D

testimony and examined the documentary evidence presented

and admitted, this Court draws the following:

Conclusions of Fact

Plaintiff Evelyn Rodriguez Oquendo was employed by

the defendant, for whom she worked for approximately

18 years. During the time she worked for her employer, she

was a good and profitable employee.

A work relationship without a fixed term existed between

plaintiff and her.employer. There was no written contract

between the parties.

The oral evidence shows that plaintiff worked as

Assistant Manager.

On October 5, 1998, the defendant employer discharged

Evelyn Rodriguez Oquendo without just cause while she was

under the protection of the State Insurance Fund. The

employer then replaced her with a younger person, thus

discriminating against plaintiff.

Based on the above Conclusions of Fact, this Court

reaches the following:

CONCLUSIONS OF LAW

“Every employee in commerce .. . in which he/she works

for compensation of any kind, contracted without a fixed

term, who is discharged from his/her employment without

good cause, shall be entitled to receive from his/her employer,

49a

Appendix D

in addition to the salary he/she may have earned: (a) The

salary corresponding to one month, as indemnity, if he/she

is discharged within the first five (5) years of service .. .

[and] (b) An additional progressive compensation equal to

one week for each year of service.” 29 L.P.R.A. § 185a.

The statute also provides that the years of service shall

be determined on the basis of all the preceding periods of

work accrued by the employee prior to his/her discharge.

In this case, the employee worked for 18 years for the

employer and claimed a compensation of $11,204.67 under

Act No. 80 of May 30, 1976.

The evidence presented shows that plaintiff's conduct

did not justify her discharge or could not be deemed as just

cause for her discharge.

Section 2 of Act No. 80 defines just cause for discharge.

Although this provision is not exhaustive and the employer

may adopt other reasonable rules and regulations regarding

employee conduct for the proper operation of the enterprise,

Srio. del Trabajo v. 1.T.T., 108 D.P.R. 536 [(1979)], absent

such employer rules and regulations, we must adopt the

Statutory provisions.

In every dismissal claim, there arises a presumption that

the discharge was not justified. The defendant employer must

rebut this presumption and prove, by a preponderance of the

evidence, that the discharge was justified. Rivera Aguila v.

K-Mart de Puerto Rico, 123 D.P.R. 599 [(1989)]; Srio. del

drasajge v. 1.T.T., 108 D.P.R. 536 [(1979)].

50a

Appendix D

In this case, the defendant employer was duly summoned,

but did not appear; thus, default was entered against it.

The evidence presented shows that the plaintiff worker

did not engage in conduct that may warrant discharge.

It was likewise shown by the evidence presented and

believed by this Court that the plaintiff /sic/ employer not

only discharged plaintiff without just cause, but also

discriminated against her by replacing her with a younger

person. Plaintiff's discharge also occurred while she was

receiving treatment from the State Insurance Fund; this was

something the employer was not allowed to do.

Based on the above conclusions of fact and of law, the

Court renders the following:

JUDGMENT

The Court finds for plaintiff and rules that plaintiff's

discharge was wrongful and without just cause. The Court

likewise holds that the employer discriminated against

plaintiff because of her age.

The employer is ordered to pay plaintiff the sum of

$11,204.67 under the provisions of Act No. 80 of May 30,

1976, legal interest from the date of her discharge, October

5, 1998, and 25% of the total compensation under Act No.

80 as attorney’s fees for the worker’s counsel, plus costs and

legal expenses, and $30,000.00 for having discriminated

against plaintiff.

5la

Appendix D

In Ponce, Puerto Rico, this 18" day of May 2001.

TO BE ENTERED AND NOTIFIED.

(Sgd.) Fernando Montafiez Delerme

SUPERIOR COURT JUDGE

(Stamped) Fernando Montafiez Delerme

Superior Court Judge

52a

APPENDIX E — ORDER OF THE UNITED STATES

BANKRUPTCY COURT, SOUTHERN DISTRICT OF

NEW YORK DATED DECEMBER 1, 1998

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

Chapter 11

, Case No. 95 B 44528 (AJG)

‘(Substantively Consolidated)

In re

PETRIE RETAIL, INC., et al.,

. Debtors.

ORDER PURSUANT TO SECTIONS 105, 363, 365,

503(b), 507 AND 1146 OF THE BANKRUPTCY

CODE: (A) AUTHORIZING CERTAIN OF THE

DEBTORS TO (i) SELL SUBSTANTIALLY ALL OF

THE ASSETS RELATING TO THEIR BUSINESS, AND

(ii) ASSUME, ASSIGN AND/OR SELL CERTAIN

UNEXPIRED LEASES AND EXECUTORY

CONTRACTS RELATING THERETO FREE AND

CLEAR OF ALL LIENS, CLAIMS, INTERESTS

AND ENCUMBRANCES; (B) APPROVING

ASSET PURCHASE AGREEMENT AND OTHER

AGREEMENTS RELATED THERETO; (C)

AUTHORIZING CERTAIN OF THE DEBTORS

TO CONSUMMATE ALL TRANSACTIONS

CONTEMPLATED BY SUCH AGREEMENTS: AND (D)

GRANTING RELATED RELIEF

53a

Appendix E

Upon the motion (the “Motion”) dated November 12,

1998 of the Official Committee of Unsecured Creditors (the

“Committee” or “Movant”) of the above captioned debtors

(collectively, the “Debtors”) for, among other things, an order

pursuant to Sections 105, 363, 365, 503(b), 507 and 1146 of

Title 11 of the United States Code (the “Bankruptcy Code”’),

as supplemented by Rules 2002, 4001, 6004, 6006, 9007 and

9008 of the Federal Rules of Bankruptcy Procedure (the

“Bankruptcy Rules”): (a) approving that certain Asset

Purchase Agreement dated as of November 12, 1998' between

the Sellers and Fashion Bug Acquisition Corp. and its

successors and assigns (“Fashion Bug”) and authorizing the

Debtors to take all steps necessary or appropriate to

consummate the Asset Purchase Agreement; (b) authorizing

the sale of the Purchased Assets to Fashion Bug free and

clear of all liens, claims, interests and encumbrances other

than those to which Fashion Bug or such other Successful

Bidder has agreed to take subject; (c) authorizing the Debtors

to assume and assign the Assigned Contracts to Fashion Bug

or to such other Successful Bidder; and (d) granting related

relief, all as more fully set forth in the Motion; and upon the

affidavit of William R. Fabrizio, Esq., submitted in support

of the Motion pursuant to Local Bankruptcy Rule 9077-1(a),

the Order to Show Cause, dated November 12. 1998 (the

“Scheduling Order”), which scheduled (i) a hearing (the

“Bidding Procedures Hearing”) to consider approval of the

Bidding Procedures and other relief; and (ii) a hearing (the

“Sale Hearing,” and together with the Bidding Procedures

Hearings, the “Hearings”) to consider the remainder of the

1. Capitalized terns used but not otherwise defined herein shall

have the meanings ascribed to them in the Asset Purchase Agreement

or the Motion.

54a

Appendix E

relief sought by the Motion; and the Scheduling Order having

established a bar date of November 23, 1998 as modified on

the record of the Bidding Procedures Hearing with respect

to certain landlords (the “Cure Objection Deadline”), by

which landlords and other non-debtor parties to the Assigned

Contracts had to file objections setiing forth, among other

things, all outstanding defaults and any purported conditions

to assignment under the Assigned Contracts, whether

monetary or non-monetary, and claims of every kind and

character existing as of October 31, 1998 and any objections

to the Asset Purchase Agreement or be forever barred from

asserting such defaults or purported conditions or claims or

pursuing any other claims which may have existed on said

date under the Assigned Contracts, and taking any action

inconsistent with the Asset Purchase Agreement; and the

Bidding Procedures Hearing having been held on November

20, 1998; and the Bidding Procedures Order dated November

20, 1998 having been entered; and upon the Motion and upon

the full record of the Hearings; and upon all of the

submissions filed herein and all prior proceedings in these

cases; and upon the affidavits of service reflecting

compliance with the notice requirements contained in the

Scheduling Order; and the Sale Hearing having been held

before the Court on December 1, 1998; and the Court having

found that Urban Acquisition Corp., together with its

successors, assigns designees (“Purchaser’’) has submitted

the highest and best offer for the Purchased Assets pursuant

to an Asset Purchase Agreement (the “Asset Purchase

Agreement”); and after due deliberation and sufficient cause

appearing therefor; it is

55a

Appendix E

HEREBY FOUND AND DETERMINED, that:

_ a. The Court has jurisdiction to hear and determine the

Motion and all related matters pursuant to 28 U.S.C. §§ 1334

and 157 and the “Standing Order of Referral of Cases to

Bankruptcy Judges” of the United States District Court for

the Southern District of New York, dated December 10, 1984

(Ward, Acting C.J.). Venue of this proceeding in this district

is proper pursuant to 28 U.S.C. § 1409. The Motion and

Hearings constitute core proceedings pursuant to 28 U.S.C.

§ 157 (b) (2) (A), (B), (N) and (0). The statutory predicates

for the relief granted hereby are Sections 105, 363, 365, 503,

507 and 1146 of the Bankruptcy Code, as complemented by

Bankruptcy Rules 2002, 4001, 6004, 6006, 9007 and 9008.

b. Movant has demonstrated that sufficient cause exists

to expedite the Hearings on and determination of the Motion

and the related relief requested in connection therewith and

that delay will cause the Debtors, their estates and creditors

irreparable harm.

c. Proper, timely and sufficient notice of the Motion and

the Hearings was provided pursuant to Bankruptcy Rules

2002, 4001, 6004 and 6006 and the Scheduling Order.

No other or further notice of the Motion, the Hearings, or

the entry of this Order is necessary. A reasonable opportunity

to object or to be heard regarding the relief requested in the

Motion has been afforded to all interested parties, including,

but not limited to, (a) all parties who claim interests in or

liens upon the Purchased Assets, (b) all parties to the

Assigned Contracts, (c) all governmental taxing authorities

who have, or as a result of the saie of the Purchased Assets

56a

Appendix E

may have, claims, contingent or otherwise, against the

Debtors, (d) all creditors and parties who have filed notices

of appearance in this case; (e) the Pension Benefit Guaranty

Corporation and all parties who are or may be bidders for

the Purchased Assets.

d. Movant has advanced sound and sufficient business

justification, and it is a reasonable exercise of its business

judgment, to (i) sell all the Sellers’ right, title and interest in

and to the Purchased Assets upon the terms and conditions

set forth in the Asset Purchase Agreement, (ii) assume and

assign to Purchaser the Assigned Contracts and (iii)

consummate all transactions contemplated by the Asset

Purchase Agreement.

e. The provisions of Sections 363(b), 363(f) and 365 of

the Bankruptcy Code have been complied with and are

applicable as to the Purchased Assets.

f. Consummation of the Asset Purchase Agreement and

the related agreements (collectively, the “Transaction

Documents’’) is in the best interests of the Debtors, their

estates, creditors, equity security holders and other parties

in interest.

g. All of the transactions contemplated by the

Transaction Documents, including the sale of the Purchased

Assets, are properly authorized under Sections 105, 363, 365,

503, 507 and 1146 of the Bankruptcy Code.

h. The Asset Purchase Agreement represents the highest

or otherwise best offer received for the Purchased Assets

y 57a

Appendix E

following the conduct of an open and complete sale process

reasonably calculated to yield the highest or otherwise best

offer for the Purchased Assets.

i. The sale, conveyance and assignment of the Purchased

Assets pursuant to the Transaction Documents, except as

specified in the Asset Purchase Agreement, shall be free and

clear of all liens, claims, encumbrances and interests,

including, without limitation, mortgages, security interests,

pledges, liens, judgments, demands, encumbrances, or

charges of any kind or nature, if any, including, but not limited

to, any restriction on the transfer, receipt of income or other

exercise of any attributes of ownership (the foregoing

collectively referred to as “Liens” herein) and all debts arising

in any way in connection with any acts of the Debtors, claims

(including but not limited to “claims” as that term is defined

in the Bankruptcy Code), obligations, demands, guaranties,

interests and matters of any kind and nature, whether arising

prior to or subsequent to the commencement of these

Chapter 11 cases, and whether imposed by agreement,

understanding, law, equity or otherwise (the foregoing

collectively referred to as “Claims” herein), with all such

Liens, Claims,.encumbrances and interests released,

terminated and discharged as to the Purchased Assets and

holders shall be permanently enjoined from asserting such

against the Purchased Assets and the Purchaser and shall look

solely to the proceeds of sale.

j. The Debtors and Purchaser are exempt from and

excused from complying with any jurisdiction’s bulk transfer

laws or any laws or regulations requiring notice to any taxing

authority of any jurisdiction prior to, or other laws which’

(58a

_Appendix E

might directly or indirectly affect, consummation of the

transactions contemplated by the Transaction Documents or

the relief requested in the Motion and the provisions of this

Order.

k. The Transaction Documents: (i) were proposed,

negotiated and entered into in good faith after arms-length

bargaining by the parties; and (ii) provide the Debtors with

the highest or otherwise best offer received for the Purchased

Assets. Purchaser is a good faith purchaser pursuant to

Section 363(m) of the Bankruptcy Code and entitled to the

protections thereunder. Neither the Debtors nor Purchaser

have engaged in any conduct that would cause or permit the

Asset Purchase Agreement to be avoided under Section

363(n) of the Bankruptcy Code.

L In connection with the assumption and assignment of

the Assigned Contracts, within ten (10) business days of the

Closing, the Debtors shall pay all cure amounts to the

nondebtor parties to the Assigned Contracts as required by

the Bankruptcy Code or the Court, provided that if the

Debtors dispute the cure amount of an Assigned Contract,

the Debtors will establish an escrow fund and deposit the

full cure amount asserted by the non-debtor party to the

contract (or such lesser amount as ordered by the Court) into

the escrow fund to be held in escrow subject to further order

of the Court or agreement of the parties.

m. Purchaser has provided adequate assurance of its

future performance under the Assigned Contracts and the

proposed assumption and assignment of the Assigned

Contracts satisfies all requirements of the Bankruptcy Code

59a

Appendix E

including, inter alia, Sections 365(b)(1) and (3) and 365(f)

to the extent applicable.

n. No provisions precluding or impairing the rights of

the Debtors to assign the Assigned Contracts or preventing

or restricting Purchaser from operating retail stores under

its trade names in any leased premises shall be enforceable

or any other particular provision therein.

o. Upon the assumption and assignment of the Assigned

Contracts, Purchaser shall be deemed the Lessee or otherwise

be substituted for the Debtor for all purposes under the

Assigned Contracts from that point forward, including

exercising any and all options, extension or renewals thereof;

provided, however, the Debtor shall remain obligated to pay

any allowed cure amounts due thereunder; and provided

further, that nothing herein shall render Purchaser liable for

debts of the Debtors under any theory of successor liability.

p. The Assigned Contracts are valid and binding, in full

force and effect, and enforceable in accordance with their

terms.

q. The sale of the Purchased Assets to Purchaser and

the assumption by Purchaser of the Assumed Liabilities will

maximize the value of the Debtors’ estates and is in

contemplation of the implementation of a plan of liquidation

and necessary to the confirmation and consummation of any

plan of liquidation. Accordingly, the sale of the Purchased

Assets shall be deemed a sale “under a plan” within the

meaning of Bankruptcy Code Section 1146 (c) and shall be

exempt from any and all stamp taxes, recording taxes and

similar taxes.

60a

Appendix E

NOW THEREFORE, IT IS HEREBY ADJUDGED,

DECREED AND ORDERED that:

1. The findings of fact set forth above and conclusions

of law stated herein shall constitute the Court’s findings of

fact and conclusions of taw pursuant to Bankruptcy

Rule 7052, made applicable to this proceeding pursuant to

Bankruptcy Rule 9014. To the extent any finding of fact later

shall be determined to be a conclusion of law, it shall be so

deemed, and to the extent any conclusion of law later shall

be determined to be a finding of fact, it shall be so deemed.

2. The Motion is granted; provided, however, that

notwithstanding anything contained herein or in the

Transaction Documents to the contrary, the Debtors shall be

deemed to have assumed and assigned each Assigned

Contract as of the date of and only upon the Closing, and

absent such Closing, each Assigned Contract shall neither

be deemed assumed nor assigned and shall in all respects be

subject to further administration under the Bankruptcy Code.

3. The Transaction Documents are hereby approved, and

subject to the right of any lessor to object within ten days of

service of the Order, the Purchaser’s proposed use clause

attached to its letter of intent to bid is hereby approved;

provided that any such objection shall not affect any other

provision of this Order. The Debtors are authorized to sell to

Purchaser all of the Sellers’ right, title and interest in and to

the Purchased Assets pursuant to the terms of the Transaction

Documents.

6la

Appendix E

4. The Debtors are directed, authorized and empowered

to execute, deliver and fully perform under the Transaction

Documents and all agreements and documents contemplated

thereby and related thereto and to take or perform such actions

and expend such funds as may be necessary to effectuate the

terms of the Transaction Documents, all transactions related

thereto

5. From and after the Closing Date, Purchaser shall

assume, satisfy and discharge the Assumed Liabilities and

shali defend, indemnify and hold the Debtors harmless from

and against any and all liabilities for any default, claim or

pecuniary loss arising out of or related to the Assumed

Liabilities from and after the Closing Date. The obligations

of Purchaser under this paragraph shall survive

consummation of the Asset Purchase Agreement and the

Transaction Document for applicable periods set forth herein.

6. Purchaser has not assumed or otherwise become

obligated for any of the Excluded Liabilities and has not

purchased any of the Excluded Assets. Consequently, all

holders of Excluded Liabilities are hereby enjoined from

asserting or prosecuting any Claim or cause of action against

Purchaser or the Purchased Assets to recover on account of

any Excluded Liabilities. All persons having any interest in

the Excluded Assets are hereby enjoined from asserting or

prosecuting any claim or cause of action against Purchaser

for any liability associated with the Excluded Assets.

7. As of the Closing Date, the Debtors shall not be

responsible for any Assumed Liability and all holders of

Assumed Liabilities are hereby enjoined from asserting or

62a

Appendix E

prosecuting any claim or cause of action against the Debtors

or their estates to recover any claim that is an Assumed

Liability. All persons having an interest in the Assumed

Liabilities are hereby enjoined from asserting or prosecuting

any claim or cause of action against the Debtors for any

liability associated with the Assumed Liabiiity.

————-

8. Pursuant to Sections 105(a) and 363(f) of the

Bankruptcy Code, the Purchased Assets shall be transferred

to the Purchaser upon the Closing free and clear of all Liens

and Claims of any kind or nature, with all such Liens and

Claims and Interests released, terminated and discharged as

to the Purchased Assets, which Liens and Claims shall attach

to the net proceeds of sale, in the order of their priority, with

the same validity, force and effect that they now have against

the Purchased Assets except for the Permitted Liens. Nothing

contained herein shall be deemed to be an acknowledgment

or consent by the Debtors as to the amount, priority or

allowance of any claim or the validity, force and effect, or

immunity from avoidance, of any Lien.

9. Upon the Closing Date, each of the Debtors’ creditors,

except holders of Permitted Liens with respect to such liens,

is authorized and directed to execute such documents and

take all other action as may be necessary to release its Liens

upon or other interests in the Purchased Assets.

10. There shall be no rent accelerations or fees charged

to Purchaser as a result of the assignment of the Leases, and

the validity of the assumption, assignment and sale to

Purchaser shall not be affected by any dispute between any

Debtor and a lessor regarding the payment of the “cure”

63a

Appendix E

amount. The Debtors are authorized to pay all cure amounts

with respect to the Assigned Contracts pursuant to the

Transaction Documents (or, if disputed, paying into escrow

the full cure amount or such lesser amount as ordered by the

Court) so that all such payments are made within ten (10)

business days of the Closing.

11. All parties to the Assigned Contracts are forever

barred and enjoined from raising or asserting against the

Purchaser any default or breach under, or any claim or

pecuniary loss, or condition to assignment; arising under or

related to the Assigned Contracts existing as of the Closing

or arising by reason of the Closing, except to the extent

otherwise expressly provided herein.

12. The Assigned Contracts, upon assignment to

Purchaser, shall be deemed valid and binding, in full force

and effect and enforceable in accordance with their terms,

subject to the provisions of this Order, and, pursuant to

Section 365(k) of the Bankruptcy Code, the Debtors shall be

relieved from any further liability, except for any cure

amounts as herein provided.

13. Pursuant to Sections 363(b), 363(f), 365(a), 365(b)

and 365(f) of the Bankruptcy Code, the assumption,

assignment and sale to Purchaser of the Leases by the

respective Debtor party thereto shall be effected by this Order

in accordance with the terms and conditions hereof and as

set forth in the Assignment and Assumption Agreement.

14. The Leases identified in Schedule 1.3 of the Asset

Purchasé Agreement, together with the amendments and

64a

Appendix E

modifications of such Leases, constitute the Leases that are

being assumed by and assigned to Purchaser by the Debtor

parties thereto. Upon the assignment and assumption of such

Leases, Purchaser shall be entitled to exercise any and all

options, extension or renewal of said Leases as if it were the

Debtors, notwithstanding any provisions in the Leases to the

contrary.

15. Purchaser shall not be liable for any claims of the

lessors under the Leases or liable for any breach of a Lease

that accrued prior to Closing, nor may any lessor seek to

enforce same against the Purchaser, except as specifically

provided in the Asset Purchase Agreement, the Assignment

and Assumption Agreement or this Order.

16. Purchaser shall have the right to close any Store for

a reasonable period of time in order to stock, refixture, change

Signage and otherwise prepare the Store for opening under

Purchaser’s present and future trade names and such

temporary closing shal! not be deemed a default under the

Leases.

17. All parties to the Assigned Contracts and

beneficiaries thereof are hereby enjoined from taking any

action to interfere with Purchaser’s taking possession of and

operating any Store pursuant to this Order and the Transaction

Document.

18. Purchaser may operate the Sores under any trade

name of the Debtors or under its own present or future trade

names; provided, however, that Purchaser shall use only such

trade names as are consistent with the type of merchandise

65a

Appendix E

that the use clause of the relevant Lease permits the tenant

to sell, as modified hereby, unless the lessor consents to a

further modification of the use clause.

19. The Debtors subject to the Leases shall tender

possession of the leased premises being assigned to Purchaser

and shall provide Purchaser with original Leases

(if available), store keys and security codes at Closing.

20. Despite any provision to the contrary that entitles

any party to or beneficiary of any Assigned Contract to any

right to terminate, compensation, -injunctive relief or other

right of any kind, by reason of the assignment of any Assigned

Contract and any other action Debtor or Purchaser may take

with respect to any Store pursuant hereto or the Transaction

Documents, the Debtor’s or Purchaser’s failure to comply

with such provision-in connection with the consummation

of the Transaction Documents shall not be a default or

- triggering event under any Assigned Contract and such

provision shall not be enforceable.

21. Pursuant to Section 1146 of the Bankruptcy Code,

all transfers and the delivery of instruments of transfer under

the Transaction Documents are exempt from any and all

stamp taxes, recording taxes and similar taxes imposed upon

such sale or transfer under any Federal, State or local law.

22. This Order shall be binding upon and inure to the

benefit of any successors and assigns of Purchaser and the

Debtors, including without limitation, any trustee appointed

in the Debtors’ respective Chapter 11 cases or subsequent

Chapter 7 cases.

66a

Appendix E

23. Purchaser is hereby determined to be a good faith

purchaser under Section 363(m) of the Bankruptcy Code,

and is entitled to the protections afforded to a good faith

purchaser thereunder.

24. The Debtors shall be authorized and empowered (but

not directed) to pay, or establish an escrow account for, all

or any portion of any real estate or personal property taxes

(including any interest or penalties thereon) on the Purchased

Assets.

25. This Order shall be effective and enforceable

immediately upon entry and its provisions shall be self-

executing. ee ee

26. The failure specifically to include any partrcular

provisions of the Transaction Documents in this Order shall

not diminish or impair the efficacy of such provisions, it

being the intent of the Court that the Transaction Documents

are approved in their entirety.

27. The Court shall retain sole and exclusive jurisdiction

over all matters arising from or related to the Purchased

Assets, the Motion, the Transaction Documents, the

implementation thereof and this Order.

28. Notwithstanding anything to the contrary, the

agreements regarding this Order agreed to between the

Purchaser and the objecting landlords announced on the

record of the hearing following the proffer of evidence

regarding adequate assurance are incorporated herein and

modify and supplement this Order.

67a

Appendix E

Dated: New York, New York

December 1, 1998.

s/ Arthur J. Gonzalez ;

UNITED STATES BANKRUPTCY JUDGE

68a

APPENDIX F — CERTIFICATION OF SUPREME

COURT OF PUERTO RICO DENYING MOTION FOR

RECONSIDERATION DATED MAY 23, 2006

COMMONWEALTH OF PUERTO RICO

GENERAL COURT OF JUSTICE

SUPREME COURT

CASE: CC-2004-0900 ORIGINAL CASE: JPE-1999-0647

, CIR. CASE: KLCE2004-0366

RODRIGUEZ OQUENDO, EVELYN

PETITIONER

PETRIE RETAIL INC., ET AL.

RESPONDENTS

SPECIAL PROCEEDINGS

CIVIL ACTION OR OFFENSE

CONCEPCION CASTRO, CARLOS

POPULAR CENTER SUITE 1901

209 AVE. MUNOZ RIVERA

HATO REY PR 00918

69a

Appendix F

NOTICE

I CERTIFY THAT WITH REGARD TO THE MOTION FOR

RECONSIDERATION, THE COURT ISSUED THE

RESOLUTION ENCLOSED HEREWITH:

GONZALEZ VAZQUEZ MARTIN [ESQ.]

PO BOX 591-MERCEDITA PR

00715-0591

SAN JUAN, PUERTO RICO, THIS 23°° DAY OF MAY 2006.

AIDA I. OQQUENDO GRAULAU, ESQ.

CLERK OF THE SUPREME COURT

(SGD.) BETHZAIDA TORRES MORALES

ASSISTANT CLERK

70a

Appendix F

IN THE SUPREME COURT OF PUERTO RICO

No. CC-2004-900

Evelyn Rodriguez Oquendo,

Plaintiff and petitioner

Petrie Retail Inc., D.I.P. and/or

Centro Apparel Corporation, D/B/A Marianne,

Defendants

Urban Brands, Inc.

(Respondent)

RESOLUTION

San Juan, Puerto Rico, May 19, 2006.

The first motion for reconsideration filed by petitioner

is hereby denied.

~ It was so agreed by the Court and certified by the Clerk

of the Supreme Court. Justices Rivera Pérez and Rodriguez

Rodriguez would reconsider.

(Sgd.) A. I. Oquendo

Aida Ileana Oquendo Graulau

Clerk of the Supreme Court

Tila

APPENDIX G — COMPLAINT DATED

SEPTEMBER 22, 1999

COMMONWEALTH OF PUERTO RICO

COURT OF FIRST INSTANCE

SUPERIOR COURT OF PONCE

COMPLAINT NO.: JPE1999-0647

RE:

COMPLAINT FOR

WRONGFUL DISCHARGE

AND DISCRIMINATION IN

EMPLOYMENT

EVELYN M. RODRIGUEZ OQUENDO

PLAINTIFF

PETRIE RETAIL INC., D.I.P. AND/OR CENTRO

APPAREL CORPORATION, d/b/a MARIANNE

EMPLOYER-DEFENDANT

72a

Appendix G

COMPLAINT

TO THE HONORABLE COURT:

Comes now the plaintiff, represented by the undersigned

attorney, and very respectfully STATES AND PRAYS:

1. Plaintiff is of legal age, and her address is:

Urb. Los Caobos

2325 Calle Tabonuco -

Ponce, PR 00731-6191

150 Meadowlands Parkway

Secaucus N.J. 07094

3. The plaintiff worker was employed by the defendant

employer since December 4, 1980.

4. On October 5, 1998, the employer wrongfully discharged

the plaintiff employee. :

5. The defendant employer did not pay plaintiff the benefits

provided by Act No. 80.

6. The employer owes plaintiff the sum of eleven thousand

two hundred four dollars and sixty-seven cents

($11,204.67) under Act No. 80.

10.

11.

73a

Appendix G

After discharging plaintiff, the employer replaced her

with a younger person.

Plaintiff was discharged because of her age, and her

discharge constitutes discrimination in employment,

which is against the law.

Plaintiff suffered damages as a result of her discharge

for age discrimination.

The employer must compensate the plaintiff worker for

all the damages suffered by her as a result of the

discrimination she suffered in her employment.

The damages suffered by plaintiff as a result of her

wrongful discharge are currently assessed at $50,000.00.

WHEREFORE, we pray this Court, after the pertinent

legal proceedings, to order the employer to pay the benefits

provided by Act No. 80, to pay all the damages suffered by

plaintiff as a result of her discriminatory discharge, and to

pay legal interest, the penalty provided by law, costs,

expenses, and a reasonable sum in attorney’s fees.

In Ponce, Puerto Rico, this 22% day of September 1999.

(illegible signature)

MARTIN GONZALEZ VAZQUEZ

BAR ASS’N MEMBER NO. 5649

P.O. BOX 335716

PONCE, PR 00733-5716

TEL. 840-5600 FAX 841-5607

T4a

APPENDIX H — RELEVANT STATUTES

Full text of Sections 105 and 363 of the Federal

Bankruptcy Code, 11 U.S.C. §§ 105, 363

§ 105. Power of court

(a)

(b)

(c)

The court may issue any order, process, or judgment that

is necessary or appropriate to carry out the provisions of

this title. No provision of this title providing for the

raising of an issue by a party in interest shall be construed

to preclude the court from, sua sponte, taking any action

or making any determination necessary or appropriate

to enforce or implement court orders or rules, or to

prevent an abuse of process.

Notwithstanding subsection (a) of this section, a court

may not appoint a receiver in a case under this title

[11 U.S.C. §§ 101 et seq.].

The ability of any district judge or other officer or

employee of a district court to exercise any of the

authority or responsibilities conferred upon the court

under this title [11 USCS §§ 101 et seqg.] shall be

determined by reference to the provisions relating to such

judge, officer, or employee set forth in title 28 [28 U.S.C.

$§ 1 et seq.]. This subsection shall not be interpreted to

exclude bankruptcy judges and other officers or

employees appointed pursuant to chapter 6 of title

28 (28 U.S.C. §§ 151 et seg.] trom its operation.

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Appendix H

(d) The court, on its own motion or on the request of a party

in interest! —

(1)

(2)

shall hold such status conferences as are necessary

to further the expeditious and economical resolution

of the case; and

unless inconsistent with another provision of this

title [11 U.S.C. §§ 101 et seg.] or with applicable

Federal Rules of Bankruptcy Procedure, issue an

order at any such conference prescribing such

limitations and conditions as the court deems

appropriate to ensure that the case is handled

expeditiously and economically, including an order

that—

(A) sets the date by which the trustee must assume

or reject an executory contract or unexpired

lease; or

(B) in a case under chapter 11 of this title

[11 U.S.C. §§ L101 et seg.J—

1. Prior to the enactment of the Bankruptcy Abuse Prevention

and Consumer Act of 2005, 109 P.L. 8, the first three lines of

Section 105(d) stated:

“(d) The court, on its own motion or on the request of

a party in interest may —

(1) hold a status conference regarding any case

or proceeding under this title after notice

to the parties in interest; and... .”

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Appendix H

(i) sets a date by which the debtor, or trustee

if one has been appointed, shall file a

disclosure statement and plan;

(ii) sets a date by which the debtor, or trustee

if one has been appointed, shall solicit

acceptances of a plan;

(iii) sets the date by which a party in interest

other-than a debtor may file a plan;

(iv) sets a date by which a proponent of a plan,

other than the debtor, shall solicit

acceptances of such plan;

(v) fixes the scope and format of the notice

to be provided regarding the hearing on

approval of the disclosure statement; or

(vi) provides that the hearing on approval of

the disclosure statement may be combined

with the hearing on confirmation of the

plan. 7

§ 363. Use, sale, or lease of property

(a) In this section, “‘cash collateral” means cash, negotiable

instruments, documents of title, securities, deposit

accounts, or other cash equivalents whenever acquired

in which the estate and an entity other than the estate

have an interest and includes the proceeds, products,

offspring, rents, or profits of property and the fees,

(b)

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Appendix H

charges, accounts or other payments for the use or

occupancy of rooms and other public facilities in hotels,

motels, or other lodging properties subject to a security

interest as provided in section 552(b) of this title

[11 U.S.C. § 552(b)], whether existing before or after

the commencement of a case under this title.

(1) The trustee, after notice and a hearing, may use,

sell, or lease, other than in the ordinary course of

business, property of the estate, except that if the

debtor in connection with offering a product or a

service discloses to an individual a pwuucy

“prohibiting the transfer of personally identifiable

information about individuals to persons that are

not affiliated with the debtor and if such policy is

in effect on the date of the commencement of the

case, then the trustee may not sell or lease personally

identifiable information to any person unless—

(A) such sale or such Jease is consistent with such

policy; or

(B) after appointment of a consumer privacy

ombudsman in accordance with section 332

{11 U.S.C. § 332], and after notice and a

hearing, the court approves such sale or such

lease—

(i) giving due consideration to the facts,

circumstances, and conditions of such sale

or such lease; and 7

78a

Appendix H

(ii) finding that no showing was made that

such sale or such lease would violate

applicable nonbankruptcy law.

(2) If notification is required under subsection (a) of

section 7A of the Clayton Act [15 U.S.C. § 18a(a)]

in the case of a transaction under this subsection,

then—

(A) notwithstanding subsection (a) of such section

(B)

[15 U.S.C. § 18a(a)], the notification required

by such subsection to be given by the debtor

shall be given by the trustee; and

notwithstanding subsection (b) of such section

[15 U.S.C. § 18a(b)], the required waiting

period shall end on the 15th day after the date

of the receipt, by the Federal Trade

Commission and the Assistant Attorney

General in charge of the Antitrust Division of

the Department of Justice, of the notification

required under such subsection (a) [15 U.S.C.

§ 18a(a)], unless such waiting period is

extended—

(i) pursuant to subsection (e)(2) of such

section [15 U.S.C. § 18a(e)(2)], in the

same manner as such subsection (e)(2)

applies to a cash tender offer;

(ii) pursuant to subsection (g)(2) of such

section [15 U.S.C. § 18a(g)(2)]; or

(c)

(1)

(2)

(3)

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Appendix H

(iii) by the court after notice and a hearing.

If the business of the debtor is authorized to be

operated under section 721, 1108, 1203, 1204, or

1304 of this title [11 U.S.C. § 721, 1108, 1203,

1204, or 1304] and unless the court orders

otherwise, the trustee may enter into transactions,

including the sale or lease of property of the estate,

in the ordinary course of business, without notice

or a hearing, and may use property of the estate in

the ordinary course of business without notice or a

hearing.

The trustee may not use, sell, or lease cash collateral

under paragraph (1) of this subsection unless—

(A) each entity that has an interest in such cash

collateral consents; or

(B) the court, after notice and a hearing, authorizes

such use, sale, or lease in accordance with the

provisions of this section.

Any hearing under paragraph (2)(B) of this

subsection may be a preliminary hearing or may be

consolidated with a hearing under subsection (e) of

this section, but shall be scheduled in accordance

with the needs of the debtor. If the hearing under

paragraph (2)(B) of this subsection is a preliminary

hearing, the court may authorize such use, sale, or

(4)

80a

Appendix H

lease only if there is a reasonable likelihood that

the trustee will prevail at the final hearing under

subsection (e) of this section. The court shall act

promptly on any request for authorization under

paragraph (2)(B) of this subsection.

Except as provided in paragraph (2) of this

subsection, the trustee shall-segregate and account

for any cash collateral in the trustee’s possession,

custody, or control. ~

(d) The trustee may use, sell, or lease property under

subsection (b) or (c) of this section only—

(1)

(2)

in accordance with applicable nonbankruptcy law

that governs the transfer of property by a corporation

or trust that is not a moneyed, business, or

commercial corporation or trust; and

to the extent not inconsistent with any relief granted

under subsection (c), (d), (e), or (f) of section 362

[11 U.S.C. § 362].

(ec) Notwithstanding any other provi

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