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8 PA. Representatives Press Reno, SEC on Leslie Fay Case

NEW YORK -- Congressman Paul E. Kanjorski (D, Pa.), who represents the district where The Leslie Fay Cos. has its headquarters and factories, is leading an effort to have the Justice Department and the Securities and Exchange Commission deliver...

NEW YORK — Congressman Paul E. Kanjorski (D, Pa.), who represents the district where The Leslie Fay Cos. has its headquarters and factories, is leading an effort to have the Justice Department and the Securities and Exchange Commission deliver interim status reports on their investigations of the company’s accounting scandal.

The eight Pennsylvania House members, in letters dated May 26 to Attorney General Janet Reno and SEC chairman Arthur Levitt, asked for an official update on the apparent ongoing investigations of “alleged fraudulent activities by past and/or present officials” of Leslie Fay.

The company, which has facilities in and around Wilkes Barre, Pa., has been struggling to get out of bankruptcy after it announced last year that the discovery of false accounting entries had turned profits into losses in 1991 and 1992. No reason has been given for why the false entries were made or who made them.

Last year, the company said an independent auditors’ report, which was never made public, absolved top management of any implication in the plot. The only actions taken were the dismissals of Donald F. Kenia, corporate controller, and Paul F. Polishan, chief financial officer.

In March, Leslie Fay created further controversy when it announced it wants to drop domestic production entirely, which would eliminate about 1,200 factory jobs in Pennsylvania.

Since then, the company and the union have been locked in a bitter battle over the proposed closings. This has led to calls by the union for a boycott of Leslie Fay products, and the company has sued the union over payment of import fees, called liquidated damages, which the union has as a standard part of its labor contract with manufacturers. The company says the stipulation is a violation of labor law. The labor contract between the ILGWU and Leslie Fay expires today.

“The situation regarding this company has become critical, threatening the jobs and livelihood of literally thousands of our constituents,” the House members, all Democrats, wrote to Reno.

The legislators asked Reno to deliver the status report by Friday.

Kanjorski’s office also said Friday that a field hearing has been scheduled for June 7 by the House Education and Labor Subcommittee on Labor-Management Relations regarding Leslie Fay’s proposed plant closing.

Rep. Ron Klink (D, Pa.), a member of the subcommittee, will chair the hearings, which will be held at the Darte Arts Center at Wilkes University at 10:30 a.m., according to a spokeswoman for Kanjorski.

Klink and Kanjorski got the subcommittee’s approval to hold the hearings, which are described as fact-finding inquiries.

Meanwhile, after a contentious hearing, Bankruptcy Judge Tina L. Brozman last week put off ruling on whether Leslie Fay would have to abide by an arbitrator’s ruling for maintenance of certain employment levels at its U.S. dress factories.

Brozman said she needed more time to examine the facts of the case. She ordered both sides to submit more papers to the court here on June 6.

Last summer, Leslie Fay and the ILGWU entered into a modification of their collective bargaining agreement in which Leslie Fay agreed to maintain employment levels at about 1,000 people at its various dress factories, modestly expand employment to 125 from 100 at its Julie II facility and upgrade manufacturing equipment at all plants.

After Leslie Fay balked at implementing certain terms, the case went to an arbitrator, who on Jan. 10 sided with the ILGWU. Leslie Fay then took the case to bankruptcy court.

Leslie Fay maintains that the modification, signed after the company entered Chapter 11, required court approval to become effective. Under bankruptcy law, all post-petition actions taken by a company outside the normal course of business must be approved by the court.

Alan Miller, of Weil, Gotshal & Manges, counsel to Leslie Fay, told Judge Brozman, “This is a post-petition agreement and must be treated as such.” The agreement, Miller said, is unenforceable because it didn’t get the court’s approval.

That didn’t sit well with Marc E. Richards of Marcus Montgomery Wolfsen & Burten, counsel to the ILGWU, who said Leslie Fay had already implemented some sections of the modified agreement but only the ones that benefited them.

“Leslie Fay has enjoyed the benefits of the union’s concession and now they say, ‘Oops, we’ve changed our minds, we won’t abide by the agreement,”‘ Richards said.

Leslie Fay, said Richards, could have moved to reject or renegotiate the agreement but didn’t. Richards told Brozman that if she sided with Leslie Fay she would be “saying to the debtor that they can have their cake and eat it too.”

Brozman said “there is something troubling” about Leslie Fay seeming to benefit from an agreement it did not deem enforceable. The ILGWU told the judge that to win the modification, it gave Leslie Fay the right to close three factories and a distribution center and the right to raise the work week to 40 hours from 35 hours.

“They voluntarily entered into an agreement,” Richards said. “Nobody stuck a gun to their head.”