Carter Hawley Studies Suit Over Reorganization : Retailing: The question is whether the 1987 revamping left the company with so much debt that it couldn’t operate profitably.

A special committee of Carter Hawley Hale Stores directors is investigating whether the company should seek possible damages stemming from its costly anti-takeover reorganization in 1987, according to court papers and sources close to the company’s bankruptcy case.

The investigation came at the prodding of Carter Hawley’s creditors, who have questioned whether the 1987 restructuring doomed the company by loading it with more debt than it could bear. In theory, damages could be sought from anyone who benefited from the deal, including corporate officers, directors, lawyers, bankers and other advisers.

Four years ago, Carter Hawley’s board approved a $1.1-billion corporate overhaul that spun off the company’s Neiman Marcus group to General Cinema, then Carter Hawley’s largest shareholder.

The special committee of outside board members was formed in June “to investigate certain potential causes of action,� according to papers filed by Carter Hawley in U.S. Bankruptcy Court last week. The filings said the panel hired the Los Angeles law firm of Hufstedler, Kaus & Ettinger to aid in its investigation “and, if appropriate, to serve as counsel to litigate the issues.�

Serving on the special committee are four outside directors who joined Carter Hawley’s board following the 1987 restructuring: Sidney R. Petersen, Caroline Leonetti Ahmanson, Leland C. McGraw and Dennis C. Stanfill.

The investigation was the subject of a closed-door hearing on Friday before U.S. Bankruptcy Judge James Dooley. The pleadings from the hearing were ordered sealed.

Spokesmen for Carter Hawley, the special board panel and the creditors committee declined to comment.

Sources said the special committee was investigating whether damages are warranted under a complex and murky legal concept called fraudulent conveyance.

The concept applies to transactions in which companies allegedly fail to receive a fair price for their assets and are left too crippled financially to continue operating successfully. In these circumstances, it does not address whether fraud or negligence contributed to a company’s downfall.

Los Angeles-based Carter Hawley, the biggest department store company in the West and the parent of Southern California’s Broadway chain, sought Chapter 11 bankruptcy court protection from creditors on Feb. 11.

The company continues to operate its 89 stores.