Lingering Liquidation : RB’s Bankruptcy Sale Raises Tough Legal Questions

Bankruptcy! Immediate Liquidation! Ordered to Sell Out! To furniture liquidator Eugene H. Rosenberg, the promoter for RB Furniture’s bankruptcy sale, such howls of distress mean crowds of shoppers and big money. More pain, more gain.

To Ventura County Deputy Dist. Atty. Greg Brose, RB Furniture’s cries have the ring of deception. Sure, the Irvine-based 29-store chain is in bankruptcy proceedings. But the “immediate liquidation� is now in its fourth month. And Rosenberg is stocking the stores with fresh merchandise, such as imported marble tables, leather sofas and glossy Italian furniture. Hardly a “sell out,� Brose said.

Ordinarily, Brose would take action. But not this time.

In a decision that law enforcement officials say is without precedent in California, the federal bankruptcy judge presiding over the RB Furniture case has exempted Rosenberg from key state and local laws governing bankruptcy sales. The unusual order by U.S. Bankruptcy Judge John E. Ryan in Santa Ana lets Rosenberg violate certain laws--such as those limiting the duration of bankruptcy sales--without penalty.

RB’s bankruptcy attorney, Robert Moore, said without Ryan’s order, the chain would be unable to pay dozens of unsecured creditors anything. By bringing in new merchandise, Rosenberg is raising thousands more dollars that can be used to pay furniture makers and other suppliers who were left holding the bag when RB sought bankruptcy court protection last November.

According to Connecticut-based liquidator Rosenberg, the court order benefits some of RB’s creditors in other ways. By ordering new pieces to complete dining room and bedroom sets in RB Furniture’s inventory, Rosenberg says he is “putting hundreds of upholsterers to work.�

Through his bankruptcy sales, Rosenberg “is keeping this business alive,� said attorney Moore of the firm Murphy, Weir & Butler in Los Angeles.

While Ryan’s order may offer a ray of hope to RB’s creditors, it is not necessarily a boon to consumers. With showrooms stocked with new merchandise, it is harder for consumers to determine if they are really getting a bargain on RB’s regular inventory or on close-out furniture brought in by Rosenberg. “I don’t see how this kind of order can possibly help consumers,� said Lona Luckett of the Better Business Bureau of Southern California.

Ryan declined to be interviewed, citing through a spokeswoman a longstanding policy of not speaking to the press.

The controversy over the RB Furniture sale comes at a time when complaints about going-out-of-business sales are on the rise. Los Angeles County Deputy Dist. Atty. Michael J. Delaney said his office is inundated with complaints about merchants who trumpet financial distress to attract consumers who are looking harder than ever for bargains with the economy in a recession.

“Our concern in the RB case is that the bankruptcy court is using its authority to set aside ordinances of L.A. County,� Delaney said.

Delaney said Los Angeles County ordinances limit the length of time a merchant can conduct a liquidation sale to 60 days and bar merchants from introducing new merchandise during the sale.

According to lawyers in the bankruptcy case, Ryan has responded to some concerns voiced by district attorneys in Los Angeles, Orange and Ventura counties. He recently removed RB’s advertisements from his exemption, RB attorney Moore said. And Rosenberg has toned down his ads.

Even so, law enforcement officials say their hands are tied. Ventura County’s Brose said it would be hard to single out RB’s ads as misleading since the firm’s conduct has been approved by the bankruptcy court. He complained: “The whole process is deceptive and misleading. If it were not for the judge’s order, we would be seriously considering legal action.�

Rosenberg isn’t a newcomer to sale disputes.

Last December, the Massachusetts attorney general filed a suit against Rosenberg and three others. The suit contends that they violated state laws by marking up furniture prices before deducting advertised markdowns and purchasing new merchandise while a liquidation was in progress. A settlement of the suit is under negotiation, said a spokesman for the Massachusetts attorney general.

Rosenberg faced similar actions in Connecticut that ended in consent decrees in which he neither admitted or denied guilt.

Rosenberg couldn’t be reached to comment on his run-ins with officials in other states. But in an earlier interview, Rosenberg said he is offering RB customers “good values.� He said 60% of RB’s original inventory, and about 45% of its total inventory--new merchandise included--has been sold. “The sale is going well,� he said.

Rosenberg said sales are going so well that he is interested in buying the RB Furniture name, along with some store leases, and operating a smaller chain after the bankruptcy sales end in either May or June. “I hope to remain in the business,� he said. “I want to save RB.�