Kmart, Penske at odds over auto centers' closing

CHICAGO - Kmart Corp. complained to a court Monday that its partner in an auto servicing business defrauded it and violated a contract by closing down 563 servicing centers with 4,000 employees.<br> <br> The financially ailing retail giant went to court for the second time in three days and conceded that a temporary restraining order issued Saturday in a last-ditch move to stop the shutdown was too late.<br> <br> &#34;The eggs are scrambled,&#34; declared Kmart attorney Christina M. Tchen in declaring that the shutdown of the Penske Auto Centers had gone so far that it was too late to reopen them.<br> <br> She said Penske Corp., which runs the centers through a subsidiary, had taken Kmart by surprise, telling its executives only late Friday afternoon that it would close down the money-losing centers immediately.<br> <br> Kmart responded by charging Penske with breach of contract and civil fraud in a lawsuit and asking for a temporary injunction to assure that the remaining work of closing the centers would be conducted in an orderly and mutually agreeable way.<br> <br> After waging a war of words at a morning hearing before U.S. Bankruptcy Judge Susan Pierson Sonderby, however, attorneys for the two sides spent most of the afternoon in negotiations toward a settlement.<br> <br> The two feuding partners broke off their talks for the night when Sonderby had to leave for an appointment elsewhere but planned to be back in court Tuesday afternoon in an effort to reach agreement.<br> <br> Kmart, which had $37 billion in retail sales in 2000, filed for reorganization under the Bankruptcy Act on Jan. 22, citing a disappointing fourth quarter, shrinking amount of available cash and plunging share prices.<br> <br> Kmart owns 36 percent of the auto centers, which have lost money for four consecutive years, according to testimony at the hearing. Penske owns the balance through a subsidiary, Penske Auto Centers Inc.<br> <br> Richard Peters, chairman of Penske Auto Centers, told reporters outside court that job fairs were being organized and competitors were being given lists of employees who might be hired.<br> <br> &#34;The bottom line is that we have a business that doesn&#39;t work and a bunch of employees and we have to try to protect the employees,&#34; he said. &#34;...Ideally, we&#39;d hope that everyone would land on his feet.&#34;<br> <br> He said the centers employed 4,000 workers.<br> <br> According to Kmart officials, the company&#39;s chief restructuring officer, Ron Hutchinson called Peters last Thursday and asked about a rumor that Penske was closing the auto centers.<br> <br> &#34;Never once during the conversation did Mr. Peters indicate that Penske was going to begin the closing of the stores the very next day,&#34; Kmart&#39;s lawsuit said.<br> <br> &#34;Kmart relied on each and every misrepresentation made by the defendants,&#34; it said. &#34;Had the representatives from Penske made their true plans known to Kmart, Kmart would have taken actions to prevent the shutdown from occurring, including seeking relief from this court.&#34;<br> <br> Once it learned of the shutdown plan late Friday, Kmart said, it went to court Saturday morning and obtained the temporary restraining order. But by then it was too late, Kmart attorneys said.<br> <br> They said windows were covered with papers, &#34;Closed&#34; signs were put on doors, displays and signs were dropped into Dumpsters, banners were taken down and tarps placed over bay doors. At one New York center, they said, employees were seen drinking beer and spray-painting graffiti.<br> <br> Penske attorney David Lynch told Sonderby that Kmart executives were well aware that there was no more money to operate the auto centers and that Penske had no obligation to sink in any more money.<br> <br> &#34;The horse died, your honor,&#34; Lynch said. &#34;The horse died because there was no money.&#34;<br> <br> Kmart officials brushed aside a Penske internal document among the court papers that said executives of the retailer had told their partner that they might close down as many as 700 additional stores.<br> <br> The document was a resolution signed by two members of the auto centers&#39; board of directors as a prelude to shutting down the centers.<br> <br> Kmart is currently closing 283 of its 2,114 stores as part of an effort to make the company profitable again and emerge from bankruptcy.<br> <br> Hutchinson told reporters the figure of 700 additional stores was &#34;an old number that was reported by the press two or three months ago.&#34;<br> <br> &#34;It was never in our scope,&#34; he said, denying that the figure was part of Kmart&#39;s plans for the future. Asked who might have mentioned the number to Penske, he said: &#34;I have no idea. I didn&#39;t tell them.&#34; <br> <br>

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