LAWSUIT MUDDLES CHAIN'S DEMISE; WESTERN STORES' COLLAPSE COSTLY.

Byline: Jason Takenouchi Staff Writer

A defunct retail clothing chain continued on its long, hard road to oblivion Friday as talks about a possible sale of its remaining assets ended without a final agreement.

The sale of the last remnants of Howard and Phil's Western Wear, a company co-owned by U.S. Rep. Howard P. ``Buck'' McKeon, is now expected to be finalized Monday, one business day later than originally expected.

Secured creditor Coast Business Credit, which is owed $4 million, has first priority on the proceeds of the sale. The assets are expected to raise only about $550,000.

But the transaction may have little effect on a lawsuit that Los Angeles-based Coast has filed against McKeon's four brothers, all of whom owned part of the company. The action accuses the brothers of fraud and misrepresentation.

``Our attorneys advise us that without negotiations, the lawsuit would be the only route for Coast to collect any money,'' Coast Vice President Richard Gomez said Friday.

Coast filed the suit Wednesday against Joseph, John, Timothy and Monte McKeon. The action claims the failed company owes Coast $4 million, and it asks for damages, attorney fees and the foreclosure of homes owned by the four brothers.

The suit also named several companies, the U.S. government, and the wives of the four brothers as defendants. Congressman McKeon was mentioned in the suit but is not named as a defendant.

According to the complaint, the four McKeon brothers ``participated and conspired in the submission of false reports to Coast.''

The inventory reports were used to get cash advances from Coast. Those advances were based on the book value of the clothing company's merchandise, the suit said.

The McKeon brothers were unavailable for comment Friday, but Janet McKeon, wife of John McKeon, said this week she is confident the issues can be worked out.

``I know they are workable just because of the quality and the character of John and his brothers,'' she said.

Repayment of the remaining debt is still open to discussion outside of court, said Coast Vice President Gomez.

``We're always amenable to negotiations,'' Gomez said. ``It's up to the McKeons to make an offer.''

Howard and Phil's was founded in 1962 by the parents of the McKeon brothers. At its height, the Canyon Country-based chain had 52 stores across the country.

But Howard and Phil's began a steep decline in the mid-'90s, and in 1996 was forced to file for a Chapter 11 bankruptcy reorganization. Executives blamed the decline on a downturn in the western wear market.

The company failed to make required debt payments last year, and it dissolved abruptly last month.

After closing its nine remaining stores, the company signed over its boots, clothing and other merchandise to an assignee, Development Specialists Inc.

Development Specialists is charged with selling those assets to benefit creditors. The procedure is governed by state law but is similar to a federal Chapter 7 bankruptcy liquidation.

Gomez said Montana Boot Co. has agreed to buy those assets for about $550,000.

The proposed purchase price, while far below the retail value of the merchandise, ``was probably the best that could be gotten under the circumstances,'' Gomez said.

Money raised from the asset sale will be credited toward the $4 million that Coast is seeking in the lawsuit, he said.

Congressman McKeon, a Republican from Santa Clarita, was not named in the suit because he was not a guarantor of the company, said Robert E. Freitas, lead attorney for Coast.

``It's our present understanding that he was not involved in the management of the business,'' he said this week.

Freitas declined to comment on whether the congressman could later be added to the suit if Coast decides he was involved in the company's management.

Howard and Phil's has also had problems with former employees.

Six workers have filed state wage claims against the company worth $8,244. Most of those claims will be heard July 13 at the Van Nuys office of the state labor commissioner.