MidPac trustee sues for payment
By Andrew Gomes
Advertiser Staff Writer
In an unusual move in the MidPac Lumber Co. bankruptcy case, the trustee seeking to recover assets for creditors has joined with MidPac's former chairman to sue the former president of the defunct building-supply firm.
MidPac's Chapter 7 trustee Mark Yee also has filed a complaint alleging the company's primary lender defrauded other creditors by ordering and selling inventory on behalf of MidPac — despite knowing the company was insolvent — to reduce a loan MidPac had with the lender.
The suits, called adversary proceedings in bankruptcy court, are the latest in a tangled web of legal maneuvers to recover millions of dollars of debt for more than 80 creditors — including the city, state and more than 30 local companies or individuals.
The complaints filed earlier this year also add to complications in a bankruptcy case that has lasted more than two years and looks like it will go on for at least one more.
Once one of Hawai'i's largest building-supply companies, MidPac was forced into bankruptcy by creditors in January 2000, about two years after the owners of Maui Home Supply, Kurt Glassman and Michael Clifford, purchased the business from employees.
Yee has been able to recover just $26,438 in assets from the company, which at one time had $30 million in annual sales. Creditor representatives calculate that MidPac had assets of $1.1 million and debts of $8.5 million when the bankruptcy petition was filed.
Yee, in his complaint against CIT Group Business Credit Inc., alleges that the Glassman partnership had insufficient working capital when it bought the company, and inappropriately used construction-bond money to operate the business.
CIT, a New York-based lender that financed the purchase, discovered the misappropriation and other "false invoices," Yee charged. But instead of notifying authorities or other MidPac creditors, CIT engaged a private fraud specialist who took over company operations, then sold $5 million in inventory to pay down MidPac's $8 million loan with CIT, the complaint said.
A CIT spokeswoman said it is company policy not to discuss pending litigation.
In the other complaint, Yee and co-plaintiff Glassman are suing former MidPac President Ed Bowling alleging that the Maui resident contributed to MidPac's downfall by receiving "advances" of $2.6 million for a third of the stock he owned in the company, then reneging on an alleged agreement to give back $2 million if MidPac needed the money.
Bowling said in a written statement that he had never promised to return any of the stock proceeds he said he received for running MidPac before retiring in June 1999.
Bowling added that he worked seven days a week for 3 1/2 years for Glassman companies, and led MidPac from roughly $3 million in annualized losses before March 1998 to $2 million in profit by the time he left the company.
He said Glassman took over day-to-day operations and stocked up on merchandise in anticipation of sales that didn't materialize. An appeal to CIT for more capital failed, as did attempts to find alternate financing, which left MidPac unable to pay creditors.
U.S. Trustee Curtis Ching said hearings in bankruptcy court to resolve the disputes aren't likely to be scheduled until around the beginning of next year at the earliest.
Meanwhile, a trial is scheduled for January in a federal lawsuit filed in Hawai'i District Court last year by MidPac creditor Whirlpool Corp. against CIT.
The suit is similar to the one filed by MidPac's bankruptcy trustee.
Whirlpool, which said it lost $1.2 million in the alleged scheme, names CIT, Bowling and Glassman as defendants, along with other people involved with MidPac, in what Whirlpool says was a planned conspiracy to plunder MidPac's assets in violation of federal racketeering laws.
Other major creditors in MidPac's bankruptcy include Hawai'i's Damon Estate, owed $860,000; Oregon companies Forest Grove Lumber Co., owed $539,000, and Klupenger Lumber, owed $507,000; Washington State's Weyerhauser Lumber, owed $462,000; and Honolulu resident Douglas K. Takata, owed $400,000. CIT is the largest creditor, with a $2.4 million claim.
Another $6.3 million in debts and $1.1 million in assets are listed in the related bankruptcy of Maui Home Supply, where some of the debts and assets overlap with MidPac's case.
Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.
