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The Honolulu Advertiser
Posted on: Sunday, June 22, 2003

Bakery's demise mystifies workers

By Deborah Adamson
Advertiser Staff Writer

Pat Shea is only 42, but he looks 20 years older. Flesh sags on the former 'Aiea mechanic's lanky frame. Fluids accumulate in his body while his liver slowly fails him.

The Holsum/Oroweat Bakeries in better times had installed $1.3 million worth of new equipment at its facility in Aiea.

Advertiser library photo

At the urging of his doctor, Shea applied for a liver transplant evaluation. But in a letter he received last October, St. Francis Medical Center turned him away because he had no insurance.

Shea's health continues to deteriorate, and he has $300,000 in medical bills. His former employer, the now-defunct Hawaii Baking Co. in 'Aiea, stopped paying healthcare premiums for workers last year without telling them.

Shea is among some 200 former employees who lost their medical coverage and then their jobs when the 56-year-old company with kama'aina roots closed abruptly in November.

They and their union claim that in the months before Hawaii Baking closed, executives diverted money that was supposed to be used for insurance premiums, pension payments and union dues. The company left behind millions of dollars in debts to employees and suppliers.

Four federal agencies are investigating the demise of Hawaii Baking and what happened to the money. The union and several creditors have filed lawsuits to try to recover some of the assets.

Despite numerous efforts by The Advertiser to contact company executives or their attorneys, no one from Hawaii Baking could be reached for comment.

Payments halted

A copy of a canceled Holsum/Oroweat paycheck from 2001.
Shea and his co-workers paid for medical coverage through a weekly sum deducted from their paychecks. Faced with a cash crunch, Hawaii Baking stopped forwarding those payments to the insurance companies for a year, until the company closed, according to the union, employees and several of nearly two dozen lawsuits filed against the company since 2000.

Once the state's second-largest baking company, better known by its previous name, Holsum/Oroweat, Hawaii Baking also has been accused of failing to turn over deducted union dues, not paying workers' compensation insurance premiums, underfinancing the company pension plan, and letting the group life insurance policy lapse, according to lawsuits.

The wholesale baking company said problems with cash flow resulted chiefly from an economic downturn after the Sept. 11 attacks, according to a March 2002 letter from management to workers. While the company did have cash concerns before the attacks, Sept. 11 derailed a planned recovery, the letter said.

"Our company was about to have a positive turnaround. September 11th completely changed all of these plans," wrote executive Joseph Trifari.

But what should have been a typical, sad case of a company failing showed unusual twists that captured the interest of federal investigators.

Two months before it shut down, the company changed its name to Moanalua Baking Co. and transferred assets to two debtors, leaving the other creditors with nothing.

"Basically, they screwed everybody else," said Michael Formby, an attorney for the National Union Fire Insurance Co. of Pittsburgh, which said it is owed $168,000 in workers' compensation premiums.

Moreover, Hawaii Baking's president, James A. DeYoung, has seemingly disappeared, according to attorneys for the creditors and the International Longshore and Warehouse Union, which represented the bakery workers. The union's attorneys have hired a private investigator to find DeYoung, who is thought to be living in Arizona, said Ray Camacho, O'ahu division director of ILWU Local 142.

"This is not a typical distressed company. They didn't file bankruptcy," he said. "That's not normal business practice. And you don't just leave town."

Unusual behavior

Company a slice of Hawai'i history

• 1942: Lorrin Dolim is manager of Spencecliff Enterprises, which operates Snowflake, a retail bakery in Kapahulu.

• 1946: Dolim buys Snowflake from his employer and forms POA Food Products Ltd. Dolim is president and his brother, James, is secretary-treasurer. The bakery's products carry the Snowflake trade name.

• 1951: The Dolims buy Krispy Krust Bakery and enter the wholesale baking business. Three years later, the company name is changed to Snowflake Bakery Corp.

• 1961: Snowflake merges with Holsum Baking, forming Holsum (Hawaii) Baking. After a brief shuffle of presidents, Lorrin Dolim ends up in charge. The same year, Holsum opens a $1.75 million plant in 'Aiea in an event attended by state dignitaries.

• 1968: Illinois-based Ward Foods buys Holsum for an estimated $2.5 million in stock. The baking company's annual sales are $5 million. Holsum becomes a Ward subsidiary.

• 1977: Ward sells Holsum to Oroweat Baking Co. in San Francisco for an undisclosed amount. Holsum eventually becomes known as Holsum/Oroweat Baking.

• 1984: General Foods Corp. buys Oroweat's Western division, which includes Holsum. The same year, Joseph Trifari is named regional sales manager at Holsum/Oroweat. He holds other positions, but remains an executive until the company's demise.

• 1986: Trifari and three other investors buy Holsum/Oroweat from General Foods. The company becomes known as Hawaii Baking. Annual sales top $16 million. One of the investors, Kenneth McNutt, is named president. Previously he was the company's general manager. The other two investors are Roland Baird and George Podd; they were in the wholesale baking business in Texas, Arizona and Nevada.

• 1990: Trifari succeeds McNutt as president.

• 1998: Trifari steps down, but remains an officer until Hawaii Baking's collapse in November 2002. Kenneth Schutt becomes president after Trifari, a post he holds until mid-2001. He was a Hawaii Baking vice president since 1994.

• 2001: James DeYoung, who joined the company in 1989 as a vice president and director, takes over from Schutt.

• 2002: Company goes out of business. Before its demise, it produced brands including Holsum, Oroweat, Pali Ridge, Ohana, Francisco and Bran'nola. Hawaii Baking is renamed Moanalua Baking and its assets distributed between First Pacific Food Co. and Fresh Start Bakeries.

— Deborah Adamson

When companies fail, they usually declare bankruptcy or work with creditors to liquidate assets and repay debt, said Andy Kerr, a lawyer for Pendleton Flour Mills and Kerr Pacific Corp., parent companies of Hawaiian Flour Mill and HFM Food Service, respectively, who are owed nearly $509,000 for unpaid flour shipments.

While a company could just "close the door and unplug the phone," that happens more often with tiny businesses, Kerr said. "For a company this size, it's rare."

Hawaii Baking had estimated annual revenues of at least $20 million, according to the Directory of Corporate Affiliations. It once baked bread under the Oroweat, Holsum, Pali Ridge, Ohana and Francisco brands.

Kerr's clients and Chicago-based Long Company forced a bankruptcy on Hawaii Baking's successor, Moanalua Baking, in early June. They filed an involuntary Chapter 7 petition, effectively mandating a court-supervised liquidation of the company's assets.

Kerr said his clients' goal is not to get repaid, which they don't believe will happen. They want to find out how the company fell apart.

"We do not know what happened," he said. "We just want things properly accounted for."

The Honolulu Police Department investigated the matter last year, but referred the case to the U.S. Department of Labor and the U.S. attorney's office, officials said.

The U.S. attorney's office declined to confirm or deny the existence of an investigation. The U.S. Labor Department did not return repeated calls for comment.

In the spring, the National Labor Relations Board charged the company with failing to remit collected union dues, not providing enough information about company developments to the union and not bargaining with the union, said Peter Ohr, an attorney for the NLRB sub-regional office overseeing Hawai'i.

The Pension Benefit Guaranty Corp., a federal agency, has taken over the pension plan and put a lien on company assets. While such actions are not uncommon, multiple investigations are, said agency spokesman Jeffrey Speicher.

He said the plan is underfinanced by half; it should be at $5 million. But the pension is insured, so workers' retirement money is safe. "They are not going to lose their pension," Speicher said.

The Advertiser could not locate DeYoung for comment, and calls to other former company executives were not returned.

Millions owed

So what happened to Hawaii Baking? The company closed its doors in November, the casualty of a cash shortage that left behind angry creditors who are owed nearly $3 million, according to lawsuits. The union is trying to collect another $1.5 million for unremitted union dues, workers' medical costs, severance and vacation benefits.

That figure excludes what's owed to suppliers who did not sue, such as Sandwich Island Products on Kaua'i. Owner Bob White said he is owed $45,000 for honey shipped to Hawaii Baking. He's still hoping to be repaid.

"I'm sad to see it go," said James Dolim, 86, who co-founded Snowflake Bakery, which preceded Holsum/Oroweat and Hawaii Baking, with his brother Lorrin in 1946.

On the day it closed, Hawaii Baking told employees its two operations — production and distribution — would be taken over by California-based Fresh Start Bakeries and First Pacific Food Co. of Arizona, respectively. The two companies have hired about half of Hawaii Baking's displaced workers. Calls to executives at both companies were not returned.

Grant Kidani, an attorney representing First Pacific Food, said his client was a secured creditor and foreclosed on assets when Hawaii Baking could not repay its debt.

"After Sept. 11, their debts were just too much for them. Our client had to foreclose," Kidani said.

But union leader Camacho said he did not believe financial aftershocks from Sept. 11 caused the company to fail.

"We deal with employers all the time. We went through (Hurricane) Iniki and the Gulf War," Camacho said. "If they have red ink on their books, (employers) are more than willing to open the books. This company has repeatedly refused to do so."

Kerr, the attorney representing some of the creditors, said he wants to know if there is any cross-ownership between Hawaii Baking and First Pacific Food.

Kidani said the companies have no common shareholders. But they have had common management in the past. According to the latest available records filed with the Arizona Corporation Commission, DeYoung was a vice president, secretary and director at First Pacific in 2001. The same year, he was president of Hawaii Baking.

Guylene Ozlanski was listed as president, treasurer and a director of First Pacific in 2001. The year before, she was a treasurer and director at Hawaii Baking. Kenneth Schutt, president of Hawaii Baking in 2000, was the statutory agent for First Pacific in 2002. Ozlanski and Schutt could not be reached for comment.

Employees owed

In the company's final days, employees said they held off getting medical care until they found out whether health insurance premiums had been paid that month. If they had, they would rush to get prescriptions filled or see a doctor.

"They were taking medical premiums, but we had no coverage," said Troy Heine, 34, a former Hawaii Baking machine operator. "Where was all the money going?"

Gene Watanabe of Pearl City, 63, is owed nearly $4,000 in medical costs, including out-of-pocket expenses and premiums deducted from his paychecks that never went to the insurers.

Watanabe, who worked at the company for 30 years, has diabetes and high blood pressure, and also had a stroke. He takes nine medications daily. When he retired at the end of 2001, Hawaii Baking was sliding fast.

"It was bad — real bad," he said.

Workers would line up Friday afternoons to get their paychecks, but couldn't always cash them, employees said. They would rush to the bank, but tellers would turn them away when the company's account ran dry, they said.

Hawaii Baking also couldn't cover the cost of ingredients. Employees said that instead of using raisin paste for honey wheat berry bread, they would pour in more molasses.

"They weren't using proper ingredients," Heine said. "The product was so junk, I don't know why anyone would buy it."

Nevertheless, "when we were in negotiations, (management) would pull up in their Lexus and say they have no money," Camacho said.

The union has won judgments on 63 of 92 grievances filed against the company relating to union dues, severance, vacation, medical and life insurance benefits. But the issue is not winning; it's getting back the money.

"Enforcing it is the whole problem," Camacho said.

Pat Shea's uncle, R. Gilbert Johnston, a lawyer, is helping the former Hawaii Baking mechanic with his case, but time is not on Shea's side.

With no medical insurance, hopes for a liver transplant are dwindling, and Johnston is blunt about the consequences.

"If he doesn't get (a transplant) ... he dies."

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.