The Collectibles

by James J. Kaufman

  Joe placed his cart full of books and a yellow plastic box in the corner of the room. Preston and Casey followed suit. Then Joe picked a chair at the window side of the table in the middle and motioned for Preston and Casey to sit at his right.

  At precisely ten o’clock, Tom Gallagher entered the room, followed by what seemed like an endless line of men and women.

  “Good morning, gentlemen. I’m glad you could come,” Mr. Gallagher said, with a broad smile, walking around the table and extending his hand.

  Joe stood, followed by Preston and Casey. “Joe Hart, Tom. It’s good to meet you in person. Thank you for setting this meeting up. This is Preston Wilson on my right, and Casey Fitzgerald, Wilson’s CFO, next to him.”

  The men shook hands. Mr. Gallagher then moved to Joe’s left and stood behind the chair at the end of the table. He introduced each of the bank’s representatives and attorneys as they took seats at the table.

  “There may be others joining us, but we will have to do with what we have now,” Mr. Gallagher began. “I would appreciate it if each of you folks would pass your cards to these gentlemen so that they can keep y’all straight. Lord knows it’s hard enough for me sometimes.”

  Each of the twelve reached in their pockets, wallets, or handbags and produced three business cards and pushed them across the table. Casey, apparently struggling to locate his business cards, could only come up with three. Neither Preston nor Joe offered any cards.

  Joe, after carefully reading each card, placed it across from the person connected to the card, consulting the notes he had taken during their introductions. He took his time. Everyone sat quietly as he looked the group over, observing their clothes and body language, and studying their faces. Each was dressed in a professional manner, the men wearing conservative suits and ties, the women in suits as well. On his side of the table, Casey and Preston wore similar suits and ties. Joe simply wore gray slacks, a blue blazer, and an open white button-down shirt. A small Navy bar was placed in the right lapel of his sport jacket.

  Joe rose, briskly moved to the corner to retrieve eight of the bound books, and placed them on the table. He then returned, selected six more, and placed them neatly in a row. Again he went back for the remaining five books, aware of the fifteen people watching and waiting.

  He returned to his seat, folded his hands, positioned them on the table, and looked up at the group.

  Floyd Ritter, BNA’s general counsel, glanced at Gallagher, who nodded in return. Ritter leaned forward. “Well, Mr. Hart, you’ve got us all here. It’s your show.”

  Despite Gallagher’s in-house counsel taking the lead, Joe turned to Tom Gallagher. “Thank you for the opportunity on behalf of Wilson Holdings and Preston to go over our strategic turnaround plan, copies of which you have been provided.”

  Joe noticed that the only copies the bank representatives had brought with them were in front of Ritter, Bower, the corporate counsel, and Barenzo, the CFO.

  “I trust that you have had an opportunity to review our plan. You will note that following the text of the plan itself there are numerous exhibits . . . ”

  Gallagher interrupted. “You certainly have put a lot of time and effort into providing us with a plan, Joe. I don’t recall seeing a plan like this and with this much detail. Have you, Floyd?”

  “Yes, we’ve seen a lot of plans. No matter how big and elaborate the plans are, they still have to represent the facts, and the facts here are uncontroverted that Wilson Holdings and Mr. Wilson owe us and a lot of other folks a lot of money. I want to hear what Mr. Wilson has to say about that.” Ritter looked directly at Preston.

  “There are a lot of ways we can conduct this meeting,” Joe said in a low, even tone. “You came to this table voluntarily. So did we. This meeting is an opportunity for us to work together to reach a solution to problems that we, and I know you, take seriously. First, I . . . ”

  “I’ve got a question for you, Mr. Hart,” Ritter interjected, cutting Joe off. “Why does the front of your book here state your plan is confidential and off the record?”

  Joe focused on Ritter. “My understanding in setting this meeting up with Mr. Gallagher is that we could, for settlement purposes, have an honest discussion of how we can work this matter out in a way that helps the bank and Wilson Holdings and Preston as well . . . ”

  Ritter interrupted, “But why off the record?”

  “I trust Mr. Gallagher, and I’m sure he has told you of our understanding. The writing is simply a safety net in the unfortunate event of any unexpected amnesia.”

  Bower’s face broke into a broad grin. Ritter’s did not. “There are obviously some serious issues in this matter that we want to be able to speak frankly about today. To begin with, Wilson Holdings indeed does owe Bank North America a considerable amount of money . . . ”

  Ritter, sharply cutting Joe off, asked, “Just how much money do you admit that you owe us, Mr. Hart? How much in total?”

  “Hold it,” Joe said directly to Ritter and putting his hand up. “I don’t owe your bank any money, Mr. Ritter. Nor do I owe you the effort, study, and energy I have put into solving the bank’s problem for you. I have been interrupted four times this morning, three by you, Mr. Ritter. As I said earlier, we can conduct this meeting in a lot of ways. One is for us each to actively listen to one another, without interruption. I’m good for those four interruptions, but any more and I decide to leave this meeting.” Joe surveyed everyone across the table. No one said a word.

  “Good, then I’ll continue. The amounts of debt are detailed in the plan. For Charlottetown Motors, the cap loan is five million, but is not yet due by its terms, and the interest is current. However, we believe the SOT to be in excess of eight million dollars . . . ”

  “Eight million dollars,” Mr. Olsen, the COO exclaimed, cutting Joe off. “That’s outrageous! That’s criminal! You’ve got to be kidding!”

  Joe slowly stood, moved around the table, and briskly strode out the door without saying a word. Preston and Casey followed. Before they got to the elevator, Bower came running down the hall.

  “Joe! Wait up,” he said, sounding out of breath. “Olsen didn’t mean to interrupt you. He wants to apologize. This SOT issue hit a nerve. He’s feeling on the spot. I ask you, please, come back in. There won’t be any further interruptions.”

  Joe turned, nodded to Bower, and at that moment his cell phone vibrated, displaying a call from Harry. Joe sat down on a window ledge in the hall and stared at the phone. He decided he would have to return the call, nodded again to Bower, then to Preston and Casey, and walked slowly back to the room. He took his seat and motioned for Preston and Casey to take theirs.

  “Sold out of trust deserves attention,” Joe said. “It is, however, only one piece of the puzzle. In my review and assessment of Wilson Holdings’ overall situation, my first task was to undertake a critical analysis of Wilson’s present condition. This involved four questions: One, why and how did Wilson Holdings get into financial trouble? Two, what is required to fix the difficulties? Three, how long will it take? And four, is it worth the time, money and effort?”

  He glanced around the conference room. Good. He had everyone’s attention. He continued. “The short answer to how Wilson Holdings got into this mess is that Mr. Wilson is a very effective and successful automobile dealer. His first store, Manhattan Mercedes, did well. So well, in fact, that he expanded to California, acquiring a dealership there and expanding it into San Francisco Autoplaza. The expansions continued to Georgia, Texas, Illinois, and here in North Carolina. The stores became bigger and bigger. When one store got in trouble financially, Wilson Holdings helped it out with money from another store. This was a classic case of robbing Peter to pay Paul. Beyond that, each store has its own story, each of which has been explained in detail in the history portion of the plan. Then came the market crash, unemployment, uncertainty and the bank contrac
tion. You know all about it.

  “In determining what is required to fix the difficulties, I first centered on how deep the hole is, individually by store and altogether. I started with all the work that Wilson’s prior law firm did when they reviewed this problem and ultimately recommended bankruptcy protection. Then I reviewed the current financials, including information that I obtained from your bank.

  “Operationally, I brought in a gentleman named Alex Herman. Those of you who have heard of Mr. Herman know that he is highly regarded in the automotive world, not only with the manufacturers and dealers, but he also has a deep reach into the auto financial end. His comprehensive operational analysis is included in the exhibits. He finds that the management in most of these stores was incompetent, allowing operating capital to grossly exceed the revenues generated by the various dealerships, but he believes that each of these stores has the capacity and potential to be profitable. I have a ways to go, but let me stop for a moment to see if you have any questions.”

  “I have a question,” said Steven Cutter, the litigation counsel for White & Polk. “Let’s go back to the SOT. How can Wilson Holdings be expected to pay our bank back, let alone recover and turn around if, by court order, the stores are restrained, if not shut down, with the proceeds going to the bank and your clients perhaps going to jail?”

  “I agree with you,” Joe replied. “It certainly is not in the interest of Mr. Wilson or his company or the bank for that to happen. Let’s put the SOT elephant on the table. As you are aware, Mr. Cutter, the SOT condition is simply a case of the dealership taking in money from the sale and not, for whatever reason, paying it back to the bank in as timely a fashion as required. In a sense, the same thing is done with a float. Just as with a float, the policies in practice at the bank and the dealership need to be examined. How long, as a matter of practice, did the bank give the dealership before it had to cover its checks? One day? Two? Seven?”

  Joe knew that the SOT issue was both alarming and confusing, even to bank officers. Part of the reason the bank had difficulty monitoring the floor plans was that they didn’t fully understand the automobile business. Joe saw the bank’s pattern of acquiescence and lack of due diligence as tantamount to implied consent.

  “Mr. Hart, Elaine Trevor here. Please call me Elaine. Are you suggesting that this bank is responsible for your client’s stealing our money by not paying the bank back in accord with our floor plan agreement?”

  “I am here trying to facilitate a workout, Elaine; I don’t have my lawyer hat on – and hope not to put it on. Neither am I a judge or a jury. What I am looking at is, what did Wilson Holdings intend? And what did the bank know and to what extent did it acquiesce in or consent to the SOT situation? Part of my job, as I see it, is to get your bank as much solid information as I can about this entire situation, including the SOT and its amounts.

  “There was no intent to steal any money from the bank; no money went into Preston’s pocket or any other person’s at Wilson Holdings. Instead, the money was used to finance the other stores and certain real estate acquisitions.” There was, Joe stressed, no criminal intent. “What they are guilty of, however, is a lack of supervision of their financial and operations people, combined with some major errors in judgment.”

  Silence reigned as everyone in the room absorbed what Joe had just said and the candor with which he had said it.

  “Let’s take a break for coffee,” Tom said, and with that, Casey moved directly to the tray with all the cookies.

  During the break, Joe made a point of going around the room, shaking hands, saying a few words to Tom and each of the other twelve representatives. Twenty minutes later, everyone resumed their places at the table.

  Steven Cutter, the litigation attorney, opened the discussion. “Leaving aside your, ‘consensual SOT theory,’ I am still troubled by the existence of enormous debt and no demonstrated program for its repayment. Your client is clearly in default and has no defense on the notes. You know that. Trust me, we will successfully move for judgment this week in each of the jurisdictions on all of the notes that are due. In addition, within days we will have Temporary Restraining Orders against each dealership in which we have an interest. Inasmuch as the stores have all cross-collateralized each other, we will have no problem receiving all of the corporate assets.”

  At this point, Casey leaned over and whispered into Joe’s ear, “Except East Bay.” Joe patted him on the arm and nodded his understanding, but held his finger to his lips.

  “Because of the personal guarantees by Mr. and Mrs. Wilson, we also are entitled to proceed directly against them for judgment on all of this debt. Beyond that, your construction of the SOT will not stand up. We could turn the facts over to the attorney general’s office in each of the applicable states and see if they view the SOT as warranting a criminal indictment, including for bank fraud, which I believe carries a mandatory sentence of at least twenty years. I don’t mean to give you a haircut, Mr. Hart, but I am wondering, what is your response to that?”

  Joe rose and walked to his left, where he had placed the yellow plastic box. He brought it over and set it on the table. Joe opened the box and took out a handful of keys. “This box contains the keys to all of the stores in which Bank North America has a security interest and liens. Life is full of choices. Wilson Holdings has admitted that it owes you money. The plan before you is directed to getting you paid back. Both Wilson Holdings and Preston Wilson would like to help do that. You may not want their help. You may want to run all of these dealerships yourself. You may want to manage the real estate and determine what to do with the leases, and in the case where real estate is owned, what to do with the property. You’ve already had a lot to say about what was done with the property owned by Wilson Holdings in Manhattan, as I’m sure your New York representative has told or will tell you.” He nodded to Sally McCormick. “I’ll make it easy for you. If you don’t want our help, you take the keys to these stores and you run the business.”

  The room was silent for nearly a minute. Finally, Bobby Bower spoke. “I, for one, don’t want to be involved with running these stores. We’re not car guys. Of course, I don’t make these decisions. But I’m interested in whether I heard you right. What were you saying about our having something to do with the real estate in Manhattan? What is that about?”

  “I can answer that, Bobby,” Sally McCormick jumped in. “The Manhattan store is located at 9th Avenue and 57th Street. The store is approximately ten thousand square feet in a sixteen-thousand-square-foot, two-story building. Wilson Holdings leases the property from General Contractors and Holdings, a New York City developer. Wilson, in turn, sub-leases six-thousand square feet to our bank, which has a corner retail office. I believe that is what Mr. Hart is referring to, right, Joe?”

  “That’s the tip of that iceberg,” Joe replied. “I readily concede that there is no problem with the bank’s prosecution of its rights to collect the money it has loaned. There are issues, however, with the bank’s defense.”

  “Defense of what?” Floyd Ritter asked, his voice rising in anger. “What does this bank have to defend?”

  “Again, Mr. Ritter, I’m not here with my lawyer hat on. But since you asked, the defense I was speaking of would be the defense to counterclaims based on lender liability principles, should this matter go into litigation, which I have made clear that I hope it does not.”

  “And what issues of lender liability do you, Mr. Hart, in all seriousness, contend could possibly apply to the actions of this bank that would provide a defense to the debt you have admitted on behalf of your client?” Steven Cutter appeared patronizing, sarcastic.

  Joe held his eyes for a long moment and then quietly said, “The first is a conflict issue dealing with the structure of the capital loans and mortgage financing by BNA on the Charlottetown Motors property. From a lender liability point of view, I will refer to that as the ‘equity kicker prob
lem.’ The second is a control issue. The nature of the involvement of the bank in Wilson’s business affairs. I can discuss these things with you as the bank’s counsel separately, if you like, rather than get into technicalities here,” Joe replied, nodding to each lawyer in turn, and finally at Tom Gallagher.

  “No, you go right ahead, Mr. Hart,” Cutter said. “As long as you are making this up out of whole cloth, I am sure we would be interested in what facts you have to support these ridiculous claims.”

  “Okay, if that’s what you want,” Joe said. “Wilson Holdings had a lease on the property where Charlottetown operates. The owner offered Wilson a chance to buy it. Wilson informed BNA of what it saw as an opportunity to kill three birds with one stone. By owning the property, Charlottetown Motors would be free to expand and renovate the existing store. Doing that would satisfy pressure the store was getting from Porsche and Audi to upgrade the facility – which would in turn allow the store to get more allocation of product – which it needed to be competitive and profitable. In addition to those two features, Wilson felt the property could be bought at a reasonable price and, given its location, would only increase in value.”

  Joe went on to explain that the loan Wilson obtained from BNA to buy the property included profit participation by the bank, a 10 percent equity kicker, but BNA had encouraged Wilson to proceed with the loan and mortgage, despite his reservations. Wilson’s commitment to Porsche and Audi to expand, together with pressure from BNA, forced him to accept the loan, which, Joe explained to an increasingly gloomy room, might well be characterized by the IRS or by a court as an equity investment rather than a loan. BNA, moreover, had increasingly involved itself in the day-to-day running of the store.

  Joe looked over at Tom Gallagher and quietly said, “I wanted to discuss this with you, Tom, privately.