The Collectibles (15 page)

“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 problem.' 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.

“So what you really have here, Mr. Cutter,” he went on, “is sufficient participation by the bank in Wilson's business, including decision-making, policy, sharing of profits and equity, to be a partnership or joint venture, regardless of an attempt by the bank to make the stripes on the zebra go away. If a court finds that this is a partnership or joint venture, there are a whole host of adverse legal and tax consequences, concerning which I will leave to your legal team to advise. The bank has a conflict of interest. Actually, Mr. Cutter, as a partner with Wilson, you may want to come over to this side of the table and help us figure a way out of this mess.”

“Folks,” Tom Gallagher said, standing up to his full six-foot-four height, “I believe that we all could use some lunch about now. I'd like everybody back here in this room at one o'clock sharp.” He then walked over to Joe and moved into the corner. “Joe, let's you and I have that private talk upstairs. The chairman of the board is going to join us in the boardroom. Okay?”

“Absolutely,” Joe replied. On his way out of the room, Joe stopped for a moment and addressed Steven Cutter. “Thanks anyway,” he said, “but I have a barber in Braydon named Sammy. He takes care of giving me my haircuts.”

T
om led Joe up the back stairs to the next floor and into the spacious corner office of the bank's Chairman of the Board. “Terrence J. Perkins,” he said, introducing a fiftyish-looking clean-cut man of medium build with blond hair, dressed in a tan suit nearly identical to his own.

Perkins stepped forward and shook Joe's hand, looking as if he were studying his face. “I've heard a lot about you, Mr. Hart. Tom here likes you and tells me you can be trusted. I'm happy to meet you. I'm sorry it's under these circumstances.”

“I'm happy to meet you as well. I don't know if Tom still likes me after this morning.”

“How could I not still like you, Joe?” Tom laughed, putting his big hand on Joe's right shoulder. “You've told us you owe us eight million in one store alone, not to mention all the other money, and then you told us we've screwed things up, and finally, that we're partners. Who wouldn't like a guy like that?”

“Let's go have some lunch,” Perkins said as he led the way to a small room with four tables, white linen table cloths, and expensive silver. Alone in the dining room, they sat at a small table while the waiters brought iced tea.

“I understand you're from Braydon.”

“Yes, sir,” Joe said.

“I'd prefer you call me Terry,” Perkins said. “I'm younger than Tom here, better looking and a helluva better fisherman. I'm from Wilmington, North Carolina, Joe. Grew up there.”

A waiter presented sheets of paper and pencils for the selection of lunch. The men quickly filled out the sheets and handed them back, each ordering salads with grilled chicken.

“Wilmington is a wonderful city,” Joe said, remembering his trips with Ashley during the Azalea Festivals. “I've been there a number of times. George Bisby, an attorney friend of mine from Wilmington, took me to the Cape Fear Men's Club for lunch, which I loved. I played golf a couple of times at the Cape Fear Country Club, too.”

“I know George. Good man. He's a big boater, keeps his boat on the waterway next to Dockside.”

“I've been there, as well. Right across from Wally's.”

“Pusser's now,” Terry said. “You fish?”

“You bet. It's what I wish I was doing today.”

Terry smiled.

The waiter brought the salads, and the men ate quietly. When they finished, Tom began, “Joe, I appreciate the fact that you told us about the SOT. We knew there was a SOT, but we didn't know how bad it was. Wilson's people didn't tell us, and neither did their fancy firm in New York City, I might add. I also appreciate all the work you've put into your plan – you've made our work a hell of a lot easier, and you've given us a lot of information we didn't have and would normally have to fight to get. I know you're getting pissed at Cutter, although you're not showing it.”

“No, Tom. This is serious. I'm not upset with Cutter. He's a litigation lawyer, and he needs to demonstrate to you how clever and smart he is so that you'll feel better about making this into a federal case and paying his firm a few hundred thousand dollars or more.”

Tom and Terry looked up at each other. “What do you think of Floyd Ritter?” Tom asked.

“I think he's sitting in a tough seat,” Joe answered. “He's one of your vice-presidents and also your general counsel. As much as he'd like to treat this as a simple foreclosure on a few loans, he knows that it's a lot more complicated than that. He's doing what lawyers do. It's not always easy.”

“What do you think of Bobby Bower?”

“Are you going through the whole list?” Joe asked with a smile. “We'll never make your one o'clock deadline. Actually, I like Bobby, even though he's a lawyer.” Tom and Terry burst out laughing at that one.

“We've checked into your background a little bit, Joe,” Terry said. “You don't get to be a commander of a Navy sub without being able to read men and lead them, too. Also, Floyd has checked you out with the bar and the judges, and they all hold you in the highest regard.”

“Thank you,” Joe replied, looking at his watch. “Tom, it's five to one if you really want to make it back to the conference room in time.”

“Let 'em wait,” Terry interjected. “Okay, Tom?”

Tom nodded, and Terry continued. “What Tom really wants to ask you is what you think of Mr. Wilson and his sidekick, Mr. Fitzgerald. We know they're your clients.”

“I'm glad you asked,” Joe said. “It's an important question – in fact, central to the tough decision you have to make in this case. What's the story with these guys? Are they good guys or bad guys? Are they crooks, as your lawyer has suggested? Can you trust a dealer who's eight million out of trust? What should you do with them?”

“You got that right,” Tom said. “Those folks aren't from around here, and we don't know them. Our loan officers know the general managers of the stores and their bookkeepers and so forth. And some of our other people have met Wilson and Fitzgerald at the bank and at closings. But neither Tom nor I know either one of them.”

“Well, speaking frankly – and now you know, Tom, why all of these discussions have to be off the record – I'll tell you my view of these men, for what it's worth. I'll start with Casey. I think he's an honest guy. He's worked for years for Wilson. He's steady, good with numbers, and a good transactional accountant. But he's always looking in the rearview mirror. He has a problem seeing the big picture. He's not strategic. He's too reactive and accepting. He didn't or couldn't get underneath exactly what was going on with these dealerships, didn't ask the hard questions. Also, Preston had him spread way too thin. With six stores spread all over the country, Casey was way over his head. He didn't manage the oversight of these stores the way he should have. He should have had systems in place that would have raised red flags. He also should have had a couple of comptrollers working for him that were smarter than he is.

“As to Preston, he's a charismatic visionary. He's smart and he's got a lot more depth than is immediately evident. He's not transparent. It takes awhile to peel the onion. He wants to be recognized as a major player, a highly successful businessman. His initial success added fuel – in the form of an outsized ego – to his already huge ambition. Preston got in trouble because he tried to get there too fast. He has a focus problem. He really didn't know how bad his businesses were doing overall. He was too busy planning the next acquisition and playing big shot.”

Joe stopped talking and took a long drink of water. He looked first at Terry and then Tom. “Preston probably would have gotten away with it but for the economic meltdown and all of the turmoil that has followed. Perhaps that is behind us now, or, if not, will be soon. I'm sure you guys have had a lot to think about as well – and you can't sit on money forever.

“But back to Preston, he's acted in a dishonest way, not by stealing, but by breaching the trust of others. I'm not talking about the SOT, because I think, to the extent that he had any knowledge of that, he figured the bank knew about it and it was just part of his loan structure. And to a certain extent that is the case, although any SOT is wrong. Mistakes were made – and not only by Wilson.” Joe paused a beat to let that sink in.

“I think this whole mess has scared Preston to death, and he's learned a lot. He has to start telling his wife the truth, and more importantly, he has to start telling himself the truth. Preston's biggest fear is being a financial failure. I'm certain of that. That's why he's a good bet for you. Why not ride the horse? Let him work his way out of this mess and carry you out as well. You wouldn't be able to hire a better man to run this company from this point forward if you can shift paradigms and forget what's happened in the past. But that's hard to do. I believe that Preston is now committed to lead his company out of the hole and back to success. Going forward, I believe he'll keep his word.”

“I tell you what,” Terry said. “You just said a mouthful. Very interesting.”

“Where do you see this going from here?” Tom asked.

“That depends a lot on you. As I said when we first talked on the phone, I need you to keep your lawyers in check. You saw this morning how they wanted to draw me into all the legal side of things. If you make this into a big legal case, you will be fulfilling your lawyers' every wish. Except for Bobby, who strikes me as a sensible businessman who really wants to find a way to work this out, just as I believe you do. Get the lawyers off my back, and let's not concentrate on litigation. You both know no matter how the case comes out, only the lawyers will win in litigation. Also, I would really rather leave the loan officers out of these discussions so that we can concentrate on how to solve the problem. These loan officers and anybody who works with them are part of the problem itself. They helped create it.”

At this point, Joe could see the strain on Tom's face as Terry picked up his linen napkin and refolded it. Joe continued, “I haven't disclosed today all of the specific information I have about all the screw-ups by various people in your bank who handled the loans and the businesses. It isn't just Charlottetown. There was a big problem in Manhattan as well, but I didn't want to embarrass Sally.

“Rather than the drum beating, which is wasting our time and will only result in litigation and/or bankruptcy, both of which will not have a happy ending for the bank, what we need to concentrate on is how to turn Wilson around and get the money to pay you back. Besides, the government will appreciate your using some bailout money to help a worthy dealer out and get people back to work.”

Tom and Terry looked at each other, as Terry refolded the napkin again.

“Joe, thanks for having lunch with us,” Terry said. “Where do you keep your boat?”

“At Charleston City Marina,” Joe replied. “Her name is
Mountain Stream
and she's in slip D-7.”

“How the hell did you come up with that name?” Tom asked.

“Well, I love the mountains, I love the mountain streams, I love boating, and I like to take my boat to the Gulf Stream fishing, so
Mountain Stream
.”

“Sounds right to me,” Terry said. “In fact, it all sounds right to me. Tommy?”

“I got it,” Tom said. “Joe, I'll ask Floyd, Steve, and Elaine to sit out this afternoon's part of the meeting, and I'll have Mike, Frank, Dorothy, and Sally meet upstairs and be on call if you need them. I'm going to leave Bobby in, as well as Lou, our CFO, and Jim Olsen, our COO. They're a nervous wreck about all of this, but they're good with the numbers, and they're going to need to understand and sign off on whatever we're going to do. The same thing's true of Barry and Debra, our commercial VPs. They're good people, sensible and bright. Why don't you go down and talk with your people, and I'll go down and thank everybody on our side for their efforts and explain that I think it would be better if we made the group a little smaller at this point. Do you need me to stay in, Joe?”

“Absolutely,” Joe replied. “I wouldn't mind if Terry came in as well.”

“Tom will tell me what's going on,” Terry said. “I've got to sell all of this to the Board once you get it worked out, if you do. I'd better stay out of the meeting at this stage.”

“I understand,” Joe said. “But I would like to be able to give you a call if I need to and talk to you directly. Do either you or Tom have any problem with that?”

“No, we don't,” they both answered.

“And you come to Wilmington and we'll see how good of a golfer you really are,” Terry added.

“I only impersonate a golfer,” Joe said with a smile. “I'd rather we go fishing.”

“I'll tell you what. That's going to happen.”

“Good. Thanks for lunch. Let's go to work.”