LOS ANGELES — Lawyers for two plastics processors are scheduled to square off soon in a Los Angeles Superior Court trial revolving around Paul Winkler.
Philip E. Kamins-led PMC Inc. and its Winkler Forming Inc. subsidiary contend that Winkler and his associates competed unfairly, misappropriated trade secrets, perpetrated a con- spiracy and took other illegal actions in establishing a competing bus-iness in 1998 to process amorphous PET for food containers. The case was filed in June 1998 in Los Angeles.
Winkler's venture-capital backers tell a different story. Pioneer Private Equity Fund LLC shareholders Neil Kadisha, his brother-in-law Benjamin Nazarian and others invested in the new business and, for now, also are defendants in the case.
"One company is trying to prevent another competitor from coming to life," Kadisha said in a telephone interview. Kadisha also is president and chief executive officer of Stadco Inc., parent company to plastics machinery supplier HPM Corp.
Longtime machinery supplier Frank Nissel characterized the involvement of Kamins and Kadisha as "two giants fighting among each other."
Nissel, president of extrusion machinery maker Welex Inc. of Blue Bell, Pa., said he knows Winkler as a longtime friend who "has invented some wonderful things," but 72-year-old Winkler finds himself in the middle of a highly stressful fight now.
Kadisha said he has "no animosity with Kamins."
"I am not in a fight with anybody," Kadisha said.
On June 13, Judge Joseph Kalin was assigned to hear the jury trial.
Public filings in the case fill more than six boxes, and lawyers have indicated they may need more than three months to complete the trial. The PMC team lists 73 people as possible plaintiff witnesses.
Paul Winkler had practiced as a certified public accountant for 12 years before following his brother, Morris Winkler, into the plastics processing industry. Beginning in 1974 the brothers, with others, successively owned processors Winkler Products making plastic cutlery and straws, Wincup Inc. and Winform Inc.
About 1989, Winform gravitated into the early stages of using APET, then a challenging new packaging material.
Newell Corp. acquired Winform in 1991, but then experienced difficulties with the manufacturing processes. The new owner recalled Paul Winkler in mid-1993 to resurrect the business and make it suitable for sale.
In October 1993, PMC of Sun Valley, Calif. — with Kamins at the helm as chairman and CEO — acquired the Winform assets for $2.8 million and inventory for $515,000. PMC then hired Paul Winkler as president to expand the Sante Fe Springs, Calif., extruder and thermoformer of food containers.
>From 1993 through June 1998, PMC invested as much as $30 million for equipment at the unit, which it called Winkler Forming Inc. Purchases included five extruders, nine thermoformers and trimming, cooling, refrigeration and tooling units. Over the years, Winkler Forming also developed proprietary insert and mold technology, and highly specialized thermoforming techniques.
Meanwhile, according to court documents, Paul Winkler was looking for a way to buy back Winkler Forming.
According to a court filing, Paul Winkler contacted Jack T. Zeitman, president of General Acceptance Capital Corp. of Phoenix, in February 1997 to help arrange financing for a proposed management-led buyout of Winkler Forming. Welex's Nissel referred Paul Winkler to Zeitman.
About the same time, according to the records, Paul Winkler suggested to PMC management that PMC sell Winkler Forming, and he introduced Zeitman as the pro- spective buyer.
PMC declined a "low-ball" offer of $27 million, according to court records.
In mid-1997, Paul Winkler and his management team made a second concealed effort to buy Winkler Forming, court records allege.
June 1998 was a turning point.
Venture capital firm Code, Hennessy & Simmons LLC of Chicago offered to buy Winkler Forming from PMC for $58 million, but withdrew the offer in the face of actions taken by Paul Winkler and his group, the suit contends.
Paul Winkler left the business in early June, and six other managers, including sons Christopher and Colin Winkler resigned during the last week of the month. Winkler Forming's tooling department quit July 2.
About a month later, on July 28, 1998, a new entity, Paul Winkler Plastics Corp., obtained a Buena Park, Calif., business license and took space less than eight miles from Winkler Forming.
The lawsuit contends that Paul Winkler and associates began assembling the elements for their new business while still owing allegiance to PMC and Winkler Forming.
PMC knew enough about the alleged plan to retain the high-profile Los Angeles law firm of Christensen Miller Fink Jacobs Glaser Weil & Shapiro LLP, which filed suit June 30, 1998, against seven former employees and others.
Defendants and their former titles included Paul Winkler, president; Christopher Winkler, sales director; Colin Winkler, director of purchasing and scheduling; Craig Sneeden, vice president of sales; James Longstreth, vice president of manufacturing; Dean Brown, tooling department manager; and John Bussey, head of management information systems.
Sneeden later was dismissed as a defendant.
In seeking financial backing, Paul Winkler Plastics came to the attention of Kadisha and affiliated venture capital investors. The investors relied on the statements of employees and consultants that "there is no proprietary information here," Kadisha said.
"Paul Winkler was a partner or shareholder in Winkler Forming, and for different reasons he and the majority shareholder [Kamins] decided to part," Kadisha explained.
Kadisha said the plaintiffs have "tried everything to get an injunction against Paul Winkler Plastics, [but] to date, no injunction has been issued."
An index in the court records lists hundreds of categories of allegedly purloined property, including product-customized mold and insert specifications, customer lists and pricing-cost data.
According to the court records, the plaintiffs say officials of Paul Winkler Plastics made duplicate molds from Winkler Forming, and secretly moved property off-site. The property subsequently was returned, and a judge ordered Paul Winkler Plastics not to make use of the information.
Kadisha paraphrased Paul Winkler's position: "What is known I carry with me, and if any disk was carried away, it was by mistake."
Kadisha and the other investors incorporated Pioneer Private Equity Fund and, in November 1998, infused $1.25 million into Paul Winkler Plastics, gaining 50 percent ownership and three board seats.
PPEF invested another $1.6 million in April 1999 and, by that time, had installed associate Ira Maroofian as president, CEO and chief financial officer and Nazarian as chairman, according to court filings.
Maroofian succeeded Paul Winkler as head of the business during a period when Winkler was having heart problems, Kadisha said.
Now, Paul Winkler runs the business as chairman, and Maroofian is president.
In March 1999, PMC added PPEF, Kadisha, Maroofian, Benjamin Nazarian and Parvis Nazarian as defendants in the Los Angeles litigation, and has resisted their efforts to sever themselves from the suit.
Parvis Nazarian is the father of Benjamin Nazarian and father-in-law of Kadisha.
"Because we invest and have deep pockets, they sue us," Kadisha said.
The PPEF defendants believe they cannot be held accountable for actions before their investment in the new business.
In April, those defendants asked the California Supreme Court to review an appeals court ruling keeping them in the litigation.
Kadisha said he finds unconscionable the concept of suing an investor "who came in after the fact" and did his best to make sure the investment was free of trade secrets.
"If that be the case, nobody would be in venture capital. Everybody could be sued."
He added, "The whole investment community is in a panic" about the potential implications of the legal issue.
Ongoing APET business
The Winkler brothers compete directly now. Morris Winkler is president of PMC's Winkler Forming, and Paul Winkler is chairman of PPEF's Paul Winkler Plastics, now identified simply as PWP. Both use APET exclusively.
PWP started with one Welex sheet extrusion line, then added an extrusion line from Mount Gilead, Ohio-based HPM. PWP also operates five thermoforming machines, Kadisha said.
"PWP is approaching the size of Winkler Forming," Kadisha said, characterizing PPEF's total investment as "approaching several million dollars."
While the trial opponents won't negotiate, their legal bills mount.
"There is an obscene amount of money spent on legal fees, and it would make any sane businessman sick to his stomach that so much effort has gone into a legal fight," Kadisha said.