Ray Wenk Sr.'s molding company, Matrix IV Inc., was forced to lay off two-thirds of its workers after StyleMaster Inc. filed for Chapter 11 bankruptcy protection in March. Now Wenk has filed a fraud and racketeering lawsuit against Martha Williams and two other executives of the Chicago housewares maker.
Matrix filed suit Aug. 7 in U.S. District Court in Chicago, under the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, alleging fraud and breach of a personal guarantee.
Wenk charges that Williams, William Bailes and Michael DePaul abused StyleMaster's suppliers to get bank loans and build a huge new plant on Chicago's South Side. Williams founded StyleMaster in 1991, and Bailes and DePaul became partners in 1997.
Wenk accuses the three of ``fraudulently inducing and extorting credit from Matrix and other suppliers'' to keep the plastic buckets, laundry baskets, storage boxes and other products flowing as they failed to disclose severe financial problems. When StyleMaster filed for bankruptcy, the trio also tried unsuccessfully to grab back molds held under a lien by Matrix to secure the debts, according to Wenk.
The suit marks the latest chapter in the bad-blood relationship between Wenk, a blunt-spoken, 66-year-old plastics veteran who owns Matrix, and StyleMaster, run by Williams, who is well-known in Chicago as a black businesswoman who rose from the shop floor to owning her own company.
``The mistake they made is trying to become Rubbermaid overnight,'' Wenk said in a telephone interview. ``They didn't have the financial backing to do it. They tried to do it on the backs of their suppliers.''
Williams continues to blame her financial woes on the January bankruptcy filing by Kmart Corp., her largest customer.
``Had the Kmart filing never happened, all of these things never would have happened,'' she said. ``It's a very, very unfortunate thing and I appreciate that Mr. Wenk is very, very upset over this whole thing, but truly this is something we had no control over.''
Kmart accounted for more than $14 million of StyleMaster's 2001 sales of about $28 million.
However, in his lawsuit, Wenk said Williams was threatening suppliers as far back as 1996 that unless they extended her credit and continued molding, she would have to shut down StyleMaster - and then they would get nothing. Those alleged threats, along with conspiracy, mail fraud and extortion, are the basis for the RICO portion of the suit.
Williams, contacted Aug. 13, called the suit ``a lot of false accusations'' and said, ``We're going to vigorously contest it.'' She said Matrix raised some of the same issues in bankruptcy court, but the judge rejected the claims. ``That motion they filed was found to be frivolous without merit,'' she said.
Bailes and DePaul did not return a telephone call seeking comment. Bailes and Williams now head a new company, J.R. Plastics LLC, that bought most of StyleMaster's assets at a bankruptcy auction April 19. DePaul no longer is involved with the housewares maker, said David Kendall, a Chicago lawyer who represents both men. Kendall, Bailes and DePaul did not have any immediate comment about the Matrix lawsuit.
After StyleMaster filed March 18 for Chapter 11 protection, Matrix was stuck with a bill for $7.2 million, on top of another $3 million Wenk said it spent to expand manufacturing and buy equipment to meet StyleMaster's production demands. Wenk laid off more than 100 employees, and closed down a factory in Huntley, Ill. Now 47 people work at the Matrix factory in Woodstock, Ill., which is only running about eight of its 36 injection presses.
Matrix turned away some other customers to mold for StyleMaster. ``We're working very hard to regain work,'' he said.
Wenk continues to hold key StyleMaster molds.
A company's distrust turns into bitterness
The federal suit details a stormy, seven-year relationship between a custom molder and its major customer.
Matrix began molding for StyleMaster in 1995. Early on, the housewares company ``experienced difficulties and/or failed to make full and timely payments,'' according to the suit. In 1996, Wenk said, he told Williams that Matrix no longer would ship goods for StyleMaster to hold in inventory. From then on, the companies agreed, Matrix would ship goods only to fill actual orders from StyleMaster's retail customers, according to the suit.
Things deteriorated in 1997, when Matrix refused to continue molding for StyleMaster unless it got paid for overdue invoices. Matrix reaffirmed its mold liens, and said any continuation of the business relationship was conditional on acknowledgement by StyleMaster and Williams that Matrix's liens were superior to any subsequent liens. According to the lawsuit, they agreed.
Later that year Williams brought in Bailes and DePaul as new partners. They obtained a line of credit from American National Bank and Trust Co., putting up collateral including some items at supplier Paramount Plastics Inc. of Lockport, Ill. - but not including Matrix.
By 1998, Williams, DePaul and Bailes were looking for a new building. They formed Gateway Park LLC and invested about $28 million in a 660,000-square-foot factory on reclaimed land. It opened with great fanfare in mid-2001, as Mayor Richard Daley gave a speech at a ribbon-cutting ceremony.
The company said it would create hundreds of jobs and bring manufacturing back in-house.
But the lawsuit said that the defendants knew StyleMaster's costs would increase dramatically with its big, new factory, and that by early 2001 they ``knew or should have known that StyleMaster could not financially survive and repay its debts after moving into the ... facility.''
In 2000, Matrix opened a new plant in Huntley exclusively to mold for StyleMaster. Meanwhile, Matrix and other suppliers continued to provide credit and do molding, as Williams and Bailes told them StyleMaster would confine its manufacturing to ``new products that required very large and expensive molds and presses not previously used by Matrix or StyleMaster,'' the suit said. Those are defined as ``new goods.''
Williams repeatedly assured Wenk that Matrix would remain a partner, and would continue to supply StyleMaster's existing line, defined as ``traditional goods.'' But that was untrue, the suit charges, claiming that Williams ``decided to go into direct competition with Matrix and other suppliers'' by manufacturing both new goods and traditional goods in the new factory.
Williams, in response, denied she misled Matrix. ``Those things aren't true,'' she said. ``The intent was, they would continue to be a molder.''
The lawsuit lists several ``schemes'' that were ``secretly embarked upon'' by StyleMaster ``to illegally and fraudulently induce and extort'' suppliers into ``funding StyleMaster's transformation into a manufacturer of all sizes and types of goods.''
One alleged plan was to build a large inventory at StyleMaster to increase the size of loans from American National Bank and allow the company to supply a full array of goods before it launched full production at the new Chicago factory.
Williams denied those charges. ``That's not true, and all of those things will come out in court,'' she said. ``Nothing changed from our normal course of business that we've done over the years.''
But the Matrix lawsuit tells a different story. In the summer of 2001, it said, StyleMaster ordered nearly half a million dollars' worth of canister sets, mixing bowls, pails and other traditional goods. Over the previous five years, the company had ordered only about $50,000 worth of those items, the suit said.
The big orders also were out of the ordinary because they called for expedited delivery. That meant Matrix had to dedicate a large chunk of production to the job, working 24 hours a day, seven days a week.
According to the lawsuit, when Matrix questioned the orders, Williams and StyleMaster employee Anil Kumar told Matrix that the products were to fill ``urgent and bona fide orders'' from retail customers, including Kmart.
More large orders followed, with delivery dates no later than Dec. 15, 2001. The suit alleges that in December 2001, the month before Kmart's Chapter 11 bankruptcy filing, Kmart canceled most of its outstanding orders with StyleMaster. But according to the suit, on Jan. 3, 2002, Williams directed Kumar to call Wenk, saying that Kmart was requiring StyleMaster to fill all its outstanding 2001 orders as soon as possible. Matrix was to continue working around the clock on the jobs.
Wenk claims StyleMaster never mentioned that Kmart had canceled its orders.
On Jan. 10 and 21, StyleMaster ordered $2.8 million worth of molding work from Matrix. Wenk's lawsuit says the defendants knew, or should have known, that Kmart would file for bankruptcy, but kept ordering the goods without paying, to build inventory.
StyleMaster had about $4 million worth of Matrix-molded goods in its inventory Jan. 29, according to the suit. In March, when StyleMaster filed for Chapter 11, it owed Matrix $7.2 million.
During the bankruptcy proceedings, Matrix tried unsuccessfully to block an auction sale of StyleMaster.
Fight for mold liens
Wenk said his fight is part of a larger industry issue - the importance of liens to protect molders from getting stiffed.
``Without the lien, the custom molding industry would have no leverage,'' he said.
So far, Matrix successfully has held onto the molds. But American National Bank has filed a lawsuit in bankruptcy court trying to assert its own lien and seize the molds as collateral.
Matrix claims the molds it controls account for 80 percent of StyleMaster's ``traditional products.'' How much actual leverage that gives Matrix is open to question, however, because Williams said the company has built replacement molds. She said parts are being molded at StyleMaster's plant and by two suppliers - Duraco Products Inc. of Streamwood, Ill., and CD Concepts Inc. of Elgin, Ill., which is doing a small amount of molding.
``We've built other molds. We're moving forward,'' Williams said.
John Licht, Duraco's president and chief executive officer, confirmed he continues to mold for Williams. A spokesman for CD Concepts also confirmed the company is supplying StyleMaster.
The lawsuit claims that Williams tried to get around the Matrix lien and take molds for her new South Side operation. Wenk said he agreed to release two molds so StyleMaster could try out its new presses. But he refused to give up another mold, which a StyleMaster employee said was going to Chicago Mold and Engineering Co. in St. Charles, Ill., to fix a problem with a latch feature. Wenk contended that Matrix could fix the mold itself, and again demanded payment.
After that effort failed, the defendants tried to get around Matrix's liens by other means, the lawsuit said. They changed the 1997 loan document to grant American National Bank a security interest in all of StyleMaster's property, ``wherever located.'' Matrix claims Williams told the bank she wanted to give it superior, first liens on molds held by Matrix and others.
Wenk said StyleMaster never told Matrix about the change - which the suit said was ``made with the intent to deceive'' to keep Matrix molding and extending credit.
A lawyer for American National Bank, Steven Towbin, said it is not unusual to change terms of loan agreements. The StyleMaster loan was amended a total of seven times, for a number of reasons, he said.
The lawsuit includes a section about Paramount Plastics, saying that molder suffered the same wrongs as did Matrix at the hands of StyleMaster.
Paramount did get stung for $1.25 million by StyleMaster's bankruptcy. But Gregory Jordan, Paramount's lawyer in Chicago, said he and company officials were not aware of the Matrix suit.
``We're not involved in litigation with Martha Williams and StyleMaster,'' Jordan said.