More than one year after Stopol Inc. handled the asset auction of housewares molder Cornerstone Products Inc. in Durant, Okla., the two firms are battling in court over terms of the sale.
Cornerstone is suing Stopol Inc. of Solon, Ohio, and its Stopol Auctions LLC unit, in U.S. Bankruptcy Court in Sherman, Texas, for $1.4 million, a figure that includes damages, lawyers' fees, court costs and other relief as determined by the court, according to court documents.
``It's very, very early in the discovery,'' Cornerstone's lawyer David Parham said in a May 25 phone interview. ``If it doesn't get resolved, it would be tried next year.''
Cornerstone agreed in late 2005 to liquidate its assets under a Chapter 11 bankruptcy filing and hired Stopol to handle the auction.
Part of the current dispute centers around Cornerstone's allegation that Stopol made $1.04 million in ``secret profits'' from their relationship. Cornerstone alleges Stopol bought some Cornerstone equipment and resold it through prearranged transactions that it kept secret from Cornerstone and the bankruptcy court.
Stopol's lawyer Marv Karp said Stopol will fight the allegations.
``We will argue, when it comes to trial, that there's no liability at all,'' he said. ``Everyone knew that we were going to buy these items to resell.''
Karp said Cornerstone's allegation that Stopol made just over $1 million in secret profit is totally wrong. By Stopol's account, pre-sale of the larger machines was part of the agreement before the actual auction Feb. 8, 2006, at Cornerstone's site in Durant, Okla.
Stopol said Cornerstone management wanted Stopol to step in and purchase the equipment. Stopol did just that, spending $3.5 million and making Stopol the largest purchaser of Cornerstone's assets. Those purchases occurred before the auction.
Cornerstone in court documents said Stopol bought equipment from Cornerstone that ``Stopol claimed it could not sell for Cornerstone,'' even though it had purchase orders for some of the machines.
Cornerstone said neither the bankruptcy court nor Cornerstone was made aware of the purchase orders because Stopol required the buyers to maintain secrecy.
``The buyers could not disclose who they were,'' Cornerstone officials said in court documents. ``They could not disclose that they were buying a piece of equipment. They could not even contact Cornerstone.''
But Karp said the sales all had to be negotiated before the auction date, and Stopol had to get permission from lien holders. Stopol Chief Executive Officer Neil Kruschke got the consent of not only Cornerstone Chief Executive Officer Reginald Sullivan, but also written consent from mortgage holders, according to Karp.
``These agreements had all been negotiated before the auction date,'' he added.
Another area of disagreement is a so-called ``buyer's premium.'' The contract stipulated a 5 percent commission for Stopol, which would have been a little more than $111,000.
Cornerstone alleges that Stopol charged an additional 10 percent buyer's premium for items sold at auction. That totaled about $271,000.
``Cornerstone was not expecting the buyer's premium,'' Cornerstone's court documents read. ``Kruschke only informed Cornerstone of the buyer's premium mere days before the auction.''
Karp said that charge normally is part of the auction process.
``This one was no different,'' he said. ``There was a factual dispute between [Kruschke and Sullivan] as to when Sullivan knew that it was Stopol's intent to charge a buyer's premium at this particular auction.''
However, Karp said, since the buyer's premium was not spelled out in the contract before the bankruptcy court, Stopol has paid back that amount.