CLEVELAND (May 18, 2:15 p.m. ET) — An investor lawsuit centers on this question: What caused financial problems that led to the sale of Wisconsin pallet thermoformer TriEnda LLC a year ago?
Was it “reckless self-dealing” by Curtis Zamec to secretly refinance the business, and then use the money to buy back shares he had transferred to a trust held by his seriously ill wife?
Or was it the loss of a major customer, which TriEnda had expected to generate up to $1.2 billion in sales over five years?
The arguments are part of a civil lawsuit filed against Zamec by investment firms owned by machinery dealer Donald Kruschke and his late brother, Neil Kruschke Jr.
The legal fight pits some of the thermoforming industry's best-known people: Zamec was the 2007 Society of Plastics Engineers Thermoformer of the Year. Donald Kruschke is president and CEO of Plastics Machinery Group in Solon, Ohio, and his late brother, Neil Kruschke Jr., was former owner and CEO of machinery dealer Stopol Inc.
The Kruschke brothers, through entities set up for the investment, Plastic Pallet LLC and Centurion Pallet LLC, filed the lawsuit charging Zamec with breach of contract Dec. 20 in Cuyahoga County Common Pleas Court in Cleveland. Zamec filed his answer Feb. 21.
Sheet extruder Primex Plastics Corp. also filed suit against Zamec and TriEnda on May 9 in the same court. Using much of the same wording as the Kruschkes' suit, Primex claims TriEnda owes the sheet supplier $2.6 million.
The Kruschke lawsuit spells out the history of TriEnda and the ultimate sale of its assets to Spara LLC, a Lexington, Ky.-based manufacturing group, in mid-2011.
Throughout his career, Zamec has been known as a deal maker. He was chairman, president and CEO of Wilbert Inc. when it purchased the thermoforming operations of Alltrista Corp. in 2001. The acquired business included Triangle Plastics Inc., which itself owned TriEnda.
In December 2007, just weeks after he won the prestigious Thermoformer of the Year award, Zamec bought TriEnda from Wilbert.
When he bought TriEnda, Zamec approached Neil and Don Kruschke saying he had a business opportunity to manufacture plastic pallets. They made a deal and Zamec owned 64 percent of TriEnda, while the Kruschkes owned 36 percent, according to court documents.
“Curt Zamec was a 15-year friend that my brother and I gave full, 100 percent trust. We even looked up to him as a father figure, a second father in our life,” Don Kruschke said in a May 11 telephone interview.
In 2008, TriEnda sales were $104.8 million, and the company earned a profit of $6.6 million. In 2009, the three owners talked about selling the company.
The Kruschke lawsuit said Zamec told them he wanted to sell so he could use the proceeds to make a distribution to the trust of his wife, Nancy — a claim Zamec denies.
The lawsuit says Nancy Zamec became seriously ill, and Zamec, without the knowledge of the Kruschkes, transferred one- half of his ownership, or 32 percent, into her trust. She died in May 2009.
Don Kruschke said the brothers only found out about the ownership transfer, refinancing and financial problems when their lawyers dug it out of financial records — not from Zamec, their business partner.
Kruschke said he felt betrayed.
“That's what's most disturbing and stressing is just how much he took advantage of us and our trust. And how he was so selfish for only his gain — is absolutely mind-boggling. I could never imagine somebody doing this to another human being.”
Neil Kruschke died last summer in a chain-saw accident at his vacation home near Marquette, Mich. His wife, Pamela Kruschke, now controls his interest in the Plastic Pallet investment firm.
In court papers, Zamec repeatedly argues that the operating agreement allowed him to transfer half of his TriEnda ownership to his wife's trust and that he had no duty to inform other owners.
“Zamec was not trying to hide anything, nor did he have any obligation to share this information with other members of TriEnda [ownership],” he answers in court documents. Also, Zamec denies that the refinancing was done solely to secure the redemption from the trust.
The Kruschke lawsuit cites language in the agreement to make the exact opposite points.
Plastics News contacted one of Zamec's Madison, Wis., lawyers, Matthew Lynch, and he issued a statement saying Zamec “vehemently denies the allegations of wrongdoing.”
“Mr. Zamec's actions caused no harm to TriEnda. … The operating agreement allowed any member of the ownership (including the plaintiffs) to sell their interests back to the company.
“The redemption of shares held in the late Mrs. Zamec's trust occurred only after an appraisal of the company, and took place well before TriEnda's largest client [Schoeller Arca Systems] breached its obligations to the company. It was the failure of SAS to fulfill its contractual obligations, not any actions by Mr. Zamec, that caused TriEnda's financial difficulties,” the statement said.
Zamec blames TriEnda's woes on SAS, a Dutch shipping container giant, for refusing to pay more than $10 million in outstanding invoices and cutting off all new orders.
SAS generated 85 percent of TriEnda's sales, through a massive contract for more than 30 million thermoformed pallet top decks. The thermoformer “suffered a financial blow from which few companies could have recovered” when SAS pulled the business, according to his court response.
“It was this, not any refinancing by Mr. Zamec, that caused the financial troubles which led to TriEnda's demise,” Zamec argues in court documents.
Schoeller Arca Systems did not respond to questions from Plastics News.
But SAS was the linchpin of TriEnda under the new owners. According to court documents, TriEnda had signed a five-year contract in January 2008 to supply Schoeller Arca with pallet top-decks for iGPS Co. LLC, a major pallet pool operator.
Both sides in the lawsuit agree that it was one of the largest contracts in plastics history, although they differ slightly on the numbers.
The Kruschkes said it would have generated sales of about $1.2 billion; Zamec put it at $900 million to $1 billion.
In December 2010 TriEnda filed a breach-of-contract lawsuit against Schoeller Arca in Wisconsin Circuit Court in Portage, Wis. According to the Kruschkes' lawsuit, TriEnda won a judgment of about $7.8 million, although Zamec said the judge dismissed the case and directed the parties to go to arbitration.
Before TriEnda lost the SAS contract, Neil and Don Kruschke said they told Zamec they might be interested in buying the company, according to the lawsuit. Zamec denies that, in court papers.
According to the lawsuit, Zamec met with J.P. Morgan to discuss a refinancing — a point Zamec denies. According to the suit, J.P. Morgan declined to approve the financing, so Zamec went to William Blair & Co. That firm approved the credit.
Zamec had the company appraised, and secured new financing from Fifth Third Bank in December 2009. He used the money to redeem the ownership from his wife's trust for $6.93 million.
But the Kruschkes said the credit terms were not favorable, and in early 2010 TriEnda began to have difficulty servicing its debt.
“The redemption and refinancing left TriEnda in a weakened financial position,” the lawsuit said. The Kruschkes were not made aware that TriEnda paid out nearly $7 million to the trust, $1 million to investment bankers and other money for the appraisal.
In their suit, the Kruschkes are asking for at least $2.49 million, which is 36 percent of the total distribution to the trust.
Finally, in June 2011, Spara bought TriEnda from Fifth Third Bank in an Article 9 foreclosure sale. Spara continues to operate TriEnda's thermoforming plant in Portage, Wis. But a second TriEnda plant, in Marion, Ind., has closed. The Portage business has since been renamed Spara Logistics LLC.
The Kruschke lawsuit claims that just after the sale, Spara Logistics named Zamec chairman and president, allowing him to retain control of the business under the new name. Zamec denies that in court papers.
Spara declined to answer questions for this story. TriEnda's website says the company is now called TriEnda Lexington Logistics LLC, and Zamec is listed as a member of the executive staff.