Men At Some Time Are Masters Of Their Fates; The Fault, Dear Brutus, Is Not In Our Stars, But In Ourselves
Credit Decisions, Honorable Men And Quaker City Produce
Jim Prevor’s Perishable Pundit, November 12, 2015
When the Pundit’s family sold its produce company to a large publicly traded British-based company, an immediate impact was that the industry tightened up on our credit. This was not because of a change in financial situation; it was because, even though there was a corporate entity, people felt they had been trading with a Prevor and, for generations, the Prevors had paid their bills and kept their word.
With the new owners, they just didn’t know who to trust or not to trust. One is reminded of the famous exchange -- one of the most famous exchanges in the history of finance -- when J.P. Morgan gave testimony before a House committee that was investigating the complex financial structure of the percolating industrial economy that was the United States.
The questions were asked by Samuel Utermyer, an attorney well known for his toughness:
Untermyer: "Is not commercial credit based primarily upon money or property?"
Morgan: "No sir. The first thing is character."
Untermyer: "Before money or property?"
Morgan: "Before money or property or anything else. Money cannot buy it... because a man I do not trust could not get money from me on all the bonds in Christendom."
Jimmy Storey, owner of Quaker City Produce Co., and a man often referred to as one of the most important fathers of the new Philadelphia Wholesale Produce Market passed away on October 13, 2015.
The Prevor family went back a long way with the Storey family, and we have never heard anyone speak poorly of Jimmy Storey. People trusted him, and he was trustworthy; but he had also been sick for many years and, in some ways, his character, so respected, allowed the business to continue, even when it was not doing very well.
Yet the company closed soon after Jimmy’s death. And that was not surprising either. The same people who gave credit out of trust and respect for Jimmy, predictably, would decline to do so when their friend, the gentleman they knew and trusted, was gone.
We received a letter that raises many issues about credit, the PACA Trust, how to manage a business and much more:
I have been in the logistics business for over a decade now and consider myself pretty lucky as I have not had many customers go out on me or stick me on invoices. I have had one or two small ones over the past 12 years, but nothing really over $10k.
In the past year, however, I have found myself in a pretty precarious position with a customer and figured I would write about it. I don't want to see anyone else get caught in the same kind of mess or make the same mistakes that I have made.
I have no issue with admitting that I just got beat for $47k, and I have learned a very valuable lesson from it. I think these types of issues are commonplace in the industry, but there are not many people willing to admit they took a large loss because of credit decisions they had made and so most won’t want to talk about it. I knew when this happened to me that I wanted to write this letter, but was pressured by someone not to.
There were a few threats made that if I speak out it will destroy my business etc., but I don't see how keeping my mouth shut can help anyone.
This story starts years ago, as I had a customer in the Bronx that uses a Western vegetable broker in California to book his west coast loads. The customer had me call his produce broker, for his loads. I did the loads for several years when about five years ago, the broker started to also give us loads to Quaker City Produce as well as the ones going to the Bronx.
I was happy to get the loads as it was more business and who doesn't want that? I had met Jim Storey several times before this so I had no issue with taking the loads. Jimmy was a very nice guy and was very well known in the produce industry. I considered Jim a man of honor, so even if his credit was not great, I knew if he gave me his word he would make good on it.
The broker and my customer in the Bronx had both vouched for him so I saw no reason for concern. I also thought to myself: “Well if this produce broker is selling him, he will make sure that I get paid on these loads as well.”
I was wrong. It turns out that is not the case here at all. Thinking that a produce broker is going to protect the truckers he is speaking with every day and dispatching the loads to is not correct. They have zero interest as to whether or not you get paid or at least this one did not. Maybe other produce brokers are different, but I have learned my lesson that my company’s well-being is of no consequence to him. I will get more into this later in the story.
I say Jimmy was a very nice guy as, unfortunately, Jimmy passed away a few weeks ago. Jimmy had been sick for years and his demise did not come out of the blue. I hold Jimmy in high regard and do not have a bad word to say about him.
To give you an idea of the business I did with this broker, in 2013 we did 40 loads to Philly and 60 to the Bronx. We did 35 percent of the loads in the first half of the year and 65 percent in the second half. This was for both the Bronx and for Philly.
In 2014 we did 41 loads to Philly and 55 to the Bronx with the same breakdown of 35 percent to 65 percent. The western veg was the only business I did for Quaker City, whereas for the Bronx customer, I also did about 40 Nogales loads each year.
Up until this point, I really never had an issue with either customer. In 2015 in the first three months of the year, I did 20 loads to Philly and was only given 3 loads to the Bronx customer. Every day we would ask for loads going to the Bronx customer, but would be told there was nothing. I know there was no issue with the Bronx customer as we did 20 or more Nogales loads during those 3 months but could not get the western veg.
I took a look at the books and by the 2nd week of March none of the invoices for the 2015 Quaker City loads were paid. I called Jimmy and asked him what was going on and he said he was a little behind and would get it paid off.
By the 3rd week of March I told Jimmy I could not extend him any more credit until this was paid way down. I also placed a call to to the produce broker and told them about the unpaid invoices. At this point things started to add up. Was this the reason I was given only Philly loads for the first three months of the year?
At this point, I was not going to carry any more loads to Philly but the produce broker was going to find someone else to do it. A large amount of the trucks that were hired after I stopped taking the loads were paid at delivery with the money that should have gone to me.
Checks started to slowly come in, but in June Quaker City still owed me for invoices from January. Jimmy would call me for the occasional truck and offered me COD, but I held tight and told him I could not do anything as I need to get paid first.
Jimmy made a commitment to send $8k every week until I was paid off. The checks came in and I was getting the total down.
I continued to put calls into the produce broker and I was now surprisingly able to get the Bronx loads that were unavailable to me in the first three months of the year. When on the phone, I would tell the produce broker that these invoices are from Feb and March and it is now almost August and I need to get paid.
Clearly Quaker City was using my money to run their company, and I was not very happy about this and told them as much as well as the produce broker. Basically what was being done was a Ponzi scheme. They were using my money to pay other vendors and telling me they cannot pay me.
What I still did not get was that the produce broker was still shipping them and getting paid. Their new invoices were getting paid while I sat there trying to collect on my very very old invoices.
I wonder, did the produce broker ever call the shippers and let them know in August that there were still unpaid trucking invoices from Feb and March. I would think that would be an obligation of the broker to do. They are having a shipper send produce into a place that was very delinquent on their bills. I can tell you I was never contacted by anyone about these very delinquent bills.
I am not sure if any of those shippers are out money now, but I am sure if they were told when they should have been that invoices were not getting paid, some of them might not have continued to ship to Quaker.
In the month of August, I got an email from Meg, Jim’s wife and partner in the business. She might not have been a partner, legally, but she was there working every day and knew the ins and outs of the business. Meg was the person who had control of the check book.
The email Meg sent me basically said to me that she knew Jimmy made a promise to me to send me 8k per week, but she is not sending it because she has to pay the vendors who are hauling and selling them now. I responded that I did not care about the current vendors and I needed to get paid for these invoices that are still overdue.
I was due about $59k at this point and was getting tired of the excuses. It was not easy to get Jimmy on the phone at this time, as he was not feeling well, and he shared an email with his wife and she would answer his cell phone. On the email I asked to have Jimmy call me and she responded she will not.
Fortunately for me, Jimmy felt my response to his wife, saying I did not give a damn about the current vendors, was insulting, and he gave me a call. I said “Jimmy, I need my money and cannot be told that you are paying current bills and not mine.”
He told me a check would go out this week and I said, ‘Jimmy you need to understand that your health is not great and if you die, I can see it is very obvious to me that I will not get paid by Meg.’
Jimmy's response was, “If I die, you will all be rich. Lance, you will get paid with proceeds from my life insurance.” I said. “Jimmy, I don't think I will see a dime of the money and I will be screwed.”
Jimmy took that as an insult on his wife and said "You have my word there is no way you will not be paid in full. Every one of your invoices will be paid.” What more could I do but say “Ok Jimmy.”
I know that Jimmy believed that, but I knew he could not control things from beyond the grave. I could not say that to him as he was a proud man, and I did not want to say to him that if you die, your family is not going to have the sense of moral obligation to pay everyone that you have.
I called the Bronx customer and told him about my situation, as he and Jimmy are best friends. His response to me was it is terrible about Jimmy’s health and how sick he is. My response was yes it is and it is terrible that my children's college fund is being taken.
He said to me, “Don't worry you will get paid in full.” I said, “Great well I did not agree to loan your friend at Quaker City money. Maybe you want to lend him $50k and have him pay me off and then you can collect if from him if you are so sure that I am going to get paid no matter what.”
The next week a check for $6,300 showed up and brought him down to $53k. I called the next week to find out about my check and was told Jimmy was in the hospital, and they will let me know later in the week what will be going out.
Over the next four weeks I received no checks. Not a single one, and Jimmy was not in any condition to speak and I knew Meg was not going to send any money. I spoke to Jimmy's son Peter via text which I still have. Peter told me a check will go out and to just stick with him.
He said he would get with Meg and a check would go out every week from now on. I kept texting him next week saying what is the check number that is going out, and every day he was either out of the office or he was picking up his daughter and the check was going out but he did not have a check number. Of course no check ever went out.
On October 13th, I read that Jimmy had passed away. I sent my condolences to Meg and to Peter and asked where I can make a donation. I know it is kind of funny, I am asking for info to make a donation from the people who are running me in circles, but I was taught that two wrongs don't make a right.
On October 19th, I received a check for $6,300, bringing them down to $47k. I never got a check again. On the 21st, Peter said he would tell me what check was going out via text and no check came. On Oct 26th, I was told by Peter that he and Meg would have the info by the next day on what check will go out.
On Tuesday he said he was sending a check. On Wednesday I read that they were going to close the doors by week’s end while they were still telling me that morning that the check was being sent. Now that they are closing, I understand they have just $300k in receivables and God knows how much in payables that they owe out.
Here is the best part. The PACA trust will protect all the shippers, so basically all the shippers who shipped to them for the past month or so will get paid, while I get paid zero for my invoices that are 8 months old. Obviously that is not fair.
Aside from losing money, there are several other things that are bothersome about this story. Why was the produce broker only pumping Quaker City loads to me in the first three months of the year? I know they had New York loads and I know they could have given them to me. It seems they wanted to just pump me up with bad debt.
Why were the shippers never notified that the freight bills for loads from 6-8 months ago were not paid. If they were, they absolutely would not have shipped these loads anymore. Clearly the produce broker was more interested in the 25 cents per box they make on the loads going out than making sure that the people they are putting at risk get paid.
As a business owner, I know that if my company makes money I make money, and if my company does not make money I cannot take any. I would love when I would call and see if my check was going out on a Thursday and Meg and Jimmy were gone for the weekend to go down to the shore.
I wanted to scream. I wanted to say. “Meg, the money that paid for your vacations that you took out of Quaker City and paid yourself was not your money. That was my children’s college fund” If you are not making money, it is not right for you to take money. You are moving money from company money to personal money, and it is just not right to do that when there are bills outstanding that your company cannot pay.
I really believe that, had he lived, Jimmy Storey would have found a way to pay his bills in full. It was a matter of honor to him. But I am waiting now, seeing if anyone in his family cares enough to honor his legacy by protecting the values that were important to him, like honoring his word and paying his bills in full. There were a lot of people who stuck their neck out to help this great man. Is there anyone who will honor Jimmy’s desires to have those people repaid? Maybe there is a big insurance policy, but I see few indications that anyone is rushing to help the people who helped Jimmy. That is a terrible shame.
Bronx, New York
Mr. Dichter is angry and feels cheated. We sympathize with his plight, but if we take away the emotions and look at this story in a dispassionate business sense, we have to ask: with 20/20 hindsight, if someone else were to confront this situation, how could they approach it differently?
The gist of his story is that he extended credit based on an individual’s character:
“I had Met Jim Story several times before this so I had no issue with taking the loads. Jimmy was a very nice guy and was very well known in the produce industry. I considered Jim a man of honor so even if his credit was not great I knew if he gave me his word he would make good on it.”
Yet he was not selling to the individual. He was selling to a company. He neither asked for nor received a personal guarantee.
He also relied on third parties:
“The produce broker and my customer in the Bronx had both vouched for him so I saw no reason for concern. I also thought to myself: “Well if this produce broker is selling him, he will make sure that I get paid on these loads as well.”
I was wrong. It turns out that is not the case here at all. Thinking that a produce broker is going to protect the truckers he is speaking with every day and dispatching the loads to is not correct. They have zero interest as to whether or not you get paid or at least this one did not. Maybe other produce brokers are different but I have learned my lesson that my company’s well-being is of no consequence to him.”
We obviously can’t know the state of mind of this broker, but Mr. Dichter gives no reason for us to believe the broker was indifferent to others. After all, isn’t it possible that the broker also believed in Jimmy Storey and that he would ultimately pay?
Mr. Dichter seemed to run his business in a casual way:
“I took a look at the books and by the 2nd week of March none of the invoices for the 2015 Quaker City loads were paid. I called Jimmy and asked him what was going on and he said he was a little behind and would get it paid off.”
What happened when the invoices hit 30 days or exceeded his credit limit? Did he even have a credit limit?
One wonders if Mr. Dichter developed the best strategy for dealing with this situation.
“At this point I was not going to carry any more loads to Philly but the produce broker was going to find someone else to do it. A large amount of the trucks that were hired after I stopped taking the loads were paid at delivery with the money that should have gone to me.”
This strikes us as completely predictable. Wouldn’t it have been a better strategy to accept the difficulty of the present position and negotiate an arrangement whereby one keeps the business while also getting paid down on the old debt?
Once the Pundit’s family business was exporting to a customer in Bermuda, and we let the credit get a bit out of hand. If we had simply demanded payment and said we wouldn’t sell him until we were paid, we would have forced him to give his business elsewhere, probably on a cash basis.
So the Pundit Poppa said that we should keep shipping, that we should be the ones that got paid in advance and, we negotiated to add an extra $.50 on every box to pay down the old debt. It wasn’t very long that our cash flow was better than if we had just given 30 days credit.
Then Mr. Dichter decries the impact on his claim of the PACA Trust:
“Here is the best part. The PACA Trust will protect all the shippers so basically all the shippers who shipped to them for the past month or so will get paid while I get paid zero for my invoices that are 8 months old. Obviously that is not fair.”
Now on the substance of the PACA Trust, Mr. Dichter is exactly correct. It is enormously unfair to non-covered vendors. If a company starts up and buys a load of produce for $20,000 and contracts with a trucker to haul the produce for $20,000, then sells the load for $20,000 and goes out of business, assuming there are no other expenses, the produce vendor will get paid 100% on the dollar and the trucker will get zero.
This certainly denies the common perception of fairness and, in fact, is different from what normal bankruptcy law would require. If the product was a load of chairs instead of produce, and the numbers the same, both the chair manufacturer and the trucker would get 50% on the dollar. So the law has been written specifically to favor produce vendors over others.
This may be unfair, but it is not unexpected. The PACA Trust is a law of long-standing and, presumably, Mr. Dichter considered its impact carefully in deciding to extend credit. When the PACA Trust was first proposed, it was opposed by many wholesalers specifically because it was believed it could make it more difficult for wholesalers to get credit!
Mr. Dichter also makes a strong personal attack on Jimmy Storey’s family and presents his theory about taking salaries, etc., from a company:
“As a business owner, I know that if my company makes money I make money, and if my company does not make money I cannot take any I would love when I would call and see if my check was going out on a Thursday, and Meg and Jimmy were gone for the weekend to go down to the shore.
I wanted to scream. I wanted to say. “Meg, the money that paid for your vacations that you took out of Quaker City and paid yourself was not your money. That was my children’s college fund” If you are not making money, it is not right for you to take money. You are moving money from company money to personal money, and it is just not right to do that when there are bills outstanding that your company cannot pay.”
The problem with this is that, as a matter of law, Mr. Dichter is incorrect. Of course, the owners cannot take excessive salaries or pay themselves dividends that would cause a company to become insolvent, but Mr. Dichter presents no evidence of this at all.
True, as a matter of practicality, a small sole proprietor, say a cobbler or tailor, without access to outside funds or any corporate reserves, cannot pay himself if he doesn’t make money.
It also true that when times are tough, prudent business people, looking to sustain their businesses and their business’s credit rating, often choose to reduce or eliminate their compensation. Bob Strube of Strube Celery & Vegetable Co. in Chicago, often wrote in Pundit sister publication, PRODUCE BUSINESS, of his elaborate program of reducing salaries and then eliminating salaries for family members if the business was not profitable.
And the Pundit, in consulting for various companies, has advised many who owned their buildings personally and rented them to their corporations to reduce the rent they charged their companies so as to maintain corporate profitability, Blue Book ratings and more — all with the long term goal of restoring the business to profitability.
But, although a willingness to work for free and sacrifice personally to support one’s company may be laudable, and certainly is helpful in helping a company during a start-up or turn-around phase, it is not always possible – after all not everyone has the reserves to do this.
It also is not required by law. So in evaluating the credit worthiness of a company, one has to assume that the company will have to pay reasonable salaries to its staff – family or not.
There is something in Mr. Dichter’s complaint that strikes a chord. For at base, it is a call to a different age and a time when people took their names more seriously and had a greater sense of shame. We confess that we were brought up to think that way.
But with society today, corporations and limited liability companies are specifically organized so that failure will not be so catastrophic. There are no debtor prisons. Indeed, one of the things that propels American enterprise is that we accept failure… failure is part of what makes our economy dynamic and entrepreneurial. And, on balance, that probably creates a better society.
What the end of the Quaker City saga will be, we do not know. Maybe there is a big life insurance policy and Mr. Dichter will be paid, maybe not.
We would caution him, or anyone, from hypothesizing about people’s thoughts and morals. What Jimmy’s family will do is still unknown, and what resources they have to work with also are unknown.
The truth is that Mr. Dichter may actually be in worse condition than he thinks. Very often, if a company files for bankruptcy, efforts are made to pull back preferential distributions. Cash-in-advance terms are generally exempt, but if Jimmy was trying to pay off the bills to his old friend, while leaving other bills unpaid, the Court may yet ask for the money back.
Of course, it is also sometimes possible that other parties in the supply chain may be liable for the freight even if the consignee was supposed to pay it. In Excel Transportation Services, Inc. v. CSX Lines, LLC, the court declared: “the bedrock of rule of carriage cases is that, absent malfeasance, the carrier gets paid.”
Throughout the long story that Mr. Dichter tells, we keep thinking he needs a good lawyer to guide him as to how to make credit decisions and, now, how to enforce his rights.
But we also think he needs to pull back. Does he really begrudge a dying man a weekend at the shore with his family? Does he really want to attack a grieving spouse and son? Surely Jimmy would not have wanted that.
There are courts to resolve these issues, so no personal attacks are necessary and it is doubtful that charging about, challenging people’s ethics, especially so soon after Jimmy’s death, will make people think better of Mr. Dichter.
Yet Mr. Dichter is right about one important thing. His story is filled with cautions for how to approach credit and business relations. Many thanks to Mr. Dichter for being brave enough to share his experience and his thoughts with the industry at large.