Unbrotherly Feud Erupts When Winn Empire Falls

The end came hard for Ted Douglas Nelson. The day after he quit Knudsen Foods--the troubled dairy run by his family--his older brothers locked him out of his office and took away his company-owned Mercedes.

“Do you know what?” asks a wounded Nelson, 37. “My brother Dee kept his car.”

Just five days after Nelson lost his car last September, his family lost control of its corporation and most of its fortune. Knudsen, once the largest dairy in the West, ran out of money and filed for bankruptcy protection. (Knudsen continues to operate but is being sold off to pay creditors.)

It was a bitter end to an unusual partnership between Nelson and his twin half-brothers--Dee Roy and Lee Roy Bangerter. For more than a decade, they borrowed staggering amounts of money and eventually built a teetering giant called Winn Enterprises--named after their mother--with far-flung investments in real estate, banking and dairy products.

It made them rich. According to court documents, the brothers have two jets, an assortment of boats and spacious mansions in Orange County. By 1985, Dee Roy’s fortune alone was worth about $12.5 million, according to a court record.

Those heady days are over. Dee Roy has filed for personal bankruptcy protection. His Villa Park mansion, with such amenities as a racquetball court and tanning room, is up for sale for $2.9 million. Nelson pledged most of his personal fortune to guarantee bank loans to Knudsen and Winn Enterprises, both now in bankruptcy proceedings. Lee Roy’s personal financial situation has not been publicly disclosed.

Several Lawsuits

The wreckage of their empire is spread across the Southwest and has spawned several lawsuits from unhappy investors who lost money in business dealings with the brothers. The family is torn, and the Bangerters no longer talk to Nelson.

Now the brothers are fighting over what’s left of the family fortune--a troubled nursing home company founded by their mother called Care Enterprises. It is an angry struggle. On one side are the Bangerter twins, who run Care and sit on its board of directors. On the other side is Nelson, who has teamed with Dee Roy’s estranged wife in an effort to topple his brothers and take control of the company.

Dee Roy says the feud has deeply wounded his family. “It has turned my children against their mother and that’s wrong--totally wrong,” he says bitterly. He says his 17-year-old son is bothered by nightmares and his 16-year-old daughter refuses to speak with her mother, Janice B. Bangerter.

“Where does it end?” he asks, fighting back tears.

At one time, acquaintances say, the brothers were an ideal team. Nelson, who likes to wear cowboy boots and fat Western belt buckles with conservative suits, was the gunslinger, the one who charged ahead and made deals. The more conservative style of the Bangerter twins appeared to temper Nelson’s flamboyance.

They kept their disputes private. C. Eugene Hutchins, a real estate executive who worked closely with Nelson and Dee Roy, says he can’t remember a single disagreement between the brothers. “They were always united . . . they always supported each other,” he says.

Acquaintances privately nicknamed them Huey, Dewey and Louie after Donald Duck’s inseparable, look-alike nephews. Indeed, their kinship was remarkable since the brothers were separated while young children and didn’t get to know each other well until they were adults.

Weren’t Raised Together

The Bangerters, who are five years older than Nelson, grew up on their paternal grandparents’ Utah dairy farm after their father was killed in World War II. Nelson was raised by his mother in Southern California after she divorced his father.

There were visits--the twins spent summers in California and Nelson spent holidays in Utah--but the brothers didn’t become close.

Nonetheless, the three brothers seem alike in some ways. They all drove Mercedes cars. They are church-going Mormons with large families: Lee Roy Bangerter has seven children; Dee Roy Bangerter and Nelson each have six.

As they retell it now, the brothers acknowledge that their relationship was never as smooth as it appeared publicly during Winn Enterprises’ rise. Lee Roy frequently clashed with Nelson over business deals. Dee Roy was called on to cast the swing votes that got the brothers into real estate, banking and dairy products.

The twins say the brothers’ partnership worked initially because they abided by majority rule. It was a team in which “decisions were balanced by three personalities,” Lee Roy says.

But the Bangerter twins say the partnership started to unravel during the late 1970s when Nelson started investing its money without asking his brothers. The twins also say Nelson waged costly and unsuccessful takeover battles for such food companies as Kern Foods and Olson Egg Farms on his own. The Bangerters say Nelson also spent millions of dollars on what turned out to be money-losing real estate investments without consulting them first.

“Ted had no respect for how much money he was spending . . . he had no regard,” says Dee Roy. Much of the money was borrowed. “That is Ted: Leverage it all and throw the dice. He is high-risk oriented,” Lee Roy says. “But he doesn’t see himself that way.”

For his part, Nelson has declined to respond publicly to his brothers’ allegations because it would only make his family’s troubles worse. In general, he says, he and his brothers had “some great successes and one terrible disaster (Knudsen).”

Beginning of Rift

The final rift came in November, 1985. The Bangerters say Knudsen’s bankers pressed the brothers to put up collateral for an additional, $10-million loan to prop up the failing dairy. “I looked at it and Dee looked at it and the accountants looked at it and we said no,” says Lee Roy. Knudsen’s troubles grew mostly from its expensive acquisition of rival Foremost Dairies in June, 1985. Its cash flow wasn’t sufficient to cover its huge debt.

Dee Roy says, in fact, that he favored reorganizing the company under the protection of the bankruptcy court while there was still enough cash left in the troubled business to continue operations.

Nelson disagreed with his brothers. He thought Knudsen could be saved and pledged $5 million worth of his personal stock in Care Enterprises, the family nursing home firm, to secure the $10-million loan, which was enough for the banks to go ahead with it.

Dee Roy disagreed and resigned as Knudsen’s chairman. Nelson took his place. “That’s where the breakdown came,” says Lee Roy. “Ted shouldn’t have done (the loan),” knowing his brothers were opposed to it.

The twins believe that Nelson violated the majority-vote rule established by their mother to govern family business, and his failure to abide by that basic precept is at the root of the current fight.

The Bangerters agreed to discuss their relationship with Nelson only because they don’t think their side has been fully understood. Janice B. Bangerter didn’t respond to requests for an interview made through her lawyer and by telegram.

The fight for control of Care Enterprises, the last remaining significant element of their empire, ironically brings the saga full circle. It was at Laguna Hills-based Care, the nation’s fourth-largest nursing home company, that the brothers got their start.

Mother Purchased Firm

Nineteen years ago, their mother, Opal Winn, pooled her savings with money contributed by investors and bought a nursing home in Anaheim. The company she formed eventually became Care Enterprises.

Opal Winn (who uses her maiden name) invited her sons--the Bangerters were in college and Nelson in high school--to buy stock in the new company, and she used the money from her sons and other investors to buy more nursing homes. The Bangerters gave her $25,000, which they received from the government as heirs of a soldier who died in battle, for a share of the business. The twins repaired old and damaged mobile homes while attending Brigham Young University in Utah and sold them to buy even more stock. When Nelson got to BYU, he did the same.

Eventually the brothers bought out their mother’s other partners and the four--Winn, Nelson, and the Bangerters--became equal partners in Care Enterprises. Opal Winn says she insisted that her sons get licenses as nursing home administrators and serve a management stint in Care’s homes.

She says the brothers gravitated to the areas they liked best. Nelson and Dee Roy, who had worked briefly as accountants before joining Care Enterprises, kept track of the company’s finances. Dee Roy immersed himself in the numbers, while Nelson dickered with bankers and looked for nursing homes to buy. Lee Roy managed the day-to-day operations.

Opal Winn says the four worked long hours to build the business, often staying until midnight. She remembers making late-night runs for Kentucky Fried Chicken while her sons labored over a new computer system.

Some Early Friction

“There were some good times,” Winn, now 61, says. There was tension too. It surfaced early when the foursome took a vote over whether to allow Nelson’s older sister, Lois Nelson English, to buy into Care Enterprises. The brothers voted no. “I was very disappointed,” says Opal Winn. “I wanted Lois in the company; I wanted all my children involved. But one thing we decided early on was that the majority would rule.”

Opal Winn says she left the company with mixed emotions in 1976 after it became clear that her sons wanted more control. She sold her stock to her sons.

A decade later, that fight for control still goes on, and may have become more urgent. Lee Roy and Dee Roy draw big salaries from Care. Lee Roy, Care’s chairman since the company sold an initial public offering of stock in 1983, was paid $440,000 in 1985. Dee Roy, who joined Care as a vice president after Winn Enterprises--Knudsen’s parent--failed, gets $20,000 a month, according to a knowledgeable source. Nelson, who quit the board last June, draws no salary from the company.

Dee Roy also has big debts. In his Chapter 11 bankruptcy petition, he says that his property is worth $9.6 million but his debts are $48.3 million, although he is disputing about $44.2 million of those claims.

Nelson has a huge stake in the outcome of the battle for Care Enterprises. Each brother owns 22% of Care Enterprises (the rest is publicly held), and virtually all of Nelson’s shares are pledged to cover bank loans he took out to finance Knudsen’s operations.

According to a recent filing with the Securities and Exchange Commission, 69% of Nelson’s Class B voting shares are pledged to Citicorp Industrial Credit Bank, Knudsen’s lender. The rest of Nelson’s voting shares secure a $1.2-million loan from Wells Fargo Bank. Another 100,000 shares of his Class A stock is used to secure a $500,000 loan from First Interstate Bank of California, which sued Nelson to get the money until he put up the shares.

Lee Roy claims that what Nelson really wants is to sell Care Enterprises to satisfy his debts. Indeed, as previously reported, Nelson has said he talked with his brothers about swapping his shares for some of Care’s nursing homes and real estate holdings, but that deal fell through. The Bangerters say Nelson wanted too much--the equivalent of $9 a share for his shares at a time when the shares were trading in the $4 range.

Sought to Sell Shares

It is also known that Nelson talked to Care’s investment bankers about selling his shares to the public, but those talks fell through. “If Ted wants to sell his shares, we’ll sell them for him. We’re probably the only ones who can,” says Lee Roy Bangerter, but at a reasonable price.

The Bangerters think Nelson’s debts played a role in his objections to anti-takeover provisions that the brothers put into place at Care last June. Nelson quit Care’s board in that dispute. He wants to get back on the board and has nominated himself and R. Sam Christensen, Winn Enterprises’ former chief financial officer, to replace Lee Roy Bangerter and Donald Courts, a Diamond Bar doctor. The company has not yet set a date for a shareholder vote.

There seems little doubt that Care is a troubled company. It has grown rapidly to include 124 facilities, largely by borrowing heavily to buy other nursing home companies. It is loaded with $163.4 million in debt, and its profits are squeezed by rising costs and a heavy dependence on Medicare patients, who pay less for treatment than privately insured patients.

Its performance has consistently lagged behind other nursing home firms in profits. For the nine months that ended on Sept. 30, 1986, Care lost $772,000 on revenue of $197.1 million. In its third quarter report, Care said it is in violation of its agreements with lenders, who have given the company until June 30 to make money or sell nursing homes to raise cash.

According to a spokesman, the company is trying to refinance its debt, is selling some nursing homes and is looking for a new banker. The company hasn’t yet released its earnings for 1986, and won’t say whether it made any money for the year.

The company also faces a shareholder lawsuit, which alleges that Care failed to disclose earlier financial problems before it went public at $15 a share in 1983. The company is fighting the suit.

Divorce Tangles Situation

In the end, the brothers’ dispute over Care may depend on the outcome of divorce proceedings filed last June by Janice and Dee Roy Bangerter. Janice is seeking half of her husband’s Care Enterprises shares.

She has signed an agreement with Nelson, giving him the power to vote any shares she gets as part of the divorce settlement. She also promised Nelson that she wouldn’t accept any property settlement with her husband that gave her less than half of his shares.

If Janice Bangerter gets what she wants, voting control of Care Enterprises would be equally divided between Nelson and his half-brothers. It may be some time before the issue is resolved because of Dee Roy’s bankruptcy filing, an action that normally halts divorce proceedings.

Dee Roy is fighting his wife’s efforts to get half of his shares. “Ted comes along and takes advantage of someone who doesn’t understand the situation and gets her proxies.”

Meantime, Opal Winn is watching her sons argue over the company she founded and refuses to take sides. “I can’t chose between my sons,” she says. But she doesn’t want them to sell Care. “I think it would break my heart,” she says.

In the late 1970s, it was Care Enterprises that provided the cash for the brothers’ investments in real estate. “Ted came to us and asked us not to put money into nursing homes but to put it in real estate,” Dee Roy says. “I voted to do it.”

The brothers bought two publicly traded real estate investment trusts, Lincoln Mortgage Investors and Builders Investment Group. The trusts owned residential and hotel properties in California and the Southwest, but were in bad shape. The brothers reasoned that they could make money selling the real estate, since it was carried on the books at below market prices.

Market Collapsed

When interest rates rose in the mid-1970s, the real estate market collapsed. By 1979, the brothers’ real estate company, which later was renamed Winn Enterprises, had defaulted on its loans and began a program of selling off its properties to its creditors.

By March, 1981, Winn Enterprises had repaid its lenders. It had sold real estate holdings with a book value of $300.6 million to creditors in return for $68.9 million in cash and cancellation of $329.2 million in debt.

The brothers made other money-losing real estate investments. In 1979, the trio purchased the Felt building, a historic office building in downtown Salt Lake City. The building was never more than a third leased, and in 1984 the brothers defaulted on a $1.5-million mortgage and the building was foreclosed by the first mortgage holder.

The troubles don’t end there. The building’s former owner, Salt Lake businessman Keith E. Garner, is suing the brothers to collect on his second mortgage note.

The Bangerter twins accuse Nelson of dragging them into the deal. Lee Roy says Nelson returned from a business trip to Salt Lake City seven years ago and announced he bought the building. Lee Roy was shocked--he claims that the brothers hadn’t voted--but went along with the deal. “It was after the Felt building that Dee and I decided that we needed some reins on Ted,” says Lee Roy. Dee Roy, with Lee Roy’s vote, pushed Nelson aside as head of Winn Enterprises.

Those who worked with Dee Roy say his luck in real estate wasn’t much better. In 1981, he authorized construction by Winn of a $4.5-million resort on the Maine coast. A new owner is still trying to sell 20% of the units.

Other real estate investments also did poorly. Nelson faces a lawsuit by nine members of his church, who say he persuaded them to spend $316,000 on several real estate investments in California, Idaho and Arizona that went sour after Nelson assured them they were a “sure thing.” One of the people suing him was his Sunday school student at the Placentia, Calif., church. Nelson is fighting the allegations.

The losses in real estate left Winn Enterprises with a pile of tax writeoffs that they could use to shield future income. In 1983, Nelson encouraged his brothers to buy Knudsen, the venerable Los Angeles dairy known to generations of Californians for its cottage cheese, sour cream and milk.

“Knudsen wasn’t a bad deal; it was a good deal,” says Dee Roy, who cast the deciding vote to buy the dairy company. He regrets it, nonetheless. “If I had to do it again, I wouldn’t do it.”

The brothers borrowed heavily to buy Knudsen, even putting up their homes and shares in Care Enterprises to secure loans. They sold Knudsen’s milk plants and leased them back to help finance the $74.8-million deal.

The Knudsen acquisition gave Winn Enterprises high visibility. The brothers were running a fairly big company now--sales were around $350 million yearly--and they were courted by bankers.

Court records show that in 1985, a credit officer for First Interstate of California argued in a report that the bank should give Dee Roy Bangerter an unsecured loan for $500,000 because “Crocker and Wells (Fargo) provide each brother with a $500,000 unsecured line” and there is “an apparent willingness by Citibank to replace our loans with similar lines.”

Good Payment Record

Besides, the report says, the brothers had a good payment record and might send more business in the bank’s direction. “They have made it clear they want to include (First Interstate) and/or Citibank in the Knudsen (loan) when it is renegotiated in 1985.”

Winn Enterprises also drew the attention of Allen & Co., a Wall Street investment banking firm that sold Winn Enterprises debentures to some of its most important clients. According to Winn Enterprises’ bankruptcy filings, financier Dan W. Lufkin, Columbia Pictures executive Ray Stark, former Democratic Party Chairman Robert Strauss, and NBC News anchor Tom Brokaw lost as much as $250,000 when Winn Enterprises failed.

The Bangerters claim that the Knudsen purchase whetted Nelson’s appetite for more acquisitions. They say Nelson didn’t consult them before launching the unsuccessful efforts to take over Kern Foods, a jam and juice company, the Olson Egg company and an East Coast real estate firm. Dee Roy estimates that Winn Enterprises spent $600,000 chasing Kern Foods.

“If we kept all that money in the company, and I can’t add it all up, maybe we would still have a viable situation. . . . You just can’t continue to take over companies, you have to manage them,” says Dee Roy.

Despite the disputes over those takeover bids, the brothers did agree, in June, 1985, to buy Knudsen’s arch-rival, Foremost Dairies, for $50.1 million, thus creating the largest dairy in the West with operations in seven states and $1.2 billion in sales.

Firm’s Debt Mounted

But the acquisition boosted Winn Enterprises’ debt to a crushing $266.2-million and by September, 1985, the company was so short of cash that it was unable to stay current on its debt.

The split between the Bangerter twins and Nelson was evident at Winn Enterprises’ final board meeting. Nelson quit in anger after his brothers fired his hand-picked management consultant. The next day, the Bangerters changed the locks on Nelson’s Anaheim office and took away his Mercedes.

“It was like grave diggers fighting over the shovel,” an associate recalls. Four days later, on Sept. 16, Knudsen was out of cash and filed for bankruptcy protection. Its holdings are being liquidated, and its vast California operations have been sold to Hughes Markets and Kraft, which continue to sell products under the Knudsen label.