Ocean Pacific Sued by Partner Alleging Fraud, Insolvency
The biggest stake holder in Tustin-based Ocean Pacific Sunwear Ltd., one of the nation’s largest surf-wear companies, has filed a lawsuit that alleges fraud and that the partnership is “hopelessly insolvent,” it was learned Thursday.
Elaine M. Ornitz, who gained control of more than 30% of the partnership that controls the company after the 1988 death of her husband, Lawrence D. Ornitz, states that “nothing short of a sale” or massive cash infusion can save the partnership from bankruptcy.
In the lawsuit filed in Orange County Superior Court in Santa Ana, Ornitz accuses five fellow partners of deceiving her and being unwilling to seriously consider selling.
She said the other partners “have acted fraudulently, maliciously and oppressively, with spite and ill will toward (her), and with intent to defraud and deceive,” the suit states.
The lawsuit lays out a series of alleged incidents of deception and fraud, including one case in which company founder Jim Jenks reportedly admitted to Ornitz that he deliberately planted a false story in a trade publication to stop rumors of a sale and inquiries by potential buyers of the company.
Individuals named as defendants include Jenks, who returned to the company as president in 1989; Senior Vice President Michael Balmages; Robert Driver; Thomas Hilb and Brooks Gifford. Ocean Pacific is a giant in the U.S. surf-wear industry, with licensing of more than $200 million in clothing under its own name and subsidiaries. Jenks founded the company in 1972 when he set out to design a pair of comfortable surf trunks.
OP spokeswoman Lucy Hamilton said company lawyers were reviewing the lawsuit and that there would be no immediate comment. One of Ornitz’s attorneys, Los Angeles attorney Bruce P. Vann, also declined comment.
Despite its pervasive image--nearly a third of all surf, volleyball, skateboarding and snow-boarding apparel sold in the United States comes from OP--the lawsuit describes the controlling partnership as having made a series of management miscues.
Ornitz, in the lawsuit, says the Jimmy ‘Z division, a sportswear line, was sold for $6.8 million in early 1990 to a group that filed for bankruptcy just months later. Under the sales agreement, payment of the full purchase price was dependent on the division’s sales.
She also claims the partners have so far missed two opportunities to sell the company--once for $40 million and another time for $46 million.
In the meantime, the suit states, the company’s financial condition deteriorated. At the end of fiscal 1990, OP’s working capital deficiency had doubled to $5.7 million. As of March 6, the partners were shown documents that indicated that OP was nearly $2 million in the red, the lawsuit states. But, the suit adds, Jenks told the partners that remarkable progress was being made in bringing about a turnaround.
Ornitz says that she has incurred losses of at least $10 million on the value of her ownership stake. She asks that a judge impose an injunction to prevent the named partners from dissipating assets of the partnership that would drive it “deeper into insolvency.” The suit also says Ornitz fears that partners would interfere with attempts to sell her interest.
She said the “conspiracy was led by Jenks and Balmages in an effort to preserve and protect the jobs of existing OP management.”
