Top officials of Ocean Pacific Sunwear Ltd., one of the nation’s largest surf-wear companies, on Friday denied allegations by its largest stake-holder that the company is “hopelessly insolvent.”
Elaine M. Ornitz, who owns more than 30% of the partnership that controls the Tustin company, alleged in a lawsuit that “nothing short of a sale” or a massive cash infusion could save the partnership from bankruptcy. The suit, filed Wednesday in Orange County Superior Court in Santa Ana, seeks dissolution of the partnership and more than $10 million in damages.
The suit drew a sharp response Friday from OP’s founder and president, Jim Jenks.
“The charges leveled against me and the company are blanketed with inaccuracies and innuendoes,” he said in a statement. “Reviewing complete financial information, not just the bits and pieces filed in the lawsuit, will prove that OP is a solvent, progressive company.”
Ornitz’s suit also accuses five fellow partners of having “acted fraudulently, maliciously and oppressively, with spite and ill will toward (her), and with intent to defraud and deceive.”
The suit lays out a series of alleged incidents of deception and fraud. In one case, Ornitz claims that Jenks admitted to her that he deliberately planted a false story in a trade publication. The suit says Jenks told a reporter last August that the firm had enlisted the help of an unidentified New York bank to reorganize OP’s capital structure and buy out Ornitz’s interest. Ornitz says the story hurt her attempts to sell her stake.
But OP officials, in a telephone interview, denied that Jenks ever planted a phony story in the trade journal. Instead, they said Jenks simply answered a reporter’s question with what he believed to be a truthful response.
The suit further alleges that the company’s financial condition has deteriorated in recent months. Earlier this month, the suit states, the partners were shown draft financial documents that indicated OP had a negative net worth of nearly $2 million.
The partnership has some financial difficulties, conceded Michael Balmages, a senior executive vice president. But it is far from insolvent, he added. The value of the OP trademark alone, which is generally not counted in financial documents, was recently appraised at a value of about $25 million.
“The company is on solid ground,” Balmages said. It incurred heavy debt when it tried to move into manufacturing three years ago, only to later switch strictly to the licensing business. But Balmages said that all elements of a financial plan developed by Jenks, who returned to the company as president two years ago, have been implemented.
Ornitz is the widow of former OP Chief Executive Lawrence D. Ornitz.
In his statement, Jenks speculated, “Perhaps Elaine is disgruntled with me personally for changing the course her husband set as manufacturer to a more profitable licensing operation.”
The Ornitz suit faults OP for selling its Jimmy ‘Z label last year to a group of investors who went bankrupt months later. OP, it states, did not take reasonable precautions to ensure the financial soundness of the purchasers.
Jeff Meyers, OP’s chief financial officer, responded that the buyers were fully investigated by one of OP’s largest creditors, which recommended the deal. In addition, he said OP was paid $3.7 million of the $6.8-million purchase price up front. He also said that the Jimmy ‘Z trademark, valued at $2.6 million, is back in OP’s ownership.
The Ornitz suit names as defendants Balmages, Ocean Pacific Sunwear Ltd., OP Management Inc. and partners Jenks, Robert Driver, Thomas Hilb and Brooks Gifford. Another OP partner, surfboard pioneer Hobie Alter, was not named in the suit.