GI Industries’ Legal Win Came a Week Too Late : Courts: A federal judge ruled a competitor broke a 1990 agreement to buy the trash hauler, which was forced last week to file for bankruptcy.
For GI Industries Inc., the largest hauler of residential trash in eastern Ventura County, last week should have been a time of celebration. After all, GI won a potentially lucrative legal fight stemming from its failed merger with Republic Waste Industries Inc. two years ago.
But the victory came too late. GI, straining under the weight of more than $14 million of debt, was also forced last week to file under Chapter 11 of the federal bankruptcy laws.
Under Chapter 11, GI will now try to devise a plan for paying its debts while being protected from creditors’ lawsuits. And the creditors’ chances of getting repaid were bolstered by GI’s victory in court.
A federal judge in Los Angeles, in deciding a civil case brought by GI, ruled that Atlanta-based Republic broke a 1990 agreement to buy GI in exchange for $15 million of Republic stock.
The judge, Stephen Wilson, also scheduled a hearing for Sept. 14 to decide when a trial will begin to determine what damages Simi Valley-based GI should receive. Robert E. Mangels, a lawyer representing GI, said “we believe the damages will be in excess of $15 million.”
Republic, which had denied any wrongdoing, said it would appeal should there be “an adverse outcome with respect to damages.” The company did not elaborate.
GI, with nearly 50,000 customers in Simi Valley, Moorpark and Thousand Oaks, had revenue last year of $16 million.
Mangels said the company “feels vindicated by the judge’s ruling” and that its legal victory “could assist the recovery of the company” financially.
“It’s our basic belief that GI has been rendered almost worthless by what they’ve done,” Mangels said of Republic.
Diane Davis-Crompton, Simi Valley’s director of environmental services, said the city has been assured by GI “that they expect service to continue as normal.” GI handles 90% of the residential trash collection in the city, she said.
“We hope they’re able to resolve their financial difficulties because the city has had a good working relationship with them for many years,” she added.
After the Republic merger deal fell through in 1990, GI appeared to find another merger partner last year when Western Waste Industries in Gardena agreed to buy the 83% of GI that it didn’t then already own for about $3.3 million in stock and $300,000 in cash. (Western Waste now owns about 23% of GI.)
But that deal was scrapped as well after problems surfaced over whether GI’s executives--led by the Asadurian family, the company’s largest stockholder--faced an unexpected tax liability if the merger was completed. Manuel Asadurian Sr. is GI’s chairman; his nephew Carl runs the Conejo Enterprises rubbish-hauling division.
A list of GI’s biggest creditors could not immediately be obtained. But GI’s total debt includes a $4-million loan from Western Waste that also has accrued $1.3 million in interest. Lawrence McQuaide, Western Waste’s chief financial officer, said GI “has not paid us anything back yet” on that debt.
GI said its main trash-hauling unit, Conejo Enterprises Inc., was not part of the Chapter 11 filing and that its operations should not be affected by the parent company’s bankruptcy petition.
GI’s debt problems began mounting in 1987, when the company began diversifying into other businesses. The company leased garbage trucks and related equipment to other trash haulers and bought Thrifty car-rental franchises and three Mack truck dealerships.
But the diversification effort was a disaster, as the new subsidiaries suffered major losses. GI eventually shed the non-trash-related businesses, and it said last week it also has divested its equipment-leasing unit.
