After Eleets Transportation abruptly shut its doors in November 2012, its bank and creditors, as well as owner-operators owed millions, clamored to find out if there will be any remaining assets.
Wells Fargo Bank claims it is owed nearly $6 million after Eleets’ defaulted on its $12 million revolving line of credit. Owner-operators who hauled for Eleets’ logistics division are still owed an estimated $8 million.
On Wednesday, Feb. 27, a federal judge granted a venue order to keep all of the four bankruptcy cases stemming from Eleets’ collapse in the U.S. District Court for the Middle District of Florida in Jacksonville. Wells Fargo filed its lawsuit in the U.S. District Court for the Southern District of Florida in Miami.
Some of Eleets’ creditors forced the defunct company into Chapter 7 involuntary bankruptcy in late December 2012. In late January, Eleets filed three Chapter 11 bankruptcy petitions on behalf of its companies, including Eleets Logistics Inc., Eleets Transportation Group Inc., and Eleets Distribution Company Inc., all headquartered in Jacksonville, FL.
Eleets’ bank, Wells Fargo, which is headquartered in Charlotte, NC, was granted receivership to protect and recover the company’s remaining assets, including accounts receivables.
Elise M. Rosamonda is vice president of claims placement for the Weiss, Spencer and Levin, freight charge recovering specialists. They represent some of the companies that weren’t paid. She told Land Line on Thursday, Feb. 28, that her clients are pleased with the decision to have the bankruptcy cases remain in federal court in Jacksonville.
“This is good news to win on the venue issue, barring any appeal by the bank, which could happen,” Rosamonda said. “There’s still a long way to go and there’s a lot of money that is owed. Some of the carriers have been devastated over this. I am just hoping that something can be done to get them in better situations where they are able to walk away with just some cuts instead of with major wounds, which could mean the end of their companies.”
Rosamonda said one of the issues she has heard from some of her clients is that when Eleets shut down, their escrow money was retained after the bank took over as receiver.
“Right now, we have heard from some owner-operators that they haven’t received their escrow money back,” she said. “It may not seem like a lot of money to some people – I have heard it’s somewhere around $750 apiece, but with what they have going on right now, it’s a significant amount to them and it is supposed to remain in a separate trust because it is their money.”
She said their escrow money was supposed to remain untouchable, but what she is finding out is that money from Eleets’ brokerage and trucking division was “commingled with other funds.”
Stephen Davie, who was a minority shareholder with Eleets, said in the final few months the company’s trucking division was downsizing at a rapid rate, from more than 300 trucks to as few as 40 trucks, but it just wasn’t fast enough to save the money.
He told Land Line that while the brokerage’s revenues were around $130 million, that money was being funneled to Eleets’ trucking division to keep it afloat.
“We all knew we were in big trouble. The bank knew we were in huge trouble and we were in meetings with them about how bad things were, but we were still operating,” Davie said. “At the same time we were operating, the bank was shrinking the credit line. We were winding things down, but the bank was cutting our credit line faster than we could wind down the trucking division.”
Davie said Eleets’ business model originally called for around 80 trucks and their focus was to be light-asset based. At some point Al Steele, who owned 80 percent of Eleets, brought in his son, Scott Steele, to run the trucking division, and their focus changed to building up the trucking division. That proved to be financially devastating for all of the Eleets’ companies.
“It was a great company that we built, but at the end we dumped 250 units in a matter of four months,” Davie said.
Among the reasons Davie said the bank cut Eleets’ line of credit was after they discovered that Al Steele had taken out a $1 million shareholder loan, which was listed in the financials as “in lieu of salary,” which was against the covenants of the shareholder loan agreement with Wells Fargo.
Davie said for months leading up to the eventual shutdown of the company, he and some others in key management positions within Eleets were trying to find solutions to try and save the company.
“The reality of it was that the bank knew what they were doing, that the company was in dire straits and the focus was on the receivables, not the mom and pop carriers who should have known this was a massive credit risk,” he said. “To be honest, corporations can take the hit, but it’s the small businesses – and I have been there a bunch of times – when something like this happens it just kills ya.”
Davie, who personally lost $1 million he invested in the company, said Eleets’ Logistics had only the minimum required broker bond of $10,000, but claims that owner-operators who hauled loads for them at the end are owed nearly $8 million.
“I feel that anybody who does logistics business should have a $1 million bond, but the $10,000 bond was all we were required to have so that’s what we had,” Davie said.
While Davie says Wells Fargo’s decision to cut Eleets line of credit led to the company’s collapse, Rosamonda, whose firm is representing creditors owed money by Eleets, says the company’s decision to use funds from its brokerage side to prop up its trucking division is largely to blame for the company’s demise.
“They should have never started commingling funds to rob Peter to pay Paul,” Rosamonda said. “They were funding it with the carriers’ money and that’s where everything went wrong. When you are required to segregate all of your brokerage activity from all of your other business transactions, there’s an implied trust and that trust was broken.”
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