Miami Herald
Sun, Aug. 24, 2003
Former florists raise stink over lawsuits
BY PATRICK DANNER
For some flower-shop owners who sold their businesses to Gerald Stevens for stock, the deals turned out to be real stinkers.
The stock they received and held on to became worthless when Gerald Stevens plunged into bankruptcy in 2001. The Fort Lauderdale company later shuttered operations.
As if that wasn't bad enough, the former owners are being sued for getting paid too much for their businesses. Bankruptcy trustee Kenneth A. Welt has filed about 20 lawsuits in bankruptcy court alleging the deals were ''unfair'' to Gerald Stevens and its creditors.
Welt wants the former owners to pay the difference between what the businesses sold for and what he believes they were actually worth. Any money he recovers will go to Gerald Stevens' 8,000 unsecured creditors, whose claims total $25 million.
That has sparked outrage among former owners who say they ended up with far less than they anticipated because the stock wasn't worth anything.
''It's the most asinine thing I've ever heard,'' says Harry L. Stephenson Sr., whose family sold a floral business in Pennsylvania to Gerald Stevens in 1999. ``I don't understand how this can legally happen.''
Stephenson and his family sold Stephenson's Flowers, a chain of five stores and a greenhouse operation, for $2.6 million. They received half in cash and half in stock, most of which was never sold. The family says Welt has pegged the value of the business at $2.14 million -- meaning they'll have to repay $460,000 if the trustee prevails.
Stephenson, 76, who had planned on using proceeds from Gerald Stevens stock to build a house and retire, hints bankruptcy may be in his future if his family loses the case.
Welt counters that Gerald Stevens overpaid for stores when it went on a buying binge to become the largest company-owned network of flower shops in the country. Gerald Stevens spent about $135 million in cash and stock from October 1998 through November 2000 to assemble flower shops in 35 markets, including South Florida.
''I have compassion for the people we're suing,'' Welt says. But ``I can't let my compassion get in the way of what I believe is the right thing to do: That is, bringing back assets into the estate for distribution to all creditors.''
`EVEN THE FIELD'
While some former owners were shrewd enough to negotiate deals that included cash, Welt says there are creditors who received nothing for the goods and services provided to Gerald Stevens.
''If someone benefited more than someone else, I look at it as my responsibility to even the playing field,'' Welt explains.
Representatives for Welt reviewed some 150 sales, but only pursued claims on about 20. Lawyer Michael D. Ehrenstein says they chose the sales where the former owners received the most compensation relative to their businesses' fair value and where it can be proven Gerald Stevens was insolvent at the time of the transaction.
Florida law allows for transactions completed up to four years before a bankruptcy filing to be voided if deemed fraudulent to a creditor of the estate. Welt is not alleging that any of the sellers intentionally deceived Gerald Stevens, just that some of the sales where Gerald Stevens overpaid had the ''effect of fraud on the creditors,'' Ehrenstein says.
''It's very easy to feel bad for these people because they didn't do anything wrong,'' says Ehrenstein, of the law firm Kluger, Peretz, Kaplan & Berlin. ``I think what happened is they cut the best deal they could and got a lot of money for it. That's OK if the person you're dealing with is not insolvent.''
NOT BOTH WAYS
Welt cannot argue the Stephenson family received $1.3 million in stock and then claim Gerald Stevens was insolvent on the day of the transaction, responds Jim Silver, who represents the Stephensons. If Gerald Stevens was insolvent, Silver says, that means the stock the sellers received was worthless.
''They can't have it both ways,'' says Silver, of Miami's Carlton Fields. He adds that under any reasonable valuation, the company's creditors received much more from the purchase of the Stephenson family's business than they gave up. ``In the end, it's the Stephensons who got the worst end of the deal.''
Out of the $1.3 million of stock provided under the purchase agreement, the Stephensons only received $36,000 from sales of a small portion of the shares, Silver says. Restrictions placed on the stock at the time of the deal prevented them from selling the rest, Stephenson says.
But Ehrenstein says in most cases the restrictions were only for a limited time. The former owners simply chose to hold on to the stock as it dropped.
''No one was forcing them to make that decision,'' Ehrenstein says.
Former owners are baffled that they could be forced to pay back proceeds they never collected because they never sold the stock.
''It's quite absurd to me,'' says Thomas Gregory Parrish of Salt Lake City, one of three partners who sold Flower Patch, a chain of 12 stores, in 1999 for about $4.5 million -- including $2.7 million in stock. Parrish says he held on to a ''substantial amount'' of the shares. ``I'm extremely outraged and upset.''
Gerald Stevens was founded by former Blockbuster Entertainment executives Steven R. Berrard and Gerald Geddis, who sought to duplicate the success of the video chain. They set a goal of opening 1,000 stores within five years of its launch but only reached 300.
TOP-NOTCH
Gerald Stevens was a sophisticated enterprise that relied on top-notch financial advisors and detailed business valuation models to determine the value of the stores it purchased, says lawyer Michael I. Goldberg, of Akerman Senterfitt in Fort Lauderdale. He represents former owners in Atlanta who sold their business for just over $1 million, including $550,000 in stock.
''In order to agree with the trustee's position, you have to believe that my clients somehow hoodwinked [Gerald Stevens] into paying significantly more for their flower businesses than they were worth,'' Goldberg says in an e-mail. Gerald Stevens co-founder Berrard didn't respond to a request for comment.
Under the watch of the bankruptcy court, Gerald Stevens sold its stores and closed others before shutting down. Some former owners came forward to buy back their businesses -- some for a price far less than they sold.
Welt is using the lower resale prices as proof the businesses were overvalued when Gerald Stevens acquired them. For example, Parrish's partner and brother-in-law, Thomas J. Gordon, bought back their business for about $2 million -- ''less than 50 percent of the purchase price paid by [Gerald Stevens] for its acquisition,'' Welt notes in the suit.
''In essence, I paid $200,000 more for the company,'' Gordon says. ''They paid $1.8 million and wallpapered the rest of it'' -- $2.7 million in stock. Plus, he says built into the $4.5 million sale price were concessions on wages and lease payments that he and his partners accepted as part of the 1999 deal.
''This is extortion as far as I'm concerned,'' he says of the suit against him.
Stephenson, the Pennsylvania businessman, says he's still reeling from the decision to sell to Gerald Stevens and end a family legacy that ran five generations. He and his wife stayed on to run the businesses for Gerald Stevens, only to be fired less than a year later, he says. He also lost income when Gerald Stevens stopped paying rent on his greenhouse, which sits empty and in disrepair, he says.
''We sold our business in good faith,'' says Kara Stephenson Gehman, Stephenson's granddaughter who also was a shareholder. ``There was absolutely no malicious intent whatsoever. For them to come back over three years later and try to put the squeeze on honest, hard-working families is absolutely ridiculous.''
Sun, Aug. 24, 2003
Former florists raise stink over lawsuits
BY PATRICK DANNER
For some flower-shop owners who sold their businesses to Gerald Stevens for stock, the deals turned out to be real stinkers.
The stock they received and held on to became worthless when Gerald Stevens plunged into bankruptcy in 2001. The Fort Lauderdale company later shuttered operations.
As if that wasn't bad enough, the former owners are being sued for getting paid too much for their businesses. Bankruptcy trustee Kenneth A. Welt has filed about 20 lawsuits in bankruptcy court alleging the deals were ''unfair'' to Gerald Stevens and its creditors.
Welt wants the former owners to pay the difference between what the businesses sold for and what he believes they were actually worth. Any money he recovers will go to Gerald Stevens' 8,000 unsecured creditors, whose claims total $25 million.
That has sparked outrage among former owners who say they ended up with far less than they anticipated because the stock wasn't worth anything.
''It's the most asinine thing I've ever heard,'' says Harry L. Stephenson Sr., whose family sold a floral business in Pennsylvania to Gerald Stevens in 1999. ``I don't understand how this can legally happen.''
Stephenson and his family sold Stephenson's Flowers, a chain of five stores and a greenhouse operation, for $2.6 million. They received half in cash and half in stock, most of which was never sold. The family says Welt has pegged the value of the business at $2.14 million -- meaning they'll have to repay $460,000 if the trustee prevails.
Stephenson, 76, who had planned on using proceeds from Gerald Stevens stock to build a house and retire, hints bankruptcy may be in his future if his family loses the case.
Welt counters that Gerald Stevens overpaid for stores when it went on a buying binge to become the largest company-owned network of flower shops in the country. Gerald Stevens spent about $135 million in cash and stock from October 1998 through November 2000 to assemble flower shops in 35 markets, including South Florida.
''I have compassion for the people we're suing,'' Welt says. But ``I can't let my compassion get in the way of what I believe is the right thing to do: That is, bringing back assets into the estate for distribution to all creditors.''
`EVEN THE FIELD'
While some former owners were shrewd enough to negotiate deals that included cash, Welt says there are creditors who received nothing for the goods and services provided to Gerald Stevens.
''If someone benefited more than someone else, I look at it as my responsibility to even the playing field,'' Welt explains.
Representatives for Welt reviewed some 150 sales, but only pursued claims on about 20. Lawyer Michael D. Ehrenstein says they chose the sales where the former owners received the most compensation relative to their businesses' fair value and where it can be proven Gerald Stevens was insolvent at the time of the transaction.
Florida law allows for transactions completed up to four years before a bankruptcy filing to be voided if deemed fraudulent to a creditor of the estate. Welt is not alleging that any of the sellers intentionally deceived Gerald Stevens, just that some of the sales where Gerald Stevens overpaid had the ''effect of fraud on the creditors,'' Ehrenstein says.
''It's very easy to feel bad for these people because they didn't do anything wrong,'' says Ehrenstein, of the law firm Kluger, Peretz, Kaplan & Berlin. ``I think what happened is they cut the best deal they could and got a lot of money for it. That's OK if the person you're dealing with is not insolvent.''
NOT BOTH WAYS
Welt cannot argue the Stephenson family received $1.3 million in stock and then claim Gerald Stevens was insolvent on the day of the transaction, responds Jim Silver, who represents the Stephensons. If Gerald Stevens was insolvent, Silver says, that means the stock the sellers received was worthless.
''They can't have it both ways,'' says Silver, of Miami's Carlton Fields. He adds that under any reasonable valuation, the company's creditors received much more from the purchase of the Stephenson family's business than they gave up. ``In the end, it's the Stephensons who got the worst end of the deal.''
Out of the $1.3 million of stock provided under the purchase agreement, the Stephensons only received $36,000 from sales of a small portion of the shares, Silver says. Restrictions placed on the stock at the time of the deal prevented them from selling the rest, Stephenson says.
But Ehrenstein says in most cases the restrictions were only for a limited time. The former owners simply chose to hold on to the stock as it dropped.
''No one was forcing them to make that decision,'' Ehrenstein says.
Former owners are baffled that they could be forced to pay back proceeds they never collected because they never sold the stock.
''It's quite absurd to me,'' says Thomas Gregory Parrish of Salt Lake City, one of three partners who sold Flower Patch, a chain of 12 stores, in 1999 for about $4.5 million -- including $2.7 million in stock. Parrish says he held on to a ''substantial amount'' of the shares. ``I'm extremely outraged and upset.''
Gerald Stevens was founded by former Blockbuster Entertainment executives Steven R. Berrard and Gerald Geddis, who sought to duplicate the success of the video chain. They set a goal of opening 1,000 stores within five years of its launch but only reached 300.
TOP-NOTCH
Gerald Stevens was a sophisticated enterprise that relied on top-notch financial advisors and detailed business valuation models to determine the value of the stores it purchased, says lawyer Michael I. Goldberg, of Akerman Senterfitt in Fort Lauderdale. He represents former owners in Atlanta who sold their business for just over $1 million, including $550,000 in stock.
''In order to agree with the trustee's position, you have to believe that my clients somehow hoodwinked [Gerald Stevens] into paying significantly more for their flower businesses than they were worth,'' Goldberg says in an e-mail. Gerald Stevens co-founder Berrard didn't respond to a request for comment.
Under the watch of the bankruptcy court, Gerald Stevens sold its stores and closed others before shutting down. Some former owners came forward to buy back their businesses -- some for a price far less than they sold.
Welt is using the lower resale prices as proof the businesses were overvalued when Gerald Stevens acquired them. For example, Parrish's partner and brother-in-law, Thomas J. Gordon, bought back their business for about $2 million -- ''less than 50 percent of the purchase price paid by [Gerald Stevens] for its acquisition,'' Welt notes in the suit.
''In essence, I paid $200,000 more for the company,'' Gordon says. ''They paid $1.8 million and wallpapered the rest of it'' -- $2.7 million in stock. Plus, he says built into the $4.5 million sale price were concessions on wages and lease payments that he and his partners accepted as part of the 1999 deal.
''This is extortion as far as I'm concerned,'' he says of the suit against him.
Stephenson, the Pennsylvania businessman, says he's still reeling from the decision to sell to Gerald Stevens and end a family legacy that ran five generations. He and his wife stayed on to run the businesses for Gerald Stevens, only to be fired less than a year later, he says. He also lost income when Gerald Stevens stopped paying rent on his greenhouse, which sits empty and in disrepair, he says.
''We sold our business in good faith,'' says Kara Stephenson Gehman, Stephenson's granddaughter who also was a shareholder. ``There was absolutely no malicious intent whatsoever. For them to come back over three years later and try to put the squeeze on honest, hard-working families is absolutely ridiculous.''
