Discrepancy over lending agreements leaves one borrower close to bankruptcy.
For a brief period, it looked as though Jon Ginder had found a way to get even with the $7.8-billion bank that had left his small asbestos-removal company in the lurch. Like a growing number of angry borrowers, he sued his lender, charging fraud and breach of contract. The jury found in his favor and awarded him $2.4 million in damages. There's just one catch: Ginder's business may not survive. On May 5, just five months after winning the award, Ginder returned to court -- to begin Chapter 11 proceedings for the last two operational affiliates of his company, Delcon Inc. and Kane Environmental Systems Inc., in Carol Stream, Ill.
Ironically, Ginder's troubles began with an understanding loan officer. At first, Ginder says, Jim Zaring of Northern Trust Co. "seemed like the answer to my prayers," arranging a $300,000 credit line, a $50,000 equipment line, and a $310,000 mortgage. And when Ginder later wanted to bid on some school district asbestos-removal contracts, he says, Zaring assured him Northern Trust would finance the growth by increasing the credit line. (Dennis O'Dea, an attorney for the bank, denies that any assurance was given.)
In May 1986, Ginder won five school contracts worth $750,000. To secure performance bonds, he had bonding agent Sid Rothstein talk to Zaring. Rothstein has testified that Zaring told him the bank would finance the projects. But on Monday, June 2 -- about two weeks before work was to begin -- Zaring informed Ginder he couldn't provide the credit. In retrospect, Ginder thinks that Zaring lacked the support of his superiors, who were upset when they learned the extent of the bank's involvement with Delcon. Whatever happened, Ginder was left scrambling for funds. The result: huge borrowing costs, overworked employees, missed deadlines, and a ruined reputation.
So, in October 1986, the Delcon Group Inc. brought suit against the bank. Although it won the case 14 months later, the bank appealed, preventing Ginder from collecting the award. By then, the company was in trouble, with fiscal '88 sales dwindling to just about $500,000, a third of which went to lawyers. Finally, in May, Ginder filed for Chapter 11 protection.
The bank, meanwhile, is pressing its appeal as a matter of principle, says Stephen M. Shapiro, a lawyer for Northern Trust. Lenders should not be held liable for what's said in preliminary discussions, he argues. "If general discussions become binding agreements, it will become very hazardous to talk to marginal borrowers. Ginder's [award] will come out of the pockets of entrepreneurs as a class.'
Ginder, for his part, is too busy with his own problems to worry much about entrepreneurs as a class. Hoping to pressure Northern Trust into settling, he's considering leafleting at bank branches. "I'm a stubborn individual," he says. "And I don't like to be wronged. And I was really, really wronged."