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SECURITY

The Worst-Case Scenario

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From the cautionary tale file comes the case of Jay Steinmetz's partnership with Andy Stern. Today, Steinmetz runs Barcoding, a Baltimore company that sells and programs inventory-tracking systems. It had sales of $24 million last year, employs 80 people, and made the 2004 Inc. 500 list. All of that would have seemed highly implausible eight years ago when his partnership imploded and Steinmetz found himself in a rather less desirable place: a solitary cell at the Baltimore jail.

Steinmetz had started a company called CaptureTech in 1997 while working another job full-time. He recruited Stern, an unemployed chess buddy, to run the day-to-day business of reselling liquidated barcoding gear--scanners, radio-frequency readers, software that tracks inventory. The two never signed a buy-sell or operating agreement--when they started discussing terms, they couldn't agree on anything--but they split ownership 50-50.

By summer 1998, Steinmetz was working full-time on CaptureTech, the two couldn't stand each other, and there was no document in place to help them resolve their problems. So Steinmetz offered to buy out Stern, who refused and then began to worry that Steinmetz might just take the business unilaterally. That prompted Stern, acting on questionable advice from his lawyer, to seize it first. He stopped by Steinmetz's apartment on August 13 and, when Steinmetz was distracted, he grabbed the company laptop and sprinted outside. Steinmetz chased him, they fought, and both filed police reports. That afternoon, Stern changed the company's locks and liquidated CaptureTech's joint account, transferring all $34,714.01 to an account he controlled.

Five days later, the cops came for Steinmetz: Stern had pressed assault charges. During his 24-hour incarceration, Steinmetz split a ham-on-white with a homeless man, refused cocaine that a fellow inmate extracted from his shoe, and did isometrics. Upon release, he found that Stern had shipped more than $100,000 in CaptureTech inventory out of state.

The court had appointed receivers to seize the company's assets, and when they arrived at CaptureTech's bank on August 26, Stern happened to be there. When he saw the receivers, he told them his dog was in the car and he needed to check on him. Stern then motored away, ending up in Georgia, where he ordered services billed to CaptureTech and established another company to sell the CaptureTech inventory. After Steinmetz made angry calls to Stern's family and friends, Stern sent a fax to CaptureTech customers--and Steinmetz's grandmother--calling Steinmetz a crook.

"I ended up basically having to close everything and restart," Steinmetz says. He convinced 10 customers to keep buying from him--"If you think I'm an evil guy, who's still here and who's running away?" he asked them--and got one supplier to stay with him by offering upfront payments. His lawyer got Steinmetz appointed as CaptureTech's receiver, and he bought the remaining assets for $18,941 and liquidated the corporation. Then, nearly maxing out personal credit cards, he got what would become Barcoding up and running. He also pressed assault charges against Stern. In June of 1999, with the court having determined Stern owed Steinmetz $176,978, Stern filed for bankruptcy.

Steinmetz didn't hear from him again until last fall, when Stern wrote a letter seeking forgiveness. "I think we both lost from it, and it was embarrassing to both of us," Stern says now. "The way we dealt with each other was just really bad." Steinmetz did forgive Stern but still expects some of the debt to be repaid. "My biggest revenge is my success," Steinmetz says. Asked for advice about partnerships, he offers this: "You have to take into consideration the worst-case scenario."




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