Some dealers shout, 'Show us the money'

Home Channel News, April 2, 2001 by Brae Canlen

TruServ spokesperson Sue Jarmac said that the co-op cannot comment on any ongoing litigation. This includes the class-action Delaware lawsuit, which echoes many of the same points made by the ServiStar Coast to Coast plaintiffs. The Delaware complaint cites numerous instances where TruServ officials and documents assured ServiStar Coast to Coast members that they could maintain their retail brand. The lawsuit accuses the co-op of plotting to "squeeze out the smaller hardware store owners among the Cotter and [ServiStar Coast to Coast] memberships to make way for a single, monolithic chain comprised of high-volume purchasers operating under the True Value name."

Although the Delaware lawsuit mentions post-merger distribution problems, it focuses on the $131 million loss, which it considers to be a breach of fiduciary responsibility to the TruServ shareholders. The complaint, which names various TruServ, Cotter & Co. and ServiStar Coast to Coast officials, seeks an immediate lifting of the stock redemption moratorium, payment of a 1999 patronage dividend (TruServ members received no rebates that year); and a suspension of the minimum annual purchasing requirement of $125,000, a stipulation enforced by TruServ after the merger.

Lastly, the class action lawsuit demands a "truly independent" investigation of TruServ's 1999 losses, which the co-op has blamed on accounting errors and costs associated with the merger. A task force appointed by TruServ's board of directors has looked into the fiasco, but the results of this investigation have not been released to the membership.

The task force report will be the subject of a May 11 court hearing in Illinois, where the plaintiffs' attorney is trying to get a copy through the discovery process. "I think we will be successful," said Kennedy, whose clients are fending off what she described as "a slew of collection actions" filed by TruServ. Some of the litigation relates to conversion funds extended to the Coast to Coast members after the merger. TruServ is trying to recoup these funds because the retailers did not stay with the coop for five years, as stipulated. Other court actions relate to disputed merchandise credits and inventory payments withheld by the dealers in lieu of their unredeemed stock.

Bernie Scharif, owner of East Flatbush Lumber in Brooklyn, N.Y., falls into the last category. Scharif is not a plaintiff in either the Illinois or Delaware lawsuits, but he is being sued by TruServ for non-payment of $47,135. "I told them to take it out of my stock," said Scharff, who became a part of TruServ after 20 years with American Hardware and ServiStar. Scharff said he was terminated by the co-op last August after numerous arguments over the co-op's failure to pay a rebate for 1999, the ban on the stock redemption, and Scbarff's attempt to balance the books. "I had to hire a lawyer in Illinois," reported Scharff, who estimated his combined TruServ stock value at $160,000.

LEGAL BATTLE

Dealers line up to hold co-op accountable