Comar Creditor Awaits Court Appointment of Bankruptcy Trustee
The case is being watched closely by companies with claims against Comar, including one firm that filed a lawsuit against the company. Equity Marketing Inc., Beverly Hills, CA, filed charges of fraud not only against Comar, but owner Jack Gersh and his brother Bruce Gersh, a former Comar employee who now is manager of direct response marketing programs for NBC. Equity is seeking compensatory damages of at least $300,000 and possible punitive damages.
The involuntary Chapter 7 bankruptcy petition against Comar was filed on June 30 by the trustee for another bankrupt firm, infomercial marketer Positive Power Products Inc. Because Positive Power had a claim on Comar's assets, its trustee filed a Chapter 7 petition to temporarily stay a public foreclosure auction of virtually all of Comar's assets, originally scheduled on July 1. That auction would have stripped Comar of its remaining assets, leaving many creditors with nothing, an attorney for the trustee said.
Comar had 20 days to challenge or answer the Chapter 7 filing, but that deadline elapsed while Positive Power's trustee awaited an order of relief entry from Judge Geraldine Mund with the U.S. Bankruptcy Court for the Central District of California.
While the bankruptcy hearing proceeds, Equity Marketing is in the process of discovery in its lawsuit against defendants Comar and the Gersh brothers.
"Comar was created pursuant to a fraudulent plan, scheme and device whereby its income, revenue and profits were diverted to Jack Gersh and Bruce Gersh," Equity alleges in its suit.
Equity is a marketer of promotional merchandise, including toys that are distributed through gas stations or fast food outlets concurrent with a movie release. Equity hired Comar two years ago to fulfill orders of toys, but the business relationship soured.
Equity alleges it was billed shipping charges for other Comar clients. As part of its fulfillment agreement with Comar, Equity agreed to obtain a Federal Express "Powership" machine registered to the account of Equity that would be installed at a Comar warehouse. A Powership machine generates air bills used to ship packages and facilitates the shipping process for account holders.
Equity alleges the Powership machine was to be used by Comar solely for the benefit of Equity to ship toys to Equity's customers. With that understanding, Equity was alarmed when it received three Federal Express invoices totaling about $147,489 on Dec. 29 incurred as a result of Comar's alleged use of the Powership machine.
"Upon examination of the invoices," the complaint alleges, "it was apparent to Equity that these charges were not attributable to the shipping of Equity's toys and that defendants had improperly, and without the knowledge or consent of Equity, used the Powership machine to ship other customers' merchandise. Defendants admitted to Equity that the charges were incorrectly applied to Equity's account and that defendants had improperly used the Powership machine to ship other customers' merchandise."
An attorney representing Jack Gersh denied Equity's claim that the use of the Powership machine was contrary to the express terms of the fulfillment agreement.
"We deny that the allegations are true the way they've been framed," said Michael J. Schiff, an attorney with Easton & Schiff, Los Angeles. "The key word that the plaintiffs are using is 'misuse,' and we deny that we misused the machine and everything that flows from misuse."
After Equity complained about the bills, Comar agreed to reimburse Equity for the full amount, according to its complaint. Equity says it received three checks from Comar on Jan. 16 totaling about $147,489 and immediately forwarded them to Federal Express. Federal Express a month later advised Equity that Comar's checks had been returned due to insufficient funds, according to Equity.
Meanwhile, Federal Express sent Equity more invoices totaling $64,450.80 from Comar's unauthorized use of the Powership machine, Equity alleges. Equity is seeking damages to cover the costs of the alleged misuse of the Powership machine, which is the basis for its allegations of fraud.
Jack Gersh's attorney said the fraud claims are without basis.
"We've been involved in some discovery and this does not appear to be a fraud case," Schiff said. "It doesn't appear that Jack or his brother did anything of a fraudulent nature. I don't think they [Equity] can sustain any claim for fraud. They may have lost money because of their dealings with Comar, but it certainly wasn't the result of any fraud."
He said he was present at a deposition of a former Comar employee and "did not hear anything in that deposition that would arise to fraud on either Jack or Bruce's part."
He said Equity added the fraud allegation to the suit as part of its legal strategy to target the Gersh brothers personally and reach beyond claims against the corporate entity Comar.
"People include it [fraud allegations] all the time in their complaints to try to get at individuals that they couldn't otherwise get if they were just suing the corporation," the attorney said. "I've seen it alleged so many times as a way of bringing in the individuals who otherwise would be immune because of the corporate limited liability."
Jack Gersh, who did not respond to an interview request, is president of Metro Fulfillment Inc., Valencia, CA, which bears many similarities to Comar. Not only does Metro operate in Comar's former headquarters, it has the same equipment and some of the same employees. The major difference between the two companies is in ownership. While Gersh owns Comar, Metro is a wholly owned subsidiary of Marketing Services Group Inc., a publicly traded direct marketing company in New York. Metro is also a secured creditor of Comar's, which gives it a high priority among the claimants against Comar.
Bruce Gersh, who is not represented by counsel, declined to comment on the Equity lawsuit.
Alleged Breach of Contract
Equity also alleges the Comar breached its fulfillment contract last year. The company claims it directed Comar to ship toys to Shell Oil gas stations as part of the promotion for the animated film "Anastasia" in September 1997, but a major problem arose.
"On about Oct. 31, 1997, defendants advised Equity that a problem had arisen with respect to the Shell Anastasia direction in that defendants possessed more shipping labels than cartons of the toys remaining to be shipped," according to Equity's complaint. "On or about Nov. 1, 1997, Equity obtained and reviewed the shipping summaries and determined that defendants had sent multiple shipments to certain gas stations while failing to make any shipments to other gas stations listed on the address database."
Equity alleges it took measures to rectify the problem and to retrieve the over-shipments so that they could be redistributed properly, but Comar "failed and refused to provide information to Equity concerning the details of the shipments defendants had made."
Jack Gersh's attorney declined to comment on the breach of contract claim, saying that it legally pertained to Comar, but not to Gersh personally.
While Equity's lawyers continue with the discovery process, they await the possibility of a status conference to discuss the case.