My orchard.

My orchard.


When I originally envisioned this story, I was going to use fictitious names. However, the reports taken from court records use real names, so I will also. I do not intend to demean anyone. I do not wish to demean Harold or Shirley Ostenson but the record speaks for itself. Ostenson and DiLoreto are the main protagonists in this story. Ostenson unwittingly made DiLoreto a wealthy person. Unfortunately, Ostenson wound up in Bankruptcy court and almost drove DiLoreto crazy along the way. In 2007, DiLoreto was now the owner of two orchards, debt free, comprising eighty acres and Ostenson and his wife had just entered Chapter 11 Bankruptcy. This is a twisted tale of how that happened. You are going to ask yourself, “How could an intelligent person make so many stupid mistakes?”

Prior to 1996.

DiLoreto met Ostenson while both were in the navy. The time was about 1976. Ostenson worked for DiLoreto for a brief time. Ostenson left the navy sometime around 1977-1978 to go into the orchard business. Ostenson borrowed heavily and was highly leveraged as he started out in the apple business. He prospered until 1989. In 1989 reports were issued by various agencies that questioned the safety of Alar, a chemical used in non-organic orchards. Even though Ostenson’s orchards were organic and he did not use Alar, all fruit was tarred with the same brush. Apples were not selling. Ostenson had amassed more debt than was prudent. He was, therefore, unable to meet his payments and he subsequently lost most of his assets.

To earn a living after the Alar debacle had decimated his finances, Ostenson, with the help of P. V. Hendricks, another navy friend, became a consultant. Using the technical skills he acquired in the navy, Ostenson worked with Hendricks until this relationship was abruptly terminated. Each side blamed the other for financial mismanagement. What really happened was that Ostenson, after being set up in the consulting business by Hendricks, may have withheld funds that had been jointly earned. It is difficult to fathom the type of person that would enjoy the help given by a friend and then when it suited him screw him. Hendricks still harbors strong resentment towards Ostenson as do his other three former partners. Failed partnerships have continued to plague Ostenson’s life.

Around 1982, Ostenson acquired a forty-acre orchard in partnership with his brother. This orchard shall be referred to as the south orchard or the old orchard throughout this discussion. Ostenson leased the orchard to a Wenatchee fruit grower and packer for the years 1992-1995. When one leases an orchard to someone else, he becomes the lessor and receives only thirty percent of the profits. Ostenson now desired all the profits and he, therefore, negated the lease prior to the 1996 growing season. He had no money to farm his orchard so he looked around for a partner with funds so that he could afford to farm his orchard in 1996. This is where DiLoreto came in. It was Ostenson’s plan for Ostenson and DiLoreto to form a partnership.

It is 1996, Ostenson and DiLoreto Become Partners.


Ostenson owned forty acres of mature apple, apricot and cherry trees in partnership with his brother. Ostenson proposed that DiLoreto and Ostenson form a partnership. The partnership would manage the one orchard that Ostenson owned with his brother, the old orchard. The partnership would also purchase the forty acres of wheat land coterminous with the old, existing orchard and plant another orchard, the new orchard. The revenue from the old, mature orchard plus bank loans would support the planting of the new orchard. Thus, DiLoreto and Ostenson formed a partnership in 1996. DiLoreto and Ostenson failed to bind their partnership with a valid partnership agreement. It would have been prudent to have had a written agreement. Although there was no written agreement it really did not matter because it soon became apparent, as DiLoreto was to painfully learn, that Ostenson only adhered to verbal or written agreements when it suited him.


To finance the purchase of the land, the planting of the trees and farming of the eighty acres, bank loans were required. In early 1996 the partnership consisting of DiLoreto and Ostenson plus spouses planted cherry, apple, peach and nectarine trees on forty acres of raw land. DiLoreto was so naïve that he never checked Ostenson’s finances nor did he ask the bank to check for him. DiLoreto now knows that the only finances that were available to back this venture other than the proposed revenues from the mature orchard, were the finances of DiLoreto. With the risk involved for the bank and the economy in general, the market interest rate was ten percent. Bank loans were required for purchasing the land, purchasing the trees, planting the trees and farming the old orchard. Some of the costs involved were land $160,000, planting $140,000 and the first-year farming $300,000. At the end of the first year, using an established packing house, the partnership had made a small profit but owed Union Bank of California a substantial amount of money. Our banker at the time at Union Bank was Rob Dietz.

Over his head, 1996

DiLoreto has since learned that the partnership had embarked on no small adventure. Planting forty acres of trees and farming another forty acres of an orchard is not a small accomplishment. It became apparent that Ostenson was over his head in his attempt to manage the old orchard and plant the new orchard. Ostenson was responsible for the planting of the trees, pruning, spraying which was never ending to control the codling moth, fertilizing, irrigating to keep the trees alive, weeding and in the fall, there was the requirement for pickers to harvest the fruit. The reader should remember that this partnership was the idea of Ostenson and not DiLoreto. The only task that DiLoreto retained was the handling of the checkbook. DiLoreto is thankful that he kept his hands on the finances. He paid the workers and paid all the bills. Ostenson was well compensated. He was receiving a draw of $3,000 per month, cell phone, which he abused, living accommodations and an almost new truck.

1997 and expansion.

It appears that Ostenson’s dream from before the partnership was formed, was to run a packing business. He would pack the partnership’s fruit and the fruit of other growers. Therefore, in early 1997, not content with the eighty acres of orchard and its challenges, Ostenson suggested and DiLoreto approved a plan to purchase a former potato packing building on eight acres of land near the site of the orchards. The plan was for the partnership to convert the building into a building to pack and distribute the partnership’s fruit. The building and land cost $100,000. Another $100,000 was spent on refurbishing the old potato packing building. By the end of 1997, the partnership debt now approached $1,000,000. Debt service on this loan was about $100,000 per year. One hundred thousand dollars of debt service was far more than the meager earnings from the old orchard. This meant of course that the partnership was getting into more debt every day. Although the partnership packed its own fruit, the sale and distribution of the fruit were conducted by Ostenson’s new best friend on the west coast, Greg Holzman. Unknown to DiLoreto, Ostenson was now courting a partnership with Holzman. For crop years 1997 and 1998 fruit was shipped to Holzman. There was absolutely no accounting to DiLoreto for partnership fruit shipped to Ostenson’s new best friend Holzman. Try to understand what it means to have suffered through two difficult years and not be provided with any documentation concerning the fruit from your orchards. Either Ostenson was hiding the records or Holzman was not providing the records. To make things even worse, Ostenson’s wife was the partnership’s bookkeeper. Of all the stupid mistakes that DiLoreto made, he was not stupid enough to give the check book to either Ostenson or his wife. Thus, DiLoreto somewhat controlled the outflow of cash.

More expansion?

About mid-1997, when there was a lull in the partnership activity, Ostenson asked DiLoreto if he would consider further expansion of the packing shed facility. More expansion meant more borrowing. What must have been in the back of Ostenson’s mind was the construction of a packing facility that could store as well as pack the partnership’s fruit along with the fruit of other growers. Ostenson undoubtedly saw or thought he saw easy dollars in packing and storing the fruit of other growers. To store fruit, an expensive controlled atmosphere facility is required. In addition to the controlled atmosphere facility, there must be personnel trained to operate this facility. Ostenson was not trained to operate and especially not trained to manage such a facility. DiLoreto having experienced Ostenson’s lack of management skills first hand declined to participate in additional expansion pointing out the existing debt and prophesied that Ostenson was on a path to bankruptcy. This prophecy held true just ten years later. Ostenson was not to be discouraged. Without telling DiLoreto, Ostenson entered a partnership with Holzman and would spend over one million dollars on the expansion DiLoreto had declined.

The juice business.

The packing building was operating marginally by the middle of 1997. Ostenson admitted that the cost of packing the partnership’s own fruit exceeded the cost charged by the first-rate packing company the partnership had used the year before. After borrowing and spending hundreds of thousands of dollars, the partnership was paying more to have its fruit packed than the previous year. And there was no accountability. None. Only Zeus knows where all the apples went. Ostenson now suggested that the partnership go into the juice business. This suggestion was made just about the time a major juice company killed some people with E. coli tainted juice. DiLoreto said no to his participation in the juice business stating that the partnership had enough on its plate. The juice idea most likely came from Ostenson’s recently fired, unemployed wife, unemployed son and unemployed daughter-in-law. For them it was natural. Use partnership apples, partnership water, partnership electricity and the partnership building to make apple juice. Despite the objection by DiLoreto and behind his back, Ostenson and his family started producing apple juice using partnership assets within the packing shed. DiLoreto was livid when he saw the juice machinery during a visit to the packing shed. This was, in fact, the last straw for DiLoreto. He informed Ostenson that the partnership was over and that he, DiLoreto wanted out. Thus, began a very tumultuous divorce procedure between the DiLoreto/Ostenson partnership that was less than two years old.

Ostenson’s half of the packing shed

As a comment, Ostenson once stated that he was only using his half of the packing building to produce juice. Ostenson, who now has nothing, has had many years to rue that comment as he lost his packing building, his orchards and his home. Ostenson’s loss of almost everything could have been avoided had he heeded some of the advice given by DiLoreto. 

Ostenson and Holzman hook up

Ostenson and Holzman met in 1997. Holzman was and still is today, a businessman living in the Bay Area. Before continuing the narrative of DiLoreto and Ostenson, the author feels it is necessary to describe the Ostenson/Holzman relationship and how it ended in disaster. The Ostenson/Holzman partnership went on during and after the Ostenson/DiLoreto partnership and breakup. The Holzman/Ostenson partnership involved more borrowing, more construction, more pay to Ostenson, more benefits to Ostenson, more of Ostenson’s family on the payroll and more growers being involved. It was much more important for both Holzman and Ostenson because of these features but also because this partnership involved much greater risk and borrowing. The outcome was disastrous for Ostenson, ending in his filing for Chapter 11 bankruptcy in 2007. It was costly for Holzman because he had co-signed the loan documents. Holzman’s partnership with Ostenson and subsequent financial assistance to Ostenson allowed Ostenson to end his partnership with DiLoreto in 1998. It gave Ostenson the financial backing he needed to go forth with his plan to not only grow fruit but to pack organic fruit for other growers. This was a blessing for DiLoreto. The Holzman/Ostenson partnership lasted until March 8, 2005, when Ostenson and family were fired by Holzman. Holzman and Ostenson subsequently sued each other and remained deadlocked in court until September 10, 2015, when the State Supreme Court ruled against Ostenson. Basically, Ostenson had sued Holzman claiming mismanagement of the limited liability company. Holzman argued Ostenson gave up his rights to sue when he declared bankruptcy. The State Supreme court ruled against Ostenson. The author will now digress from the DiLoreto/Ostenson story to describe the Ostenson/Holzman story and its disastrous conclusion. The following description was taken from court records. When the Ostenson/Holzman story is finished the author will resume the description the DiLoreto/Ostenson divorce and more. 

In 1997 Ostenson began packing DiLoreto and Ostenson’s partnership fruit and then sending it to Holzman to be sold. DiLoreto left his partnership with Ostenson at the end of 1998 and Ostenson According to court records, although Ostenson and Holzman were ostensibly partners, they formed a Limited Liability Company (LLC) in June 1998. Ostenson never revealed this partnership arrangement to DiLoreto although DiLoreto and Ostenson were still partners at the time. Try to understand the implications of this. DiLoreto owned a one-half interest in the packing shed and he was partners with Ostenson in operating eighty acres of orchard. The products of these orchards were now going to the DiLoreto/Ostenson packing shed to be packed and sent to Ostenson’s other partner, Holzman. When asked where all the proceeds went, Ostenson’s unemployed wife, in a letter that is attached to this essay, claimed it was a bad year. Holzman was smarter than DiLoreto in that when he established the LLC he gave Ostenson only 49% of the partnership thus retaining 51% for himself. The LLC agreement also designated Holzman as the manager of the Limited Liability Company. This allowed Holzman to control business decisions. The LLC agreement allowed for the manager to be removed by a vote of all members, but remember Holzman was a member of the LLC. Holzman was not going to be removed by vote unless Holzman wanted it. Under the Washington State Limited Liability Act (WLLCA), a member of an LLC became dissociated (in our case, removed from the LLC for filing a derivative action) upon the occurrence of any event considered a dissociation under the WLLCA. One event that will cause a member to become dissociated is for that member to file for bankruptcy protection. This dissociation will become extremely important as events unfold. 

Packing shed basics, Packing shed 101 or how to not run a packing shed. 

In the court records on almost the first page of the court decision, there is a statement “The Ostenson story presents a primer on how not to conduct business.” No one could not have said it better. To remain in business, eventually, the business must show a profit. For those of you who have trouble understanding this, the author will put it another way. You cannot lose money year after year and expect to remain in business. This is true no matter how deep your partner’s pockets are. 

Packing shed cash flow implications 

The operation of a packing and storage shed is very basic. It is a business. The revenues must exceed the expenses for the business to remain solvent. Frequent borrowings from your friendly banker or cash infusions by your partner do not count as revenue no matter what you may have been told. If you are a minority shareholder managing a business and the business loses money every year, you must know that the majority shareholder of the business will fire you. Period. What choice does the majority owner, in this case, Holzman have? He has seen the revenues climb to over three million dollars but the LLC is still bleeding cash. Ostenson ignored the implications of losing money every year by telling Holzman, wait until next year. Holzman may have deep pockets but no one enjoys losing money every year. 

Basic packing shed operations 

It is very simple. A grower will bring his apples to the packing shed to have them stored until market conditions are suitable. When the market is right the apples will be sorted, packed, shipped and sold. The packing shed will disburse funds to the grower depending on the packing shed’s receipts minus the packing charges. For example, a grower brings one bin of apples to the packing shed. Holzman and Ostenson will decide if there is a market or a demand for the apples at that time. If there is demand, Ostenson will remove the apples from storage, wash, sort and pack the apples into apple boxes like the ones you see at your QFC or Safeway. Ostenson will then ship the apples to a customer Holzman has made a contract with. The buyer will pay Holzman, Holzman will deduct his commission and remit the remainder to the LLC. The LLC will deduct the costs associated with packing, sorting, storing and shipping the apples and remit the remainder to the grower. 

Refused shipment 

One point of contention and one of the main reasons Ostenson was fired according to a conversation with Holzman was Ostenson’s refusal to ship some apples. Ostenson maintained that the price was too low. The difference was about two dollars a box for thirty or forty boxes of apples. Holzman had ordered the apples and was confident they had been shipped. A subsequent conversation between Holzman and Ostenson revealed the apples were still on the floor of the packing shed. The apples had become too old to ship or sell. A multi-million-dollar operation went down the toilet because Ostenson felt he had a better concept of apple prices on the west coast than his broker and partner. How could anyone be so stupid as to halt the shipment of the product and then let it go to waste for a few dollars? Only Ostenson. This matter could probably have been ignored had Ostenson been operating a profitable packing shed but for Holzman, this most likely served as the straw that broke the camel’s back.

The end of his new partnership 

When one considers the finances of the LLC from the beginning it becomes apparent that the LLC never had a chance. From the start up there was debt service on about 1.2 million dollars that Ostenson owed to the bank and the Small Business Authority. To service this debt Ostenson charged the LLC over $8,000 per month in lease payments. Ostenson also charged the LLC over $100,000 per year for his salary. His spouse and son were also sucking on the teats of the LLC. With these fixed payments, even if Ostenson could manage, the finances were going to be strained. Remember that in the first year the number of bins packed was only in the hundreds. The LLC had to lose money in the early years. Ostenson’s claim that in 2005 the LLC would make over $300,00 was a pure dream just like so many of his other claims. Unfortunately, he always gets someone to believe his outlandish claims. Holzman was a good businessman. How and why he was ever persuaded by Ostenson’s outlandish claims is a mystery to everyone. He could just as easily have continued to purchase fruit from Ostenson. He never had to sink a penny into an LLC with Ostenson. I think that Holzman probably wanted to get his commission for moving the fruit from the packing shed to the buyer and he wanted to get paid on some of the money earned by storing and packing the fruit. His big mistake was that he cosigned on most of the loans that Ostenson needed to refurbish the packing shed and purchase consumables.  This cosigning cost Holzman over a million dollars when he paid off the packing shed loan. The bill to Northwest Wholesale was an additional $300,000 when Ostenson declared bankruptcy. Holzman had to settle this bill with Northwest Wholesale and assume the mortgage payments for the packing shed. 

It is 2004 and still no profits 

The LLC had lost money every year from 1998 to 2003. It is now 2004 and the LLC is still losing money. Holzman by now wondering where all the profits were going, stopped or slowed money to the LLC in January 2004.  To preserve funds, he apparently decided to pay the orchardists directly and bypass the money-losing LLC that Ostenson was sucking dry. What would any savvy business person do? The number one rule of business is that the negative flow of capital must be prevented. Obviously, the packing shed, under the management expertise of Ostenson, was never going earn a profit. The packing shed had revenues of over three million dollars. Only Ostenson could lose money on that large a revenue base. Therefore, Holzman stopped throwing good money after bad during 2004 and in January 2005 the LLC financially collapsed. Why it took so long for Holzman to end his financial bleeding while his Ostenson and his family thrived is unknown. In January 2005, without Holzman feeding the LLC it defaulted on its operating line of credit and packing shed lease payments to Ostenson. Holzman did not want to own real estate so far from his home so he had Ostenson borrow the funds to further improve the packing shed. Ostenson then leased the packing shed back to the LLC and received lease payments to help service the debt. On March 8, 2005, Holzman fired Ostenson, his wife and son. Ostenson claimed that in 2005 the packing shed would earn $324,000. Only Ostenson could make such a stupid prediction. That number means that the packing shed would go from losing money on every bin of apples packed to earning the equivalent of $100.00 per bin. Ludicrous. Many contested events occurred before and after the firing of Ostenson. There were financing and funds transfer issues but Ostenson was out of a job. Ostenson still had lots of bank debt and the cash flow from Holzman had stopped. The packing shed would have to shut down even though Holzman would attempt to keep it running. Holzman’s finances would be okay because he had a profitable business and deep pockets. He later claimed this was the worst investment he ever made. There is nothing unique about that statement. There are many others who can utter the same sentiment. Even his attorney bemoaned the fact that he was never paid by Ostenson. The author personally knows of two of Ostenson’s ex-navy friends who can attest to losing money via Ostenson’s schemes. It must be noted again that Ostenson’s wife kept the books. Therefore, there is no accounting for the way Ostenson conducted the business. What is known is that the court records state, “The Ostenson’s story presents a primer on how not to conduct business.” One can only agree. 


When Holzman fired Ostenson, he was knowingly killing the business that he and Ostenson had built. All the apple packing business went to other packing houses. The Ostenson/Holzman packing house sat empty for about ten years. Holzman had become an owner because Ostenson was in bankruptcy. The debt on the packing shed exceeded the value of the packing shed by hundreds of thousands of dollars. As a result of Ostenson’s bankruptcy, Holzman had to service the debt and ultimately pay off the debt. He now owned a real pink elephant. An expensive pink elephant. Holzman ultimately sold the packing shed. It cost Holzman a lot of money to have Ostenson for a partner.