Fired.
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.
Bankruptcy for Ostenson
Ostenson declared bankruptcy on January 9, 2007. He declared Chapter 11 bankruptcy in the Eastern District of Washington State Bankruptcy Court. Chapter 11 Bankruptcy is defined as, “protection from creditors given to a company in financial difficulties for a limited period to allow it to reorganize.” This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor will propose a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in Chapter 11. All the court records regarding Ostenson’s Chapter 11 filing appear on the internet. It is easy to read and print out all the documents filed for and against Ostenson. It is not a pretty picture. He essentially had nothing. He inflated the value of the assets he did have in his bankruptcy estate to make it appear that the assets in his bankruptcy estate exceeded his liabilities. This allowed him to work his way out of bankruptcy over a three-year period and retain something. It also allowed DiLoreto to purchase his 40 acres that he owned in partnership with his brother. A further discussion of Ostenson’s trials and tribulations in bankruptcy is presented later in this essay.
Lawsuit after lawsuit
After entering bankruptcy, in a complicated lawsuit, Northwest Wholesale sued Ostenson and Holzman for over $300,000 that they were owed for equipment delivered to the packing shed before it failed. Ostenson countersued the LLC claiming the LLC “breached a lease for the fruit packing facility, failed to pay for orchard crops, owes Ostenson, his wife and son unpaid wages, under compensated them, owes reimbursement for expenses incurred on behalf of the company, failed to distribute profits and breached fiduciary duties.” Ostenson and wife also brought a derivative action against Holzman, as a member of the LLC alleging mismanagement. (A derivative action is a lawsuit brought by a shareholder of a corporation on its behalf to enforce or defend a legal right or claim, which the corporation has failed to do.) The author does not have the trial court’s records but apparently, there was nothing in the LLC for Ostenson to recover. Ostenson won the lawsuit but gained nothing from the bankrupted LLC. Ostenson also lost the derivative action lawsuit in the trial court. He appealed only the derivative action lawsuit verdict. He subsequently lost his appeal in the Appellate Court and finally in the State Supreme Court. These lawsuits dragged on from 2007 until just recently, September 2015. The courts stated that the determining factor was that when Ostenson filed for bankruptcy protection he was disassociated from the LLC and thus gave up his right to file a derivative lawsuit against Holzman. Eight years of constant lawsuits in addition to years in the bankruptcy court. Ostenson has been a savior of the lawyers of Wenatchee. Ostenson’s bankruptcy legal bill for services for 2007 was over $100,000.
Quotes are taken directly from court records, Court of Appeals No. 31491-0-III and Supreme Court of Washington No. 90891-5
Appeals court
Appellate court records tell the story of the Holzman/Ostenson partnership and its conclusion in an unemotional and thorough manner. Quotation marks are direct quotations from the court records.
“The Ostensons’ story presents a primer on how not to conduct business.” This is taken from page 2 of the appellate court’s decision. More direct quotes from court records. “Ostenson and Holzman met in 1997. Holzman owned GHI (Greg Holzman Inc.), an organic brokerage business, and desired to expand into Washington State. To this end, the Ostensons and GHI formed, in June 1998, Pac Organic Fruit, LLC, a Washington limited liability company. The Ostensons owned 49 percent of Pac Organic. GHI owned the remaining 51 percent, allowing Holzman, through his corporation, to control business decisions. (None of this was revealed to DiLoreto who was still a partner with Ostenson in an LLC that DiLoreto and Ostenson had formed in 1996 named Frenchman Hills Organic Farms.)
“The Ostensons’ and Holzman’s operating agreement for Pac organic designated GHI as the manager of the limited liability company. The manager could be removed by a vote of all members, but remember that GHI was a member. Under the agreement, a member became dissociated upon the occurrence of any event considered a dissociation under the Washington Limited Liability Company Act. The agreement required both the Ostensons and GHI to contribute additional capital at GHI’s discretion. Finally, the limited liability company agreement obligated Ostenson to lease a packing facility to Pac Organic, obtain a loan towards improving that facility, and pay that loan.
“Shirley and Harold Ostenson were more than Pac Organic’s minority owners. Ostenson oversaw Pac Organic’s operations. Shirley Ostenson served as Pac Organic’s accountant. The Ostensons owned the packing facility in Grant County, which they leased to Pac Organic for 20 years with monthly payments beginning at $8,200.
“Under Pac Organic’s business model, growers delivered fruit to Pac Organic for packing and storage, and Pac Organic paid the growers for their fruit. GHI remitted sales proceeds, less its commission, to Pac Organic, rendering Pac Organic financially vulnerable to business practices of GHI. Pac Organic conveyed the fruit to the distributor.
“Pac Organic first operated only three months a year. With the goal of operating year-round. Pac Organic added packing lines and constructed four controlled atmosphere rooms. Pac Organic financed this expansion by borrowing almost one million dollars. The Ostensons and Holzman personally guaranteed the loan.
According to the Ostensons, Pac Organic steadily grew from 1998 to 2004. Growers delivering fruit to Pac Organic increased from 3 to over 30. The number of bins packed increased from 491 to 24,539. To accommodate the growth, Pac Organic leased controlled atmosphere rooms from another facility, effective May 1, 2000. Under the terms of the lease, Pac Organic initially leased 4 rooms. Pac Organic promised to increase the number of rooms leased by 2 bi-annually, such that Pac Organic would eventually lease all 12 of the facility’s rooms. At that point, the lease provided Pac Organic the option of purchasing the facility. Total income increased from $187,220 to $3,244,523. Ostenson expected Pac Organic’s profit for 2005 to exceed $324,000. (I ask you, reader, Ostenson is losing money every year and is close to being fired and he conjures up a number like $324,000. No way.)
“According to Ostenson, GHI stopped remitting sales proceeds to Pac Organic in 2004, and instead paid growers directly. GHI’s records show it owed Pac Organic more and more as 2004 progressed: $310,560 in January, $717,816 in April, and $833,272 in May. Similarly, Pac Organic’s records show that GHI remitted less and less: $502,411 in July, $72,494 in August, and nothing in September. The Ostensons accuse GHI of meeting its cash flow needs at the expense of Pac Organic, by paying orchardists directly.
Holzman’s version of Pac Organic’s decline differs from the Ostensons’ testimony. According to Holzman, Pac Organic lost money every year from 1998 to 2003. Holzman maintains that he tried to work with the Ostensons to turn Pac Organic around, but Ostenson was uncooperative. Ostenson, according to Holzman, refused sales of stored fruit because he and buyers disagreed on pricing, which caused fruit to sit past its prime and Pac Organic to lose revenue.
“Regardless of who, if anyone, was to blame, Pac Organic financially collapsed. In early January 2005, Pac Organic defaulted on its operating line of credit. The company also defaulted on its lease payments to the Ostensons. On March 8, 2005, Holzman fired the Ostensons from employment with Pac Organic. Later that year, KeyBank foreclosed on the Pac Organic packing facility and the Ostensons’ orchard.
On July 27, Greg Holzman executed, as an agent of Pac Organic, a demand promissory note in favor of GHI in the amount of $1,023,009.38. (Reader, what Holzman is doing is writing himself a check for over one million dollars.) The Ostensons claim that the note is, at worst, fraudulent, and at best, constituted mismanagement by Greg Holzman and GHI of Pac Organic’s affairs. Holzman maintains the promissory note Pac Organic executed in favor of GHI was legitimate and, if anything, understated the amount Pac Organic owed to GHI. As an agent for Pac Organic, Holzman transferred the limited liability company’s assets to GHI to satisfy the note. Holzman assigned Pac Organic’s lease with the cold storage facility to GHI. The Ostensons claim Holzman, through GHI, wrongfully gutted Pac Organic of any value.
On January 9, 2007, Harold and Shirley Ostenson filed for bankruptcy protection under Chapter 11 (A case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a "reorganization" bankruptcy.) Subsequently, Ostenson and Holzman began lawsuits that lasted until September 10, 2015. Eight bloody years of paying legal fees.
The State Supreme Court concurred with the Court of Appeals thus ending eight years in court for Holzman.
Back to DiLoreto and Ostenson, 1998, How to end the Ostenson/DiLoreto partnership?
The year 1998 was the worst for DiLoreto. DiLoreto was trying to get rid of Ostenson and Ostenson was wooing his new partner Holzman. In response to DiLoreto’ request to end the partnership, which consisted of one-half the packing shed and one-half the new orchard, Ostenson announced that he was obtaining a small business loan to buy DiLoreto out of the packing shed building. DiLoreto welcomed this. In September, the loan closed and DiLoreto received a check for about $200,000 made payable to the DiLoreto/Ostenson partnership. DiLoreto deposited this check into the partnership account and it lowered the partnership debt with the bank. The remaining asset in the partnership was the new orchard. In the meantime, before and after the closing on the packing shed Ostenson went ahead with his plans to further develop the packing shed. He borrowed over $1,000,000 to do this.
Partnership agreement
DiLoreto and Ostenson did not have a valid partnership agreement and therefore there was no written method of dissolving the partnership. DiLoreto attempted throughout the first half of 1998 to get Ostenson to sign a partnership agreement. It was the intention of DiLoreto to get a partnership agreement signed and then utilize the partnership dissolution chapter to get rid of Ostenson and end the partnership. The agreement was signed by both parties in September of 1998. For partnership dissolution, the agreement, among other things, called for the party seeking dissolution to contact the second party and indicate that the first party wished to end the partnership. The second party then had thirty days to respond. The options available to the second party were to buy or sell. The only asset remaining was the newly planted forty acres of orchard. The price was to be the invested cost of the new orchard, about $400,000. DiLoreto had sold his half of the packing building a little earlier. DiLoreto personally delivered the official letter buy or sell letter to Ostenson in late September. According to the partnership agreement signed only days earlier, Ostenson had thirty-days to either buy or sell to DiLoreto the new orchard. DiLoreto heard nothing from Ostenson. DiLoreto contacted Ostenson just before Thanksgiving in November 1998. Ostenson promised a response on the Monday following Thanksgiving. DiLoreto is still waiting for Ostenson to respond. It has been eighteen years. Here is where you must learn that signed agreements mean nothing when dealing with someone as intransigent as Ostenson. Not only did DiLoreto not hear from Ostenson within the thirty-day agreed upon time limit, he never heard from him. He refused to answer calls and email. DiLoreto did receive a letter from Ostenson’s wife which is attached. She vowed never to talk to DiLoreto. What a pity.
Deer in the headlights, 1999
Phone calls, lawyer letters, nothing could budge Ostenson into responding to the buy or sell letter. Ostenson was like a deer caught in the headlights of an oncoming car. Frozen. Nothing. In January of 1999, DiLoreto canceled all his loan guarantees and stopped making interest payments. This placed the partnership’s loans in default. Ostenson’s lawyer was livid. DiLoreto could not have cared less. The bank has a procedure for this and started to repossess the new orchard. DiLoreto was now introduced to a banker whose sole responsibility was to protect the bank’s assets. DiLoreto’ position was that unless the partnership was ended, and one or the other partner owned the new orchard, the bank could repossess the orchard and other assets. The bank would then auction these assets on the steps of the county court house and DiLoreto would then buy them back if he desired. Ostenson was now faced with a dilemma. The new orchard was in loan default. He did not have the funds ($400,000) to purchase the orchard and he deeply wanted to retain his pride and joy. His dream. Matters came to a head in January 1999, he must buy or sell. In January 1999, Ostenson came out of hiding and disclosed that he had a new mysterious buyer. We shall meet this mysterious buyer again later. The bank went along with the mysterious buyer and the buy or sell was delayed two more months. Please understand that this was excruciating. If DiLoreto were to be the owner of the new orchard, he had many preparations to make for the 1999 crop year. The mysterious buyer never showed and in March 1999 DiLoreto purchased the new orchard. It was now in its fourth year of growth and there was an actual crop. Holzman with his deep pockets wanted no part of the new orchard. He stated later that he did not want to own any real estate so far from his home on the west coast.
Torture Ostenson style.
Prologue
The author feels compelled to share with you the reader some of the torture that Ostenson inflicted upon DiLoreto. Some of these are small issues but they do add up.
Irrigation water bill.
The irrigation water bill came to Ostenson because the irrigation district had Ostenson’s address in their records but DiLoreto paid all the bills. DiLoreto received an email from Ostenson because Ostenson did not have the balls to have a verbal conversation. He was bemoaning the fact that DiLoreto had not paid the irrigation water bill. Would you believe that Ostenson had the bill and he never forwarded to DiLoreto to be paid?
New Ford Truck.
Ostenson was given an almost new Ford truck because DiLoreto felt sorry for the piece of the shit truck he was driving. The title and registration remained in DiLoreto’ name. When the divorce proceedings started, DiLoreto recalled the truck and sold it back to the Ford dealership where it had been purchased. In just a few months, Ostenson had completely trashed the inside of the truck. To complete the sale, DiLoreto had to purchase and have installed new carpeting. The carpeting had been protected by rubber mats but Ostenson still managed to destroy the carpeting of this almost new truck.
Visa card and Mrs. Ostenson.
In 1998 DiLoreto received a letter from Mrs. Ostenson. She was questioning and accusing DiLoreto of spending $3,500 in Visa card expenditures. She questioned that charges more than a year after they appeared on our statement. DiLoreto had never used the Visa card. It was a convenience for Ostenson. DiLoreto had to go back and query the bank to see who made the charges. Unsurprisingly it was Ostenson who made the charges. When DiLoreto explained this to Mrs. Ostenson there was no acknowledgment that she had received the explanation and no apology for the false accusation. This was to be her modus operandi for the rest of time DiLoreto and Ostenson operated.
Postage reimbursement? Not this time.
The partnership paid Ostenson $3,000 per month for his management skills. In addition to the $3,000 he was provided with an almost new truck, which he trashed in less than one year. The partnership also provided housing for him, his recently fired and unemployed wife, his unemployed son who was searching for a purpose in life and his equally unemployed daughter-in-law. During her stay in partnership housing, Mrs. Ostenson mailed one or two letters for the partnership. She then presented DiLoreto with a bill for the stamps she used. The amount was less that one dollar. DiLoreto refused to pay this bill. This did not go over well with Mrs. Ostenson and added to the tension. It should be noted that at one time or another, every family member of Ostenson was employed by the partnership. His son-in-law and daughter came to visit one summer and guess what? He had a job working for the partnership. The partnership became known as the Ostenson family full employment partnership. Employing family members would be acceptable if the wages paid family members were not double what the partnership paid workers. For example, his son drove a forklift for the packing shed. He was paid more than twice what the partnership paid a non-Ostenson family member to drive a forklift. DiLoreto was never paid a penny nor reimbursed for any of his expenses. As stated earlier, it truly became Ostenson’s “Full Family Member Employment Company.”
Post office avoidance
Ostenson lived across the street from the George, Washington post office. DiLoreto handled the payroll which amounted to preparing the paychecks on QuickBooks. When the workers were given their checks, DiLoreto would usually take about $20,000 in cash from his account at Union Bank of California and use these funds to cash the worker’s checks. DiLoreto did this because it was difficult for the Latino workers to cash their checks without a hassle. On one occasion, DiLoreto could not stay at the orchard to cash the checks and he entrusted Ostenson to do it for him. Thus, Ostenson received about $20,000 from DiLoreto to be used to cash the worker’s checks after they were given their paycheck. After paying the workers, Ostenson held many checks amounting to $20,000 that represented funds taken from the account of DiLoreto. DiLoreto needed those signed checks back into his account so he could do the same thing the following payday. When DiLoreto gave the funds and the paychecks to Ostenson he also gave him a pre-addressed and stamped envelope. After cashing the worker’s checks, it was only necessary for Ostenson to walk across the street to the post office to mail the cashed and signed checks back to DiLoreto. How long should this take? It took weeks. Weeks to get the stupid bastard to walk across the street and mail a pre-addressed and stamped envelope. An envelope which meant thousands of dollars to DiLoreto. DiLoreto faults himself for entrusting Ostenson to carry out such a mundane assignment because DiLoreto knew full well that Ostenson was not competent to complete mundane tasks.
Lawn
Ostenson lived in a double wide that was paid for by the partnership. The double wide had a miniature lawn. The stupid fuck, Ostenson, was too lazy to cut his own lawn and the partnership paid about one-hundred dollars a month to have the grass cut. This would not have been so bad had the partnership been earning money. The partnership was not earning money so the additional one-hundred dollars per month meant more debt to service.