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Lost in bankruptcy: They didn't get paid

Anthony Ferrentino and Barry Sturm, partners with Direct Drywall and Interiors Inc. of Hicksville, completed a project for the November opening of an Abby Z. store in Roosevelt Field. They waited more than 100 days for their final $36,000 payment before they learned it wasn't coming.

David Cooper, vice president of the family-run, bridal jewelry manufacturer Jeff Cooper Inc. in Carle Place, shipped more than $50,000 in merchandise to Fortunoff in December for what he thought was to be a launch of Fortunoff boutiques within more than 40 Lord & Taylor stores.

Now his company is counting that as its second loss with Fortunoff -- now totaling about $170,000 -- after the Long Island retailer made its second bankruptcy filing in about a year.

While many might not recognize their names, they are among the growing ranks of entrepreneurs whose small businesses have been affected by bankruptcy filings of retailers who are now finding it impossible to reorganize and emerge from bankruptcy.

Some of these independent operations have suffered losses of $12,000 while others have taken hits of more than $200,000, but, regardless of the amount, many say they have felt the double sting of lost hard work and the unfairness of a legal system that offers them little financial protection.

"Massive overhead, insurance, health insurance costs make it very difficult to run and own a manufacturing business on Long Island without the [client] bankruptcies," said Cooper. "This has added heat to the fire and is starting to burn a lot of companies. . . . We're not in the business of making free merchandise."

Vendors out in the cold Changes to the bankruptcy law in 2005 limiting the time for debtor companies to decide whether to reject or continue a commercial lease have added yet another hurdle to reorganization, bankruptcy experts say. So that, coupled with today's dearth of financing, makes it almost impossible to emerge from bankruptcy.

Companies like Fortunoff file for Chapter 11 bankruptcy protection -- which allows businesses to reorganize - and within weeks are forced to liquidate and shut down. This often means that the little-known vendors and suppliers usually recoup nothing for the merchandise already shipped or services already rendered.

The most common result is that they are far more critical and strict in terms of payment with their clients. They might have to forego plans to improve their business infrastructure or develop a new product. At least one had to lay off a person.

And others say they have to be more careful about the size of future projects because they might not have enough money to pay up front for costs or because they now think twice about the risk of not getting paid.

"Most often our expenditures are fully paid before we see a dime from the job," said Thomas Guarino, president of Black Hawk Inc., a Hicksville demolition firm which lost about $14,000 when retailer Abby Z., which specialized in plus-size fashions, filed for Chapter 7 bankruptcy protection - a process that places the business under a trustee for liquidation - last month. That and other experiences have made him lean more toward public projects rather than retail jobs.

'She strung us along' Ferrentino and Sturm, as well as Guarino, were subcontractors hired by J. Hage Construction, a Lakeville, Minn.-based firm, to work on the Abby Z. store that opened in Roosevelt Field in November. They said they are taking legal action against J. Hage and Abby Z. and have already filed a lien against Abby Z. -- the retailer for plus-size women owned by designer Abby Zeichner -- to no avail.

"All along everything was great, great, great and when she ran into trouble, she made it everyone else's trouble," Sturm said. "She strung us along by saying, 'I am trying to get financing,' and all of a sudden we get a bankruptcy notice and all of her stuff was taken out of the store."

Calls to Zeichner and her attorney were not returned.

In the case of Fortunoff, many jewelry suppliers said they were particularly appalled by the bankruptcy filing because Fortunoff buyers were aggressively pushing as late as January to get merchandise shipped for the rollout of Fortunoff jewelry boutiques in Lord & Taylor stores, which are owned by NRDC Equity Partners Llc, Fortunoff's parent company at the time. The jewelry counters were set up in 11 Lord & Taylor stores by the time Fortunoff filed for bankruptcy on Feb. 5.

"They should have been diligent about how much merchandise they were taking in the last month and a half," said Bruce Pucciarello, of Novell Enterprises Inc., a Rahway, N.J., bridal jewelry manufacturer who lost about $250,000 to Fortunoff's bankruptcy and liquidation.

"If they were looking at the Christmas season and seeing, 'Oh my God, this is so bad we have to sell this albatross,' why were they saying we need $5 million more worth of stuff?"

NRDC, however, said the company was earnestly pursuing its plans to open up the Fortunoff jewelry boutiques within Lord & Taylor.

"Fortunoff was moving forward in good faith with the rollout to Lord & Taylor and the fact that we rolled out to 11 doors is proof of that good faith," said Lori Rhodes, a spokeswoman for NRDC.

Some Fortunoff creditors believe that the bankruptcy and NRDC's actions were "legal but wrong."

"It's my opinion that NRDC exploited Fortunoff's vendor relationship and trust that had been built up in order to steal merchandise," Cooper said.

Another Fortunoff creditor describes the situation leading up to Fortunoff's filing for bankruptcy as "financial engineering."

"I feel that there is a gaming going on and that people find loopholes and vulnerabilities that exist and they exacerbate and exploit them," said Todd Wolleman, president of a Manhattan family-run business, Color Craft, which had to lay off a person after losing $50,000 in the Fortunoff bankruptcy. " . . . They may have had good intentions when they bought it, but they had an exit strategy that was detrimental to vendors."


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