by Mark Friedman on Monday, Dec. 19, 2011 12:00 am
Dr. F. David Chambers said he couldn’t sit by and watch his friends and patients lose their jobs when Potlatch Corp. closed its hardwood mill in Warren in 2002, leaving about 70 people out of work.
So Chambers bought the mill that year and quickly had Bradley Lumber Co. buzzing again.
That’s where the good news ends. The mill shut down again in 2008, when Webster Business Credit Corp. of New York declared Bradley Lumber’s $2.88 million worth of loans in default.
Webster paints Chambers not as a good-hearted doctor who tried to help the south Arkansas city of 6,000, but as a deadbeat who inflated financial statements to get the line of credit and then filed a “frivolous” counterclaim to delay paying.
Since 2008, Webster and Chambers have been fighting in U.S. District Court in El Dorado over the debt and who is responsible for the collapse of the mill.
So far, Webster is winning. U.S. District Court Judge Robert Dawson ruled that Chambers’ company would have to pay Webster the $2.88 million for the defaulted loans, which Chambers had personally guaranteed.
Nearly all of Chambers’ allegations of wrongdoing against Webster have been dismissed, but the case is set for trial in March.
But that’s not all. Chambers, through another one of his companies, Bradley Timberland Resources LLC, has another lawsuit pending against Webster involving the sale of Bradley’s timberlands.
On top of that, there’s still more bad news for Chambers. In 2010, Chambers was trying to sell the mill to Oasis Trading LLC of Warren in a lease-purchase agreement. The deal fizzled when the mill burned in September 2010, causing $4.1 million worth of damage.
The mill’s insurance carrier, Axis Surplus Insurance Co., said it didn’t know who should get the $3.88 million settlement money because of all the liens on the property, so it filed a lawsuit to let the court decide.
In addition to Webster being owed money, the Arkansas Development Finance Authority has a claim for $2.65 million and the Arkansas Economic Development Commission has a claim for $1.3 million. And Oasis Trading said it should receive $1.18 million for its improvements and inventory at the mill. That case is pending in U.S. District Court.
Chambers told Arkansas Business last week that he invested his life savings in the mill.
“It appeared to be the best decision at the time,” said Chambers, 58, who has since moved to Dumas. “And I think even in retrospect the community is better off.”
A Pleasant Surprise
After graduating from the University of Arkansas for Medical Sciences and receiving his license to practice medicine in 1980, Chambers began working in Warren.
“It’s a small community and it’s almost solely dependent on the wood industry,” he said.
In June 2002, the town was bracing for a hit. Potlatch, of Spokane, Wash., announced it was leaving the hardwood lumber business and closing the mill that it had purchased in Warren in 1958. Potlatch took a pretax charge of about $9 million to cover costs associated with the closure and the write-down of the mill.
Chambers said he hated to see the people out of work. “My wife, Michelle, and I decided to buy the mill and reopen it,” he said.
Chambers said he invested about $3 million in the mill.
Chambers’ goal was eventually to make back his investment and then turn the ownership over to mill employees.
Right away, the mill was a hit, turning oak and pine logs into boards to be used to build furniture and other items.
“We were profitable at five months,” Chambers told the Arkansas Democrat-Gazette in August 2003. He told the paper that a 12 to 15 percent increase in hardwood prices was the cause for the financial success, not anything that he had done.
“Shucks, man, I’m a medical doctor, not a lumberman,” Chambers said in 2003. “It surprised us pleasantly.”
In 2003 and 2004, the mill “had a good profit,” Chambers told Arkansas Business last week. But instead of using the profit to pay down loans or save for later, he divided it among the workers.
In 2004, the mill had about $1 million in profit, he said. “So they got a substantial bonus that year,” he said.
That generosity, he said, would hurt the company years later when it needed the money.
In 2005, the first sign of financial trouble emerged for Bradley Lumber.
“The market went down and we already had several million dollars’ worth of trees bought in the woods,” Chambers said.
He said the trees had to be cut even at a loss. “You still have to recover as much as you can,” Chambers said. “All of a sudden instead of it being worth $3 million, they were worth $1.5 million.”
Bradley turned to Webster Business Credit Corp. for a loan in 2006. In Webster’s court filings, it said Chambers filed a financial statement that showed he had $46.3 million in assets and a total net worth of $22.4 million. He also had a related company, Bradley Timberland, which had 16,000 acres of timberland valued at $27 million as of June 2006.
Webster granted Chambers a $6 million line of credit for Bradley Lumber, only later becoming convinced that his financial statement was inflated.
“Dr. Chambers and others deliberately overstated Bradley Lumber’s inventory and receivable to Webster … in order to induce Webster into making loans that it otherwise would not have made,” Cheryl Shuffield, a CPA with Frost PLLC of Little Rock who examined Bradley Lumber’s records as part of a court order, said in her statement on July 9, 2009.
Still, Chamber said, Bradley Lumber’s business was improving back in 2006. The mill had a new product, a wooden crane mat that is used to provide stable working surfaces for heavy equipment.
“We were actually making 100 of those a day, and we were making good money,” Chambers told Arkansas Business.
Around 2007, Bradley Lumber had trimmed its expenses and its revenue was close to $15 million, on a path to having a profit that year, Chambers said.
Webster limited Bradley Lumber’s line of credit in 2007, sending the company into financial turmoil because it didn’t have the money to buy logs to be used in its mill, Chambers said.
“We ran out of hardwood logs and we could no longer build crane mats because we had no logs,” he said. “Without money to buy logs, a sawmill is just as good to you as a racecar with no gas and no tires.”
Webster had a different take on the events. It said in court filings that Bradley Lumber was allowed to borrow more than $4.6 million between September 2007 and April 2008.
“These cash advances by Webster continued until Bradley became admittedly overadvanced under the borrowing formula and breached the contract with Webster,” according to Judge Dawson’s Nov. 29 order. “Clearly, the breach of contract was caused by Bradley, not Webster.”
After April 2008, Webster said it discovered that about 5 million board feet of pine lumber was unaccounted for. That inventory was part of the security Bradley Lumber used to obtain the loans from Webster.
In May 2008, Webster said Bradley Lumber was in default on its loans.
Shuffield, the CPA, said she determined that most of the pine wood had been sold.
“The over-inflation of Bradley Lumber’s lumber inventory and receivable to Webster was not simply the byproduct of irregular or sloppy record-keeping,” she wrote. “Bradley Lumber deliberately misled Webster into believing that there was sufficient inventory and receivables to collateralize the loan.
“It is my opinion that Webster was the victim of fraud,” she wrote.
Chambers said last week that “obviously, I’m not as good a businessman as some folks.”
But Chambers said he never diverted lumber or sold lumber and kept the money.
“That’s pretty much what they accused me of,” he said. “I told them that it didn’t happen.”
Chambers, though, was upset in 2008 because he said Webster officials promised him additional financing if Bradley Timberland sold its assets. Chambers said he sold the timberlands for $17 million, a discount of about $7 million because he had been forced into a quick sale.
Bradley Lumber would eventually “become aware that Webster never intended to reopen their inventory and accounts receivable financing,” according to the lawsuit that Bradley Timberland filed against Webster on Aug. 12.
Bradley Timberland is suing Webster for fraud. Webster denied the allegations of wrongdoing and the case is pending.
A Fire and a Move
In 2010, Chambers said, he made a deal with Oasis Trading LLC to reopen the Bradley mill. Oasis had the mill up and running and even a few people were working at the mill until the fire broke out, he said.
These days, Chambers maintains he tried to help Warren by buying the mill from Potlatch.
“My wife and I never took anything out of the mill,” he said. “And we pretty much put all of our life savings and all that we had back into the mill. But again it was not enough.”
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