The state’s top economic development official said he has no undue concerns about a $2 million taxpayer investment in Redman & Associates, despite the CEO’s bankruptcy a decade ago and subsequent litigation, including a lawsuit related to the product the company is manufacturing in Rogers.
Grant Tennille, executive director of the Arkansas Economic Development Commission, said Mel Redman was thoroughly vetted before the state agreed to invest in his company’s plan to manufacture 6-volt battery-powered riding toys for sale to Wal-Mart Stores Inc. as part of the retailer’s stated goal of buying more U.S.-made merchandise.
Gov. Mike Beebe attended a press conference when the venture was announced last October.
“We see things like the kind of things you’re talking about and we sit down and talk about it with them, ‘Explain this to us. How did this happen? Why did it happen? How was this resolved?’” Tennille said. “With serial entrepreneurs, it’s hard to swing a dead cat and not hit one that hasn’t had a bankruptcy in his past, or a lawsuit.”
Tennille said there is not one set standard for approving an investment because something like a previous bankruptcy doesn’t mean someone isn’t a good businessman. Tennille said AEDC had questions about Redman because his company had never manufactured anything and was starting a production line with just one customer.
However, that one customer is the world’s largest retailer and one that gave Redman & Associates a multi-year purchase agreement.
“We feel their business plan holds enough promise that if it can be executed, they’re going to do well,” Tennille said. “There are some ventures that are riskier than others.”
More: On Friday, Redman & Associates announces the layoff of 14 workers.
Tennille said AEDC’s agreement requires Mel Redman to pay back the state’s money if the business plan is not executed in good faith. Tennille said the state has already given R&A nearly $1 million to begin production at the company’s 270,000-SF plant in Rogers.
“We’ve known all along they’ve never manufactured a darn thing before,” Tennille said, but he suggested the usual suspects were not the first in line to bring manufacturing jobs back from overseas.
“The people who are ready to go in this new on-shoring environment aren’t maybe who we all thought they were. The guys who are ready to jump right now often are … a briefcase guy like Mel. Mel has been selling this same product to Wal-Mart for a number of years now.
“What’s happening as these folks are being pressured to get this stuff manufactured in the U.S., these briefcase guys are figuring out how to be manufacturers. There are risks here. We knew there were risks here the day we made the deal.”
Redman, 63, said his company will invest $6.5 million in the venture, which started early this year with plans to produce 600,000 toy cars by 2016. R&A said the production will eventually result in 74 new jobs and the company said 25 full-time workers have already been hired.
The toy cars were previously manufactured in China and most of them still are. Redman & Associates is moving production in stages and expects to begin ramping up production as soon as new production equipment starts running this month.
To China and Back
Mel Redman resigned as a senior vice president for Wal-Mart in 1995 and began work as a consultant and merchandise broker. One of the companies he worked with, Winston Co. Inc. of Tulsa, was involved with the production of 6-volt cars in China, and Redman helped place them on Walmart shelves.
Winston and Redman & Associates sued each other in late 2012. Winston claimed that Redman infringed on its patent for the box in which the cars were displayed. In a countersuit, R&A claimed Winston breached its contract to deliver the products from China, forcing R&A to spend millions of dollars to get the products into Walmart stores.
Fayetteville attorney Mark Henry, who represented Redman in the federal patent lawsuit, said his client was completely vindicated when the two companies settled their dispute last year. Henry said the Oklahoma federal judge was prepared to issue a summary judgment in Redman’s favor when the settlement was worked out.
Henry said Winston didn’t have a utility patent on the box — which both sides agreed that Mel Redman helped devise — and a design patent didn’t apply because the box Redman used was decorated differently than the plain white box that was the subject of Winston’s suit.
“It was grasping at straws in the biggest sense of the word,” Henry said. “It was a frivolous lawsuit every way I looked at it.”
Redman said he sued in order to recoup some of the millions he said he spent in 2009 when Winston reneged on paying to ship the toy cars from China after Wal-Mart had already advertised the cars for sale.
More: Read more on Redman and China here.
Redman said failure to deliver the product would have ruined his credibility as a broker even though the fault was Winston’s. Redman said $10 million-$12 million worth of toys were in limbo, so he paid the required fee to get the products to Wal-Mart.
When the lawsuits were settled, Redman said, he didn’t receive any money from Winston but did get two valuable 6-volt molds that allowed him to start his own production of the toy cars. He described the settlement as a win.
“We won resoundingly because it was frivolous,” Redman said. “It wasn’t really about money with us. It was about [how] we could have lost credibility with Wal-Mart. We had to spend a lot of money because he bailed on us.”
Redman said if there had been any hint of illegal or unethical activity with the Winston deal, he would not have been able to turn around and get a multi-year purchase agreement from Wal-Mart for the same product. Wal-Mart was named in Winston’s suit against Mel Redman and R&A.
Tennille pointed out that Wal-Mart wasn’t afraid to do business with Redman.
“Generally, the feeling from the people we talked to in northwest Arkansas in the retail community is the guy is an honorable guy,” Tennille said. “Wal-Mart wrote him a multi-year order for tens of millions of dollars. Whatever else anybody would ever say about Wal-Mart, the one thing I always felt relatively confident about is they take care of their dough.”
Bankruptcy and Beyond
The Winston entanglement came a few years after Mel Redman and his wife, Vicki, filed for personal bankruptcy in Arizona after becoming embroiled in the bankruptcy of a company then known as Doctors Community Healthcare Corp. of Scottsdale. Redman testified that he began consulting for DCHC in late 1998 at the behest of Allen Tuft, a personal friend and brother of the company’s CEO, Paul Tuft.
Paul Tuft then hired Redman as president and COO of DCHC in January 1999 after the company bought Michael Reese Medical Center in Chicago. Redman testified that his responsibilities were to organize management of DCHC and help the hospital operationally.
Michael Reese Medical Center, one of several distressed hospitals DCHC acquired, continued to lose money, and Redman was fired in September 2002 shortly before DCHC declared bankruptcy. The liquidation trust formed in the aftermath filed suit in 2005 against the executives of DCHC, including Redman, alleging misuse of funds in a “Ponzi scheme.”
Redman and his wife filed for personal bankruptcy in Arizona, where the trust had sued them. Redman settled with the trust in an agreement that activated DCHC’s directors and officers liability insurance, and Redman agreed to testify for the liquidation trust in the subsequent bankruptcy trial.
Redman testified in a deposition in June 2006 that he settled because he was “broke from litigation” but told a lawyer under cross-examination he couldn’t recite the terms “if you held a gun to me.” Redman said he didn’t pay any money to the trust nor did he receive any money in the settlement.
Redman told Arkansas Business in August that he spent $800,000 on legal fees. The Washington Times reported the settlement included a $25 million judgment against Redman, and that was the figure attorney Adam Coates used when questioning Redman in the deposition. Coates represented two subsidiaries of DCHC.
A source close to the liquidation trust told Arkansas Business that there was no $25 million settlement on record. The trust paid for Redman’s travel to Washington, D.C., to testify against the DCHC subsidiaries.
Redman told Arkansas Business that he had no knowledge of any irregularities and testified repeatedly that he had no influence in DCHC’s acquisitions or finances. The liquidation trust alleged that Redman, in addition to an annual salary of $1.2 million, received $366,000 in loans from DCHC that were forgiven and another $300,000 in payments for chartered travel through Tuft-Redman Enterprises LLC. Redman owned a third of the business, while Paul Tuft owned the balance.
“When I left, a few months later, they filed for federal bankruptcy protection and, as the trust always does, they cast a wide net,” said Redman, who added he couldn’t go into much detail because of confidentiality agreements. He also said he didn’t want to speak badly about his former colleagues.
“Every officer and every board director was sued. I’ve maintained all along during that time that I didn’t do anything wrong except work hard every day,” he said. “Everybody and their dog has asked me about that. I don’t mean that disrespectfully. Life is tough.”
Redman said the DCHC entanglement brings up painful memories because one reason he moved to Arizona was to get medical treatment for his wife at the Mayo Clinic in Phoenix. Redman said he resigned from Wal-Mart in 1995 because Vicki had been diagnosed with a terminal illness. Mayo doctors later determined that her illness was instead a severe allergy to a prescribed medication.
“When Scottsdale comes up, it’s not good memories for me,” Redman said. “I have many, many regrets about ever being there. It was very painful.”
When AEDC interviewed him about DCHC, Redman said, he was fully cooperative because he had nothing to hide. Tennille said the department couldn’t release the report of Redman’s vetting because it contained proprietary information, but AEDC was comfortable Redman’s association with DCHC was not a hindrance to the investment.
When asked if AEDC would be hesitant to invest money with Redman’s former colleagues at DCHC, Tennille said that would be an “exactly fair” assumption.
“In Mel’s particular case there, I was fairly easily convinced,” Tennille said. “Mel wasn’t acting unilaterally, and he wasn’t sort of a loose cannon on the thing. The activities that led to the problems, everybody was aware of what was going on when it was going on, and he was the name at the top of the masthead so he was the target.”
Redman said it pains him that his name is linked with unsavory experiences, even if his conscience is clear in regards to his business behavior in each situation.
“I’m aware when you Google my name a lot of great stuff comes up and some not-so-great stuff,” Redman said. “I’ve been in business a long time, and business is tough. You’re going to have issues, but we have always tried to not be anything but straight up. My credibility is very, very important.”
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