Watch Supreme Court’s Ruling on Boss’s Greed
A high profile case soon to be decided by the Wisconsin Supreme Count is a case all about corporate power. At issue is whether business owners can freely siphon off huge profits without regard to the well-being of the corporation itself and its obligations to other stakeholders.
The case concerns Daniel Virnich and Jack Moores, absentee owners of Communication Products (later to become known as Loudspeaker Components) who, in a highly leveraged buyout, took over the company in Lancaster, Wisconsin, 80 miles southwest of Madison.
Virnich and Moores created a complex, multilayered corporate structure to hide the company’s financial dealings. Between 1990 and 2003, the company made profits of over $12 million, of which the owners took approximately $10.5 million for themselves.
When Virnich and Moores defaulted on a bank loan in 2003, the company was declared insolvent and put into receivership. The receiver, Michael Polsky, won a jury award of $6.5 million in damages in Circuit Court last summer and that decision was appealed.
WMC Influence on the High Court
The powerful business lobby, Wisconsin Manufacturers & Commerce, sided with the owners in the Circuit Court case saying it opposed court interference with business decisions. WMC warned that an adverse ruling would chill business investment if creditors could go after the owners personal assets when businesses fail. In its brief, WMC reasoned that the case was about “a good corporate citizen acting pursuant to sound business judgment and long-standing principles of corporate governance to maximize the benefits of the legal processes.”
WMC, however, has been silent since the case reached the Supreme Court, perhaps because it spent millions to fund the campaigns of two conservative-leaning justices, Annette Ziegler and Michael Gableman, who now sit on the court. During the Supreme Court’s hearing of the case, labor activists joined a petition campaign demanding that Ziegler and Gableman recuse themselves due to their conflict of interest in the case.
Filing an amicus brief on behalf of the company’s workforce, William Haus, a lawyer for Sheet Metal Workers Local 565, said that workers also suffered at the hands of the owners by getting lower wages and benefits than they should have received. Allowing owners to enrich themselves at the expense of the company would also severely weaken collective bargaining agreements, he said.
“There is some degree of creaming off the system that needs to be better regulated, otherwise this is what you get,” says Haus. “There has to be integrity in the system.” The way Virnich and Moores treated their workers clearly illustrates the point.
Workers Got Screwed
In 2000, seeking to improve their abysmal wages and working conditions, 80 percent of the company’s more than one hundred workers signed union authorization cards to be represented by Sheet Metal Workers Local 565. The company brought in the anti-union Melli, Walker law firm, held captive audience meetings, and fired some of the union’s key backers. For three weeks after the union won the election in December there was no heat in the plant.
Before SMW 565 got a first contract, half the workforce was permanently laid off, remembers Tim Sullivan, business representative with SMW Local 565. “With Virnich and Moores, it was slim pickings in negotiations. They were always pleading the company was barely surviving and suffering due to foreign competition. “ At the time, workers had a poor benefit package and an average wage on only $7.25 an hour.
Haus remembers that he and Local 565 fought the company when Virnich and Moores unilaterally eliminated an attendance bonus that workers had struggled all year to earn. That case was decided in the union’s favor but Virnich and Moores still refused to pay the workers, or the arbitrator who rendered the decision. Eventually, the company’s receiver finally paid the bonuses workers had earned.
“It’s appalling that Wisconsin Manufacturers and Commerce has come out in support of these guys,” says Sullivan. “The owners only put $150,000 of their own money into the business and pulled $10.5 million out before they literally bled it dry – that’s exactly what they did.”
Even as the business was failing, Virnich and Moores continued to command a huge owner's salary, “a pay-me-first philosophy,” says Sullivan.
Shady Self-Dealing
The owners set up dummy companies to filter the monies they pulled out of this company, Sullivan explains. For example, they created a trust fund in the name of Virnich’s grandson and used it to purchase a piece of equipment for $625,000. The equipment was then installed and leased to the company. By the time of the receivership, they had charged Loudspeaker $2.7 million for the equipment and the money all went into the grandchild’s trust fund.
Virnich, an attorney, presumably learned these self-dealing business practices while he was with Arthur Anderson, the accounting firm whose shady practices brought down the giant Enron.
“These scumbags raped this company and then tried to walk away to Colorado scott-free, back to their $2 million mansions, ski resorts, and fancy sport cars,” says Sullivan. “They may have to pay ultimately, but will they be held accountable, as any common thief would, by doing time in prison? Absolutely not.”
Sullivan credits the employees whose hard work and sheer determination kept the company’s doors open. “These workers are a special breed, they are the best union people,” he said. “They want the union and they’ve had to fight for everything they got.”
As the economy continues to crumble, workers at Loudspeaker are again faced with the possibility of job loss as the company struggles to make ends meet. Only 35 employees remain on the company payroll.
If a favorable decision is reached by the Court, will that set a precedent for future cases of employer misconduct? While it may help, Attorney Haus thinks any changes would be small and incremental. “That’s how the legal system’s set up to work.”