Lakeshore Ch. 7 filing left employees in lurch

Overseas staff, fired by email, tap petty cash to fly home

May 2014 | By Chad Halcom | Crain's Detroit Business

Until two weeks ago, David Hoopengarner and Gordon Surgeon were at Bagram Airfield in Afghanistan to help Lakeshore TolTest Corp. build fighter plane hangars and flight control towers and manage other construction projects.

Since then, the managers have been building an exit strategy, not for their ex-employer, but for themselves.

Lakeshore TolTest, based in Detroit until earlier this year, landed in bankruptcy court May 2. And with that news, Lakeshore sent separation letters to various project managers, engineers and other overseas employees.

But Lakeshore has sent no word about transportation home for terminated employees, so they have been coordinating transportation for colleagues on their own.

"Ever since we got the separation letter, the only correspondence we've received from the company was an email from (Lakeshore TolTest CEO) Grant McCullagh instructing us to make sure that some company equipment like mobile phones, laptops and tablets and other (IT equipment) all get packaged up, and to please make arrangements for their return" to the company, said Surgeon, a security manager for LTC since last December.

The DIY repatriation process, which managers were figuring out on their own by sharing ideas with other former employees, and some accessible petty cash funds, was nearly complete late last week. Of personnel in Afghanistan, only about 14 employees were left; Surgeon and Hoopengarner, a construction manager for Lakeshore in Bagram, were expecting to fly home late Friday along with Karl McMichael, a manager at a Lakeshore worksite near Herat.

An airline shuttle departs twice daily from the Kabul airfield to Dubai.

Lakeshore TolTest had about 79 employees and about 135 more subcontractors or independent contractors on the ground in Afghanistan as of two weeks ago, according to Surgeon and Hoopengarner, who spoke with Crain's via Skype late last week.

Lakeshore executives have communicated only in written form, they said.

"I believe the LTC executives, or ex-executives, have been advised not to speak to anybody for (legal reasons), and that's why we aren't hearing from them," Surgeon said.

Lakeshore has been wrangling with lost military contracts, expensive litigation with the Detroit Water and Sewerage Department and employer and subcontractor lawsuits. It filed for Chapter 7 bankruptcy after it said it couldn't obtain financing to continue operations.

Quick decisions

Lakeshore Vice President of Human Resources Wayne Stockbridge sent an April 29 separation letter to company employees, including the Afghanistan personnel, which many there received in the middle of the night, they said.

"We have been attempting, as recently as today, to obtain financing that would have allowed the company to continue its operations. Regrettably, and despite our best efforts, that process has proved unsuccessful," the Stockbridge letter states.

"The decision to terminate your employment is a permanent one and because your entire facility will be closing there will be no other positions available for employees to move into. You will be ... contacted shortly by LTC to arrange for the return of your personal belongings."

The letter goes on to direct employee follow-up questions to Stockbridge's office phone, but calls to that line yielded a busy or disconnected signal late last week.

LTC Corp. Government Services Inc., doing business as Lakeshore TolTest, along with LTC Holdings and several other Lakeshore entities sharing a headquarters in Chicago since at least January, all filed petitions for Chapter 7 at U.S. Bankruptcy Court in Delaware.

Since then, the employees in Kabul said, they have been using money out of a fund that's supposed to handle transportation and other day-to-day operations costs for employees, to help cover employee flights out of the country to Dubai and elsewhere, they said.

Surgeon, a citizen of the United Kingdom, said he and others on the ground in Kabul haven't been paid by Lakeshore since March, although he believes some U.S. employees received a partial wage payment in April. Despite reaching out to managers about arrangements for transportation home, there's been no response, they said.

"There have been no plans to repatriate, no one's contacted us about it, even though that's specifically included in the contracts we have over here," said McMichael, a former security manager.

Calls to the company's office in Detroit went unanswered or yielded a busy signal last week, and the company's website, ltccorp.com, appeared to have come down. Calls to new company offices in Chicago also were not returned.

Owners remain mum

Private equity firms Gridiron Capital LLC of Connecticut and Elston Capital Partners LLC of Indiana, which each reported owning a stake in Lakeshore TolTest among their respective portfolio companies earlier this month, have removed references to the company from their respective websites.

Audrey Young, a strategic communications advisor to Gridiron at Holland & Knight LLP, declined to comment on transportation plans for employees. Lakeshore TolTest also maintains offices in Dubai and Iraq.

Michael Menkowitz, partner at Fox Rothschild LLP in Philadelphia and attorney for court-appointed bankruptcy trustee Alfred Giuliano of accounting firm Giuliano Miller & Co., said he has received "about a thousand" calls on Lakeshore and its Middle East employees the past few days, mainly from Afghanistan.

As of Friday afternoon, he said, he's been advised that all LTC employees were now off the Bagram base, but it remains to be seen if the court can allocate company assets to help them with any connecting flights getting back to their home countries.

Starboard Capital Partners LLC, another Connecticut private equity firm, still listed Lakeshore TolTest in its portfolio on its website. But managing member Marc Berg-schneider declined to comment.

Military contracts unravel

Lakeshore TolTest has seen at least three military contracts terminated for default since last year with the U.S. Army Corps of Engineers and the U.S. Air Force Materiel Command, valued at more than $125 million and covering various infrastructure projects in Afghanistan.

Lakeshore brought six claims to the federal Armed Services Board of Contract Appeals in Falls Church, Va., between last September and early April, all appealing government decisions to terminate Lakeshore work projects in Afghanistan. The first of these appeals was scheduled to go to trial Oct. 20; the others are still in discovery or awaiting service of a complaint.

Usually, defense contract appeals are also stayed whenever a military contractor is in bankruptcy, but an official at the federal agency told Crain's the board has not yet been notified of one.

Edward DeLisle, partner at Cohen Seglias Pallas Greenhall & Furman PC in Philadelphia and attorney for Switzerland-based Theodor Wille Intertrade AG in two Detroit lawsuits against Lakeshore, said he expects his litigation to be among the casualties of bankruptcy.

Theodor Willeis suing Lakeshore and bonding company Insurance Co. of the State of Pennsylvania alleging unpaid invoices as a subcontractor to LTC in Delaram, Afghanistan, and for nearly $600,000 in a separate contract for a Lakeshore worksite in Garraf, Iraq. Lakeshore, in return, seeks a credit of nearly $1.2 million for work it alleges Wille didn't perform as requested at the Iraq site.

DeLisle said the bankruptcy will likely stay both cases against Lakeshore, although he hopes to continue the portion of his Afghanistan case against the bonding company. It's also possible, he said, that if Lakeshore or its trustee wins on any of the military contract appeals, it can mean a partial payout to lawsuit creditors.

Litigation casualties?

David Hayes, an attorney at Clark Hill PLC in Detroit representing Lakeshore in several federal lawsuits, said the bankruptcy will impose a stay on litigation in which Lakeshore is a defendant.

The trustee will have to evaluate the cases where it is a plaintiff to see if they have value and can be potential assets to pay creditors.

Also expecting to get stayed in bankruptcy is Deborah Gordon of Bloomfield Hills-based Gordon, Laughbaum & Prescott PLC, attorney for Eric Renninger, former Lakeshore director of operations in Afghanistan.

Renninger resigned last summer and sued Lakeshore TolTest in February for breach of contract, claiming a reorganization plan by one of its vice presidents largely stripped him of his Afghanistan duties in an "attempt to constructively discharge him."

He also claims Lakeshore deliberately kept Renninger's name on a business license the company maintains with the government of Afghanistan in order to shift liability away from itself.

But those claims are likely on hold with the bankruptcy.

"Sometimes you can wait it out, and possibly get a new or reinstated claim to go forward against the new company," Gordon said. "But very often you just get whatever they're offering to a certain creditor class, which can be pennies on the dollar."

Gerard Mantese, a partner at Troy-based Mantese Honigman Rossman and Williamson PC and attorney for former Lakeshore TolTest CEO and part owner Avinash Rachmale, said the Afghanistan contracts all belong to LTC and Rachmale's current company, Lakeshore Global Corp. in Detroit, is not involved. He said the LTC management has not kept him informed or allowed him any share of control, so there is little Rachmale can do.

Rachmale stepped down from LTC's board of directors April 2.

"Mr. Rachmale believes that the abandonment of these employees is unconscionable, but consistent with the atrocious way these defendants have run the company since they took control," he said.

Schedule a Consultation

All of GMCO’s members, managers, and staff discover innovative solutions to direct your business toward success.