follow us:Google+FacebookLinkedInTwitterVimeoRSS Feeds

advertisement

Bankruptcies entangle Uni-Marts' dealers, firm

By - Last modified: February 11, 2011 at 1:49 PM

Back to Top Comments Print

Five years ago, Gurjit and Kanwaljit Mann were getting by. He was
becoming a real estate appraiser after working as a letter carrier, and
she was a nurse. They had twin sons and lived in a pleasant house in
Tracy, a city in California's Central Valley about 60 miles east of San
Francisco.

Five years ago, Gurjit and Kanwaljit Mann were getting by. He was becoming a real estate appraiser after working as a letter carrier, and she was a nurse. They had twin sons and lived in a pleasant house in Tracy, a city in California's Central Valley about 60 miles east of San Francisco.


In 2005, the Manns bought Uni-Mart Store No. 94209, a gas station and convenience store at 4361 N. Front St. in Susquehanna Township.


Today the couple is bankrupt. Their Nov. 10 Chapter 7 filing in U.S. Bankruptcy Court in Pennsylvania's Middle District lists assets of $694,000 and liabilities of $2.5 million. The Manns were evicted from the store Feb. 26 and have defaulted on the $1.2 million loan they used to buy it.


The Manns were told the store could earn them hundreds of thousands of dollars a year, but they struggled just to break even under the terms of their deal, said Kanwaljit Mann, who goes by the nickname "Kay."


The company from which they bought the store, State College-based Uni-Marts LLC, is bankrupt, too. It filed for Chapter 11 protection in May 2008 in U.S. Bankruptcy Court in Delaware.


"The overall condition of the economy, aggressive competition ... increased fuel and other inventory prices," were among the factors that "prevented us from executing our business plans," founder Henry D. Sahakian said in a news release announcing the filing.


The company owed more than $28 million to its top 30 creditors, according to its Chapter 11 petition.


The Manns overpaid for the business and the rent paid to Uni-Marts, said attorney Bob May of May & May in Hampden Township, Cumberland County, who represented them in the Dauphin County Court of Common Pleas when they challenged their eviction.


May said he has had about 10 midstate clients who owned Uni-Marts, and only one has not closed or gone bankrupt.


Bankruptcy attorney Deborah A. Hughes, whose office is in Susquehanna Township, Dauphin County, has handled at least seven bankruptcies of independent Uni-Mart dealers in the midstate, including several of May's clients.


"They could have gone to Burger King and flipped burgers and made more money," Hughes said.


‘Dealerization'


Uni-Marts sold the Manns their store as part of its "dealerization" strategy. The company had been taken private in 2004 and was seeking to divest itself of about 250 of its then 276 stores by selling them to independent entrepreneurs, or "dealers," according to court testimony and company news releases.


Many dealers struggled. In a class-action suit brought in January 2007 on behalf of the owners of more than 170 Pennsylvania Uni-Mart stores, plaintiffs alleged Uni-Marts LLC misled them about store operating costs and profitability, according to published reports.


Uni-Marts paid $2 million and agreed to pay some ongoing operating costs to settle the suit that October. The settlement came "fairly early for a class-action lawsuit" because the dealers were primarily concerned with reaching terms that would keep their businesses running, said Joseph Lach, lead attorney for the dealers in the case.


The dealers' accusations were never adjudicated.


"It's an open question as to how strong or weak the cases may have been had we gone to trial," said Lach, of Koff, Mangan, Vullo, Gartley & Lach, a firm in Kingston, Luzerne County.


Stuart Sivak, Uni-Marts vice president of operations, said the company would make no comment for this article. Messages left at the home of Sahakian were not returned by deadline for this edition. Messages left at the office of attorney John F. Stoviak, who represented Uni-Marts in the lawsuit, were not returned.


From public to private


In the early 2000s, Uni-Marts LLC was a public company. It owned and operated convenience stores mostly in Pennsylvania, with a few in Delaware, Maryland and New York.


In the summer of 2004, Uni-Marts was bought and taken private in a deal involving the Sahakian family and investor Raj Vakharia. That October, Uni-Marts announced the dealerization plan. Dealers would buy the store equipment and license the Uni-Mart name. They would sublease the properties from Uni-Marts and contract with the company for gasoline. A total of 161 stores were "dealerized" in 2005 and 2006, company Vice President Alex D. Sahakian said in a court document filed in May 2008 as part of the bankruptcy case in Delaware.


"Uni-Mart is creating great opportunities for entrepreneurs to buy businesses with a proven track record," Vakharia was quoted as saying in a Uni-Marts news release announcing the dealerization initiative.


The company held free "how-to-buy" seminars in the region to attract dealers. The Manns said they saw an ad about the plan on an Indian-language television channel in California. The couple was excited at the prospect of being business owners.


The Manns were sent a prospectus for the Uni-Mart on North Front Street near Linglestown Road. Information in a "Property Specific Package," also referred to as a PSP, showed annual profits of more than $300,000 for 2001, 2002 and 2003, according to a copy filed in the Uni-Marts bankruptcy in Delaware U.S. bankruptcy court. A "Financial Information Update" showed gasoline sales of 1.9 million gallons and merchandise sales of $1.6 million for 2004, according to a copy filed in Delaware U.S. bankruptcy court. The PSP bears the signature of company Chief Financial Officer N. Gregory Petrick, indicating he certified it "true and correct," according to the copy filed in Delaware.


In March 2005, Manns signed a purchase agreement to buy the Uni-Mart for $1.3 million, according to court documents. They then decided to attend a June Uni-Mart dealer event 2,600 miles away in State College, Kay Mann said.


"Everything was very impressive," Kay Mann said. Company representatives were "very sweet" and friendly, she said.


The Manns incorporated as JNA-1 Corp. and took out a $1.2 million loan backed by the federal Small Business Administration, according to documents filed in U.S. Bankruptcy Court in Delaware and the Dauphin County Court of Common Pleas. With costs and fees, the total came to $1.5 million, according to a copy of the settlement statement filed in Delaware U.S. bankruptcy court. Gurjit Mann said the couple refinanced their house to help pay for the deal, according to his testimony in the Dauphin County court. They settled in July, according to court documents.


The Manns did not have a lawyer review the loan documentation, Kay Mann said.


Running the business


The couple moved to Harrisburg and set up shop in mid-2005. Kay Mann said she quickly realized they had made a mistake.


"I knew within two months there's going to be no money," she said.


The Manns had to pay $11,000 a month for their sublease, according to the JNA-1 bankruptcy filing in Pennsylvania Middle District U.S. Bankruptcy Court. They also had to pay monthly principal of $10,225 plus interest on their business loan, according to documents filed in the Dauphin County court. Then there were all the other costs of running the business.


Uni-Marts had not included many of those costs in the PSP and Financial Information Update it gave the Manns, according to a December 2008 complaint filed on the Manns' behalf in the Delaware bankruptcy case.


"In particular, the financial information included in the PSP omitted important operating costs such as manager's salary, health and workers' compensation insurance expenses, various taxes (including real estate property taxes), maintenance costs and other expenses," the complaint reads. "In addition, the PSP and Financial Information Update falsely reported artificially inflated sales volumes for the store," the complaint reads.


The Manns sought to have their contracts cancelled, according to the complaint. However, the complaint was dismissed, May said. Its allegations have never been substantiated in court, he said.


The Manns cut staff and expenses to a minimum and began working 14-hour days, Kay Mann said. Some months they broke even, some months they did not. They paid themselves a salary of about $3,000 a month apiece, she said. She said she repeatedly asked Uni-Marts to lower her rent, but the company refused.


Foreclosure and eviction


Finally, the Manns missed a rent payment, Kay Mann said. Uni-Marts foreclosed on them, and on Feb. 26, the Dauphin County Sheriff's Office evicted them, according to a writ of possession filed in the Dauphin County court.


Among the contract paperwork the Manns had signed was a document allowing Uni-Marts to repossess the store without notice if any terms were violated, May said. May challenged the eviction in the Dauphin County court but lost, according to court records.


The Manns now hope to have their debts discharged in bankruptcy court and make a fresh start, May said. Kay Mann said she is back in California where she is licensed to work as a nurse, earning money to keep the family afloat. Her husband is staying in Harrisburg so the couple's children can remain in their high school.


Uni-Marts, meanwhile, is being broken up.


In September, a "stalking-horse bidder" called Kwik Pik, an affiliate of Bethlehem's Lehigh Gas Corp., bought 113 Uni-Mart stores, including the Manns' North Front Street store, at auction for $4.6 million, for an average cost of $40,700 per store, according to sale documents. Kwik Pik will likely be the buyer on nine more, said Tom Kelso, managing director of Matrix Capital Markets Group Inc., which handled the auction. Other stores are being sold to independent buyers.


A team of investigators from the SBA Inspector General's office took testimony from several Central Pennsylvania franchisees, Hughes said. She did not think the issue was pursued further. The SBA does not confirm or deny whether investigations took place, SBA spokesman Glemn Harris said.


The SBA typically repays 75 to 85 percent of a loan to a lender when a borrower defaults, spokesman Mike Stamler said. The SBA then seeks to recover its money from the borrower in bankruptcy court.


The Manns simply made a bad business deal, May said. They paid too much for a convenience store.


"Buyer beware," he said.

Write to the Editorial Department at editorial@cpbj.com

advertisement
advertisement
  
  
advertisement
  
  
advertisement
Back to Top