Upper Crust Executives Rob Everyone Blind, Walk Away Rich

Corporations exist to shield their owners from liability. Often that produces salutary risk taking (see, Rise of Capitalism v. Fall of Communism 1848-1989). Sometimes, it produces outrages like this. Egregious behavior should warrant severe penalties, and there are laws that can impose them -- even jail time. The question is if there is a will to enforce them. Commenters are off to a good start with discussion on that front. - promoted by Bob_Neer

The Upper Crust (Boston, MA)Want to learn how to start a successful business, use it as a personal piggy bank  and rob creditors and even your own employees & franchise owners blind? Upper Crust, the Boston-based pizza chain, is your blueprint:

[Bankruptcy trustee Mark] DeGiacomo plans to auction off leases for all 10 shuttered Upper Crust stores that are part of the bankruptcy, as well as related assets at each location. Details of the auction are still being worked out, but the trustee plans to file a motion to sell early next week.

Last week, DeGiacomo closed the bankrupt stores and laid off 140 workers because the gourmet pizza business had just four days of supplies and only $14,000 in cash after the executives paid themselves a month’s salary in advance. [...]

Upper Crust, founded in Beacon Hill in 2001, filed for bankruptcy protection in October after defaulting on its loan. In court papers, the company said it owes at least $3.4 million to creditors, and the US Department of Labor said the business owes another $850,000 in back wages and damages for violating minimum wage and overtime laws.

Yes, despite being under legal order to pay its employees nearly a million dollars, executives were still able to steal money from the company without giving workers a dime.

But wait! Before you start accusing the US Bankruptcy Court & Labor Department of being toothless dupes, the story gets even better!

And by “better,” I mean the people running Upper Crust could not possibly be better at being evil robber barons!

In addition to dealing with the fallout from the parent company’s bankruptcy, [Newburyport & Portsmouth franchise owner Mark] Tramontana said his franchises have also been coping with the fact that the company sold thousands of discount vouchers on Groupon without franchisees’ knowledge and kept the proceeds before filing for bankruptcy.

Despite years of unenforced court orders & failed repayment plans, I can find no talk of throwing Upper Crust founder Jordan Tobins or the chain’s current executives in jail.

If I started mugging people on the street to the tune of $850,000, the Herald would give me my own nickname (I’m thinking The Treehugging Mugger) and when they caught me, they’d lock me up and throw away the key. But as striker57 wrote here at BMG two years ago when news first broke that executives were stealing from employees, Upper Crust executives get to live the high life while bankruptcy courts spend years trying (and mostly failing) to sort things out.

It’s the same model Hostess executives used: Loot the company and when the money runs out, file for bankruptcy & leave workers holding the tab.

It’s legalized robbery, and if Massachusetts law enforcement doesn’t want to do anything about it, it may be time to bring back torches & pitchforks.


15 Comments . Leave a comment below.
  1. Corporate liability

    When people talk about how taxing corporations is “taxing the money twice”, people need to remember this exact situation.

    A corporation is a legal shield between actions of the corporation and the owners of the corporation. Although this shield can be pierced, it is notoriously hard to do so. Simply mismanaging a company is not cause enough. If the company goes belly up, the most the owners can lose is their investment in the company – they can’t lose everything they’ve ever made.

    If you don’t like the corporate tax, then forgo the corporate shield and take on the personal liability of your company’s actions yourself. Save yourself the 15% of profits that are “double-taxes” in exchange.

    But unless you do, the “extra” taxation that a corporation pays is compensation for the wreckage they leave the rest of us with when they implode like this, because that shield allows people to do things they would never do if they had to fear the consequences – like selling gift certificates that would be worthless.

    • Very hard to pierce the "corporate veil"

      A corporation is a legal shield between actions of the corporation and the owners of the corporation. Although this shield can be pierced, it is notoriously hard to do so.

      You have to show the owners failed to observe the formalities of running a corporation or basically treated the company like their personal bank account instead of a separate business. I worked on one case where it happened but that’s rare.

    • As true today as when Bierce wrote it 100 years ago:

      An ingenious device for obtaining individual profit without individual responsibility.

  2. Hostess is another example

    One tidbit being lost in the “Twinkie” distraction is that the corporate owners of Hostess are in the process of shifting the pension liability to the government (in the form of the PBGC). In essence, they are plundering the workers of this once-viable company — and the GOVERNMENT is picking up the tab.

    Talk about corporate welfare — “givers” and “takers” — here is yet another excellent example.

    The corporate owners of any such action should, in my view, be forced to personally repay these massive pension liabilities from the proceeds of the bankruptcy.

  3. This Story is Not Over

    Now that the company is bankruptcy, the insiders may be in for a surprise. Federal bankruptcy law allows the bankruptcy estate to recover payments made to insiders (such as owners, managers and their family members) during a one year period prior to bankruptcy. The recovered funds are distributed in accordance with the plan of liquidation, but unsecured creditors and employees will get some of the proceeds. Unpaid taxes come first.

    I can assure you that the unsecured creditors and bankruptcy trustee can be very aggressive in going after insiders. It may not be as satisfying as jail time, but there will be consequences.

  4. I have less sympathy for the creditors

    They, presumably, knew they were taking risks when they financed Upper Crust’s massive expansion. (They grew to 16 stores from around 3 over a couple years.) Shafting workers on the other hand is completely unacceptable. I would support changing the law to allow for jail time in cases of wage theft or repeated labor violations.

    • Creditors and Workers

      Failure to pay wages is already a crime under Massachusetts law. Creditors will include small businesses that provide supplies, food, and other items in the ordinary course. And by the way, if the suppliers “knew what they were getting into” didn’t the employees know that also?

      • Good point. I was more thinking of banks.

        I never really understood why people don’t insist on cash for their goods and services. Political campaigns, for example, are notorious for ending with debts that they cannot recover, yet plenty of small businesses, such as printers, happily do their work for the promise of future payment. You’d think that if you were doing business with Upper Crust, who has been in trouble for years, you would insist on payment upfront, but a lot of businesses don’t operate that way, for whatever reason.

  5. I would personally like to see law enforcement authorities

    go after these types of corporate robbery cases as eagerly as they go after what are apparently easier targets. A politician who ran some questionable ads about the lottery comes to mind. Is there any comparison here in terms of outrageousness? And yet, which case gets investigated and prosecuted?

  6. I've never rooted for a company's demise more than Upper Crust

    let’s hope the owners feel some serious karma for the way they’ve robbed and mistreated their workers.

    RyansTake   @   Wed 21 Nov 4:44 PM
    • Three Strikes

      I think a corporation should be subject to a three strikes policy. Three fines totaling more that X dollars, they get broken up or leadership changes.

      sabutai   @   Thu 22 Nov 10:53 AM
      • I've been saying it for years

        If we have to have corporate personhood, can we at least have a corporate death penalty?

        • Essentially, we have one

          What do you think is happening to Upper Crust? Anyone have stock in Enron? How about the original General Motors? All gone.

          • That's suicide, not the death penalty

            I’m not even calling for death, perhaps at least imprisonment.

            sabutai   @   Fri 23 Nov 5:39 PM
  7. Good regulation for our Senator-elect

    The libertarian leaning regulation averse Economist had an editorial arguing that fines should be levied against individual CEOs and board members since the punishment would actually hit their wallets without punishing the shareholders or employees of the corporation with fines that punish collectively for the actions of a few. Removing or redefining corporate personhood would assist in this, but simply redirecting fines towards individuals might incentivize ethics. One rogue trader was slapped with a 6 billion euro fine from the EU and his wages will be garnished until he pays it. Such a sentence is far more satisfying to the publics thirst for justice and doesn’t punish innocents like the Upper Crust or Hostess mismanagement has.

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