Three months after Colortree Group abruptly shut its doors, three companies that did business with the Henrico-based direct mail and printing company are attempting to force it into bankruptcy in an effort to retrieve over $8 million.
An involuntary petition seeking Chapter 7 liquidation was filed Wednesday in federal bankruptcy court against Colortree, which put its approximately 240 employees out of work when it ceased operations June 3.
The petition was filed on behalf of three companies: Lindenmeyr Munroe, a New York-based commercial printing paper and packaging supplier with locations in Henrico and Colonial Heights; Domtar Corp., a paper producer with corporate offices in Montreal and South Carolina; and G.E. Richards Graphic Supplies, a Pennsylvania-based commercial printing equipment wholesale distributor with an office in Henrico.
The businesses list more than $8.17 million in money owed them for goods and services. Lindenmeyr Munroe is seeking in excess of $8 million, Domtar lists over $155,000 and G.E. Richards seeks about $11,000. The petition states that Colortree is not paying its debts as they become due.
The companies are represented by Williamsburg attorney Gregory Bean of Gordon Rees Scully Mansukhani. Bean did not return a call seeking comment.
A message left for Colortree President and owner James “Pat” Patterson was not returned. Despite the closure, the company’s voicemail and website remained active as of Thursday.
The company’s headquarters at 8000 Villa Park Drive appeared deserted mid-afternoon, save for a few vehicles parked around the building.
On Thursday, the day after the petition was filed, a U.S. District Court judge entered an order certifying class-action status for a lawsuit brought against Colortree in June on behalf of all employees who lost their jobs due to the closure.
The suit, which was brought by former employee Terry Kennedy, a prepress operator at the company for three years, alleges Colortree violated the federal Worker Adjustment and Retraining Notification Act and the Virginia Wage Payment Act by not providing the employees with 60 days’ written notice of their terminations, as the WARN Act requires.
Citing the WARN Act
The suit seeks to recover lost wages and benefits, as well as employees’ accrued vacation time and other compensation owed.
In its response to the suit, filed July 3, Colortree denied that it failed to provide notice to employees or “appropriate governmental agencies pursuant to the WARN Act and applicable exception…” and contends that it provided such notice “as soon as practicable and in accordance with the WARN Act.”
Several employees told BizSense they received no notice of the closure and were given 15 minutes to clear out before the building was locked. That followed a conference call in which it was conveyed to employees listening in that the 31-year-old company was shutting down. News of the closure prompted several businesses to offer jobs to former Colortree employees.
In a letter dated the same day as the closure, Colortree sent a WARN notice to the Virginia Employment Commission and Henrico County that said it was permanently closing “some or all of its divisions” and laying off approximately 240 employees. The notice was signed by Patterson, who purchased full ownership of the company two years ago.
Colortree says it sought funding
In its lawsuit response, Colortree said it “worked diligently and in good faith to secure financing that would have enabled it to remain in business and continue to (employ), or provide additional notice, to affected employees,” adding that it “continues to seek such financing.”
The company contends it is covered by the “faltering business” exception to the WARN Act “because it was actively seeking capital or business which it had a realistic opportunity to obtain…” and believed that giving notice would have precluded it from obtaining the needed capital or business. It said it paid employees for all hours worked in accordance with state law and seeks dismissal of the suit.
Williams Mullen attorney Laura Windsor is representing Colortree in the case. Employees in the class action are represented locally by Spotts Fain attorneys Jennifer West and Edward Bagnell Jr., who are working the case with Jack Raisner and Rene Roupinian of New York-based employment law firm Outten & Golden.
Meanwhile, an auction of Colortree’s presses, equipment and other assets is scheduled to be held at 10 a.m. Tuesday. Illinois-based PPL Group is conducting the auction, which will be held at the Colortree building and benefit Sterling National Bank.
The involuntary bankruptcy petition against Colortree comes three months after a similar action was taken against Live Well Financial, a Chesterfield-based mortgage company that closed in May. A similar petition from three of that company’s creditors was granted in July, and one of the lenders – Michigan-based Flagstar Bank – recently won approval to take control of a bond that Live Well had owned, representing $37 million of the $70 million the bank was owed.