Judge suggests mediation for creditor and staffing companies
A New York investment firm seeking to recover $7.5 million from a North Carolina staffing company network is receiving a hearing in North Carolina Business Court.
That the executive who owns the company allegedly in control of the staffing companies’ assets is in federal custody awaiting sentencing on 63 counts of obstructing the Internal Revenue Service and failing to pay payroll taxes is but one of the case’s complications.
BHC Interim Funding LP, owned by investment banking firm Brooks, Houghton & Co., is seeking to place Global Labor and its staffing company licensees in receivership while the courts determine the merits of its claim.
One matter on which the parties agree is that Compensation Management assumed a $7.5 million debt as part of the purchase of the assets of a national staffing group from another company, StaffCo Management Group, in 2008. But BHC, a short-term bridge capital lender, was only the second lien holder. The first lien was held by Tricom, a factoring company that advances payroll in exchange for collecting receivables as part of a practice that is common in the staffing business. US Funding, another factoring company, bought out Tricom’s interest.Then, less than six months after Compensation Management purchased the staffing companies, the assets were transferred yet again under a creatively structured arrangement in which the businesses were divided up among longtime associates of Greg Harrison that were licensed by another company called Global Labor. Harrison is the president and sole shareholder of that company. The staffing businesses continue to operate, with locations in Greensboro and Gastonia, as far north as the Philadelphia area and as far south as northeast Florida. Meanwhile, South Carolina-based GrandSouth Bank has replaced US Funding as the factor for the staffing companies.
Whether any money changed hands in the transfer of the assets is a matter of dispute. BHC contends that Harrison negotiated on behalf of both companies and forged the signature of a nominee owner of Compensation Management on the asset purchase agreement.
Judge James Gale, who heard the case in the Elon Law School building in downtown Greensboro on Feb. 20, quizzed Global Labor’s lawyer on the fate of the assets to which BHC has held a security interest.
“Is it your contention that BHC as second lien holder was essentially washed out during the transfer of assets?” he asked.
David Puryear, the Greensboro lawyer who represents Global Labor, did not answer that question directly, but did acknowledge that once the debt to the first lien holder is satisfied, any remaining assets are typically obligated to the second lien holder. Gale’s interest in the Global Labor assets soon focused on the personal income of Greg Harrison after Douglas Hanna, a Raleigh lawyer representing BHC, told him that Global Labor has never reported a profit or paid corporate income taxes since it was founded in 2008.
Puryear urged the judge to take a cautious approach, arguing that placing the companies in receivership could undermine their viability.
“You’ve got a man convicted for 63 counts of income tax evasion who is taking income and paying his daughter’s college tuition,” Gale quipped. “To that extent, my caution is a little less severe.”
Puryear replied that there was nothing inherently wrong with a company compensating one of its officers.
Harrison’s personal income has also come up as a topic of interest for US District Judge James Beaty, who reviewed the matter in determining whether Harrison should be released before his sentencing date in April. Beaty denied Harrison’s request for release in late January, noting that the defendant had made weekly withdrawals from Global Labor operating accounts “for substantially more than $0 to $500 per week… for what appeared to be personal use.” The judge also cited government evidence that Harrison had presented false testimony and concluded that the defendant had not established credibility, concluding that he had failed to establish that he was not a flight risk.
Harrison’s credibility was further undermined on Feb. 22 when Beaty granted a request by the Federal Public Defender’s Office and the lawyer who represented him at government expense to withdraw from the case. Citing a finding that a conflict of interest prohibits both the federal office and public defender Tom Cochran from continuing to represent Harrison, he ordered the US Probation Office to obtain a financial affidavit from Harrison and determine whether he is eligible for court-appointed counsel. Meanwhile, Gale indicated he is more inclined to order an injunction to freeze the staffing companies’ assets than to place them in receivership.
‘To the extent that people pull up their skirts and show what’s there, and show what their legitimate expenditures are…’
— Judge James Gale
“To the extent that people pull up their skirts and show what’s there, and show what the legitimate expenditures are, I’m not sure what’s wrong with that concept,” he told Hanna.
BHC’s counsel responded, “You have a very interesting company, and that’s putting it mildly.” Hanna went on to say that Global Labor was formed on the same day as Compensation Management, whose assets it acquired. He said Harrison has refused to answer his client’s questions, as has Gerald Pell, who is a trustee. Instead, William Ray, the company’s director, has been designated as spokesman and Ray repeatedly responds that he doesn’t know the answers to the questions.
The hearing took a raw turn when Ray, who is also licensed as an attorney, angrily rejected one of Hanna’s characterizations. Hanna had written in a brief supporting the motion to appoint a receiver that “the deception surrounding the formation of Global Labor continued” when Ray testified that, “Global Labor was originally formed because of the belief that there was a substantial field of business available in the personnel industry, and because both CMI and StaffCo had been run so poorly there was a substantial question as to their ability to succeed.”
Ray complained to Gale: “As an attorney, it’s more than offensive to be accused by Mr. Hanna, who doesn’t know me, of something that’s not true.”
Hanna explained: “Obviously, [the defendant’s representation] that Global Labor was formed because CMI was failing cannot be true because they were created on the same day.”
At Gale’s prodding, the parties agreed to undergo mediation, but the judge ordered the hearing to consider the motion for appointment of a receiver to be reconvened on March 15.