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Source of Title Blog

From Roman Mythology To Greek Tragedy
by Robert Franco | 2008/12/29 |

There is a fascinating article in the Denver Post regarding the collapse of the Mercury Companies.  It has a pretty good timeline of the events that led to the company's demise and the fallout caused by the bankruptcy filing.  In just a few short years, the company went from $1 billion in revenue to bankrupt, with debts exceeding assets by about $42 million.  It appears that overzealous expansion wiped out the 61 year old family business.

In 2002, the company changed its name from Security Title Guarantee to Mercury Companies - a sure sign of hubris.  It seems the choice of the new name was quite ironic given its iconic demise.

Source of Title Blog ::

Mercury is the Roman god of trade, profit and commerce.  The rise of Mercury Companies was meteoric, as if lifted by the winged shoes of Mercury himself.  In 1972 the company had $1 million in revenue; in 1984, $10 million; in 1997 $100 million; and in 2005, $1 billion.  It had reached a pinnacle of 5,600 employees in 540 offices in six states.  In Colorado, the Mercury Companies wrote about one-third of all title insurance policies.  Still, naming oneself after the "god of profit" seems a bit hubris. 

Hubris was the ultimate sin of the ancient Greek world.  It refers to an overweening pride, self-confidence, or arrogance that often results in fatal retribution.  Perhaps someone at the company should have read Homer's Iliad.

Today, the common usage of the term "mercurial" refers to someone who is erratic, volatile or unstable.  Perhaps that was more fitting of the company. 

The downfall of the company began in 2007 when the housing market in California started to decline, with Arizona and Texas soon to follow.  The company began reducing its staff by about 1,000 workers.  Later that year, the company closed Alliance Title and left 600 unemployed with no notice. 

Company officials walked away from dozens of Alliance offices across the state, leaving behind computers, desks, office fixtures and customer files. Landlords didn't receive rent. Thousands of home sales were disrupted.

Then, in 2008, the banks called the company's line of credit.

Mercury made more layoffs as it teetered on the brink throughout the first half of 2008. Then, around July 25, the lead bank on Mercury's line of credit called its loan. Comerica Bank claimed Mercury was in violation of its loan covenants and swept $40 million from Mercury accounts, including $27 million in operating funds, Hauptman said in an Aug. 6 declaration.

As things continued to worsen, there were discussions with First American over a potential buy-out.  First American had already invested about $75 million in the company, but there was a $30 million dispute in litigation and no deal was ever reached.  Interestingly, Mercury sold the Colorado operations to Fidelity for $5 million just a few short weeks before the bankruptcy filing.

Now there are more than 40 lawsuits pending against the company.  Many of them related to unpaid wages and deferred compensation.

"Mercury didn't pay its workers for accrued vacation wages, reimbursement of wages and contractual obligations," said David Balter, an attorney for the California Division of Labor Standards Enforcement, which is seeking $16.25 million in unpaid wages and benefits and $14 million in expenses and penalties. "They're trying to maintain that the parent corporation is separate from the subsidiaries and isn't liable."

For now all of the funds held by the company are locked-up in bankruptcy.  The company holds between $11 million and $13 million in nonqualified deferred compensation, according to court documents.  But, the bankruptcy estate holds considerable assets - many of which will be difficult to sell during the current economic environment.

Among the estate's assets are five automobiles — including an Audi and a Mercedes-Benz — a corporate jet and a hangar at Centennial Airport. Deals have been reached to sell the plane and hangar that will return $1 million to $1.5 million to creditors. Hauptman said in his declaration that the company also owns land with a net book value of $20 million and interest in a home developer worth $10 million or more.

So how did the Hauptman's, the owners of the company, fare in all of this?  Just three days before the bankruptcy filing and a month after thousands of employees were let go without pay, Jerrold Hauptman received his final bi-weekly paycheck of $20,900.  That is an annual salary of about $543,400.  His wife, Patricia received a $77,000 payment just a few weeks earlier.  Members of the Hauptman family and their trusts also received close to $2 million in dividends and stock redemptions during the 12 months preceding the bankruptcy filing.

The punishment for hubris just isn't what it used to be.  But, if its any consolation, many of the suits named Hauptman personally.  In my opinion, the owners of the company shouldn't fare any better than their employees who were left unemployed and owed back-pay and retirement savings. 

Robert A. Franco
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Categories: Defalcations

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Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
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