Friday, September 24, 2010

A Different Kind of Tea Party

In some ways, you never like to see this kind of story cast a shadow in the light of day — especially when it involves a local family. But once the court papers are filed and it becomes a matter of public record, then it is certainly fair game.

A story in yesterday's Litchfield County Times sheds light on a saga that has been brewing — so to speak — for months. To wit, John Harney Jr., a Salisbury real estate broker, split from his mother's storied firm about four years ago and started his own real estate house.

It sounded like a good idea at the time. The market had been booming for years and other area brokers such as Mardee Cavallaro and Patti Best had themselves left Borden Real Estate and broken out successfully on their own. But several people I know were asking whether there was enough room for that many brokerages in the Northwest Corner. To most observers, however, the answer seemed to be: "The sky's the limit."

Contrary to popular belief, a real estate brokerage — even a small one out in the country — can't be started on a shoe string. There are agents to hire, office space to rent, computers to buy and expensive marketing efforts to be conducted. So John had to borrow hundreds of thousands of dollars to get his business off the ground.

It seemed like things were going reasonably well until about two years later when the bottom fell out of the market. Sales dried up for John's young company and so did his seed money, so he defaulted and was eventually forced to declare personal and commercial bankruptcy.

Full Disclosure: John, who sold us our house in Lakeville when he was still working for his mother, is a friend of mine — as are most of the other players in this story, including his mother, father, sister and John's chief creditor, Chris Morley. I'm very fond of all of them.

In itself, the first part of the narrative is rather unremarkable. But what Max Wittstein's story in the LCT revealed was that, in his efforts to recover his losses, Morley discovered that John held a 4.4% interest in Harney and Sons, the gold mine of a tea company started by his father, John Harney Sr., almost 30 years ago.

Morley's legal battle to become a shareholder of the tightly held family business has caused something of a panic at Harney and Sons, with Harney Sr. hiring a pricey Syracuse law firm to repel Morley's efforts. Of course, the tea company could simply purchase Morley's shares as soon as they become his. A buy-out would prevent him from gaining access to trade secrets and sensitive financial information the tea company would rather keep within the family. It would also prevent the tea company from losing its favorable Subchapter S status with the IRS.

However, a buy-out would also cost hundreds of thousands of dollars the family shareholders would rather not spend on covering John Jr's losses. For his part, Morley is holding firm. I can't blame him. He was not an investor in John Harney Jr's real estate firm but a creditor.

This is one of those tangled but sad situations in which it seems like no one is to blame. Risks were taken that sounded reasonable at the time, a business declared bankruptcy and a family is trying to protect its interests in the face of a creditor who is quite sensibly trying to recover what he lent out.

I wish all the parties well in their quest for an amicable agreement. But I must say that I'm glad it's not my problem.

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