Investor sues Mercantile in collapse of companies Mercantile sued in companies' collapse

April 10, 1993|By David Conn | David Conn,Staff Writer

When Ruxton investor John J. Neubauer Jr. first met top officials of Mercantile-Safe Deposit & Trust Co. in 1988, he thought it was a perfect match.

The bank wanted to refinance the debt Mr. Neubauer and his partners had incurred to buy two Eastern Shore food processing companies, Hurlock Food Processors Inc. and Custom Packaging Group Inc.

Donald J. Trufant, Mercantile's top asset-based lending officer at the time, had promised that the loans, initially about $4.5 million worth, would be refinanced at better terms than the investors' existing loans, according to court papers.

Within two years, both companies were out of business. In a 100-page lawsuit filed in federal bankruptcy court in Baltimore last week, Mr. Neubauer blames Mr. Trufant and Mercantile for the troubles and has asked for about $70 million in compensatory and punitive damages.

Nell B. Strachan, an attorney representing Mercantile, said yesterday that the company does not talk about pending litigation. Mr. Trufant could not be reached for comment.

The suit claims that Mercantile, through Mr. Trufant, breached its fiduciary duties to Hurlock and Custom and broke a series of promises it made to Mr. Neubauer and his partners. Mr. Trufant drew up loan contracts that he knew put the borrowers in technical default right from the start, according to the complaint, and almost immediately began a course of action that put the companies out of business.

Mr. Trufant's first step after the loans were signed was to force Mr. Neubauer, until then an inactive partner, to buy out his partners and run the day-to-day operations of the companies, the suit maintains.

Hurlock was a vegetable canning company, and Custom produced and filled synthetic "film bags" for the products of its customers, including Kraft, General Mills and Pepsi Foods.

With the companies in default of the loan agreements, Mercantile was eventually able to lock Mr. Neubauer out, and Mercantile essentially proceeded to run the companies, the suit states.

The companies began to deteriorate, the complaint says, but despite buyout offers from several investors, Mercantile called its loans in late 1990 and sold the companies at auction for less than their market value, according to the lawsuit.

Mr. Neubauer, Hurlock and Custom have filed for Chapter 11 bankruptcy protection, he said this week, and Mercantile is trying to force him into a Chapter 7 liquidation of his assets.

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