Baltimore employer of 600 to close Empowerment zone firm in dispute with AOL over unpaid bills

March 20, 1997|By Kevin L. McQuaid and Joe Mathews | Kevin L. McQuaid and Joe Mathews,Kevin L. McQuaid is a Sun staff writer. Joe Mathews is a contributing writer.

One of the city's few standout job creators of recent years said yesterday it is shutting its doors and eliminating nearly 600 jobs, because a key client has refused to pay more than $2 million in bills.

PTP Industries Inc.'s decision to close stems from a dispute over unpaid bills with America Online Inc., which claims it hasn't paid because PTP falsified U.S. Postal Service records.

The closing of the Southwest Baltimore packaging company also represents a huge loss for the city's empowerment zone, the $100 million federal program to create jobs in some of the city's most blighted neighborhoods. PTP, which has hired nearly 300 since moving to a former Montgomery Ward & Co. complex near Carroll Park in early 1995, represents the second-largest creator of jobs in the zone, according to federal records.

"The company has gone from several hundred employees to just a few at this point, and AOL put them in this situation," said Herman Eugene Funk Jr., PTP's attorney. "The nicest word that I can use to describe them is predatory."

AOL, which had worked with PTP since 1994, contends the dispute stems from fraud that it says the packaging company committed.

"We were obviously concerned about paying outstanding invoices to a vendor that admitted to falsifying official Postal Service records for almost a year," said Tricia Primrose, an AOL spokeswoman. "We're sure that this situation will be sorted out eventually."

She declined to elaborate on the charges involving the Postal Service, but did acknowledge that under its contract with the company, PTP was responsible for mailing thousands of computer disks to potential customers.

Doug Bem, a Postal Service spokesman, said that a preliminary review of PTP's mailings for AOL was conducted and that "no fraud was conducted against the post office, and there was no misappropriation of funds involving the AOL account."

Funk, PTP's attorney, said: "PTP did not falsify any records. AOL did a complete audit of all mail sent out by PTP in 1996 and found no irregularities."

PTP's pending demise has also prompted a lawsuit in federal court by Provident Bank of Maryland, its primary lender, against AOL. PTP also is preparing to file a federal lawsuit against AOL later this week or early next week, PTP's attorneys said.

Provident claims that the Dulles, Va.-based AOL "breached its contract" with PTP when it failed to pay $2.2 million in accounts receivable, causing PTP to default on a $3.45 million loan with the bank, according to court documents filed this week. As PTP's lender, Provident is entitled to sue to recoup the money on its loans, its attorney said.

For AOL, the accusations mark the second time this year the company has been the subject of a lawsuit. In late January, AOL settled consumer protection complaints with 36 states by offering refunds to customers who were unable to gain access to its online computer network.

Although PTP claims AOL misled it into investing millions of dollars in new machinery to accommodate new marketing campaigns, the company was stung because AOL had become its only source of recurring revenue. Contracts to package Eveready batteries and Seagram's liquor either weren't renewed were seasonal, company officials said.

The AOL work, sources said, was attractive to PTP because it carried a higher profit margin than either the Seagram's or Eveready contracts.

"Our strong suit has never been sales," said William Hartley, PTP's president. "Innovation was our strong suit. Getting customers like AOL and servicing them."

Hartley said that PTP developed systems designed to speed production and packaging of AOL's disks, techniques he says have contributed to AOL's success. Since August 1994, PTP produced packages and mailed roughly 150 million computer disks for potential AOL customers.

For people like Jackie Littlejohn, PTP's closing means the end of stable work.

"You could tell they [PTP executives] were very surprised," said Littlejohn, 32, a machine operator who was laid off from PTP on Jan. 30. "AOL was their bread and butter. When they lost AOL, we knew we would lose our jobs."

She is now on public assistance.

PTP's closing comes just a few months after it was hailed as an empowerment zone success story, for employing hundreds with plans for further expansion.

Last year, the privately held Southwest Baltimore packaging company generated more than $35 million in sales, up from $24 million just three years ago. The company also was named "Employer of the Year" by St. Peter the Apostle, a neighborhood church that convinced PTP to hire several developmentally disabled people.

But in the past month, PTP's success has waned, and the company has laid off more than 500 employees, sold off equipment and made final preparations to shutter its operation, including defaulting on a lease with the state, which bought the old Ward building to accommodate PTP for $5 million.

"This whole thing is disappointing from a number of perspectives," said Hans F. Mayer, executive director of the Maryland Economic Development Corp., which owns the former Ward building. "We're concerned about the loss of jobs and the loss of business, and we're a little upset that AOL appears not to be honoring their commitments. Part of our job now is to work at placing someone else in the 335,000 square feet that will be empty."

Diane Bell, chief executive of Empower Baltimore Management Co., which directs activities in the zone, said late yesterday she had not been told by city economic development officials that PTP was closing.

Pub Date: 3/20/97

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