An arbitration panel has awarded Gorsuch, Ltd. nearly $2 million after the company sued Wells Fargo two years ago for ending its line of credit.
The bank’s action cost the ski wear and equipment company millions of dollars and nearly bankrupted the 51-year-old business, Gorsuch’s lawsuit said.
To keep the business afloat, founders Renie and David Gorsuch were forced to get a home equity loan on their residence, dip into 401K funds and slash retail prices, according to court filings.
The move by the bank also forced the company to sell the building it owned on the Cooper Avenue mall at a “fire-sale price,” Gorsuch attorney Richard Podoll said when the suit was filed in 2011.
Gorsuch still has outlets in Aspen, including the one on the mall, in the Gondola Plaza and in the Hotel Jerome. Gorsuch also has stores in Vail and Keystone, as well as in other ski resorts. The company is based in Vail.
The legal fight surrounded a $14 million line of credit from the bank to Gorsuch that was established in 2008, right around the time the global recession hit. The line of credit allowed Gorsuch to purchase merchandise and pay salaries during the off-seasons, the arbitration panel wrote in its decision.
In January 2009, Gorsuch’s chief financial officer told Wells Fargo that business in December 2008, a month when the company makes 25 percent of its sales, was “off significantly due to the economic downturn and mediocre snowfall,” the ruling says.
A few days later, Gorsuch, which as of 2006 had been grossing $40 million a year, told the bank that sales for January had also declined dramatically.
At that point, Wells Fargo officials “panicked,” according to the ruling, which was by three former judges that comprised the arbitration panel. Wells Fargo requested that the dispute be resolved through arbitration, a move that Gorsuch didn’t oppose.
Wells Fargo “believed that Gorsuch, Ltd. was going to implode and that additional money would be drawn on the line of credit, leaving the bank holding an empty bag,” the arbitrators wrote. “[Bank officials] knew that Renie and David had secured a loan on their private ranch in the amount of $3 million and had used some of the proceeds to comply with the bank’s request to adjust the FCCR in December 2008.”
The fixed-charge coverage ration, or FCCR, indicates a firm’s ability to satisfy fixed financing expenses, such as interest and loans, according to investopedia.com.
Later in January 2009, Wells Fargo sent Gorsuch a letter saying it had learned that the company was about to fail to comply with the FCCR terms.
“The evidence establishes, though, that the bank had made the decision to unload Gorsuch, Ltd. and its loans,” the ruling says. “The bank wanted nothing further to do with a high-end retailer, even though the credit agreement had been signed only a month before.”
Gorsuch paid what was owed on the line of credit and two other loans, and eventually found alternative financing.
The arbitrators found that the 2008 credit agreement was in full force at the time Wells Fargo ended the line of credit and that the retailer was not in default.
“The bank breached the credit agreement on Jan. 23, 2009, and Gorsuch, Ltd. suffered damages as a proximate result of the breach,” the ruling says.
Aspen attorney Matt Ferguson also represented Gorsuch. The two sides are not allowed to discuss details of the monetary award because of terms in the arbitration agreement, he said in an email.
But the amount of damages is contained in a Denver federal court filing. The arbitrators determined the damages in late November, and the court filing listing the damages was made in December. The lawsuit has since been dismissed.
Gorsuch was awarded:
• More than $1.1 million for fees and costs related to securing new financing;
• $327,590 for closing costs on the Cooper Avenue building;
• $271,016 in interest rate swap penalty damages;
• $104,517 for expenses incurred in securing foreign currency;
• $31,848 for the refund of default interest that Wells Fargo charged on the line of credit;
• and $15,000 for the refund of interest the bank charged on a real estate loan.
Wells Fargo also must award Gorsuch the costs and expenses of the arbitration proceedings. That will likely be tens of thousands of dollars given that the process lasted eight days and involved 19 witnesses, according to the court filing.
Wells Fargo spokeswoman Cristie Drumm said the bank believes it “acted entirely appropriately, and we disagree with any findings to the contrary.”