Founder settles dispute with bankrupt Emporium.

Byline: Edward Russo The Register-Guard

CORRECTION (ran 10/30/03): Emporium founder Dallas Troutman is likely to receive a little more than $1 million to settle his claims against his firm's bankruptcy estate. An article on Page A1 in Tuesday's Register-Guard overstated the amount he is likely to receive.

After a flurry of claims and counterclaims, Emporium founder Dallas Troutman has agreed to make peace with the bankrupt retail company he once led, in return for getting a cash payment of $1.2 million.

The settlement, if approved by a bankruptcy court judge, answers a lingering question about the Emporium bankruptcy: How did the firm's high-profile founder fare in the collapse of his 48-year-old company?

The answer appears to be: Not too shabbily.

In addition to the proposed $1.2 million payment, Troutman received $5.8 million earlier this month when he sold Emporium's vacant former headquarters and distribution center on McVay Highway to the Eugene Pepsi distributorship. Troutman personally owned the facility, and it was not part of the bankrupt Emporium estate.

The proposed $1.2 million settlement caps a string of back-and-forth allegations between Troutman and the firm's bankruptcy estate, and business creditors who are owed money by the estate.

Troutman had filed claims totaling $3.8 million against Emporium. Troutman said Emporium owed him that much, mostly in back rent for the McVay complex, but also for his work as executive and as a lender to the firm.

But the estate, seeking to minimize payouts to Troutman, said it investigated insider dealings involving Troutman, including loans he allegedly owed the firm, and his role in selling company property to relatives for less than market value, or for nothing at all.

The estate is headed by Emporium chief executive Ron Schiff and represented by a team of lawyers.

It may seem odd that Troutman, Emporium's chairman and majority owner, had to file claims to recover money from his own firm.

But bankruptcy laws require anyone who contends that they are owed money by a firm or individual to file claims with the estate.

In the proposed settlement, the sides said they preferred to bury the hatchet rather than go on fighting and paying lawyers' fees.

Until early this year, Eugene-based Emporium had 34 department stores and 1,100 employees in five states. The firm's estate is trying to wind up the bankruptcy and pay off thousands of creditors, many of them clothing manufacturers, owed between $24 million and $30 million.

To settle disputes with the 73-year-old Troutman, Emporium's unsecured creditors committee, including representatives from some of the nation's biggest clothing makers, such as Levi Strauss & Co., agreed to the $1.2 million payout.

In exchange, Troutman agreed to waive claims against Emporium, Schiff, and the business creditors committee.

U.S. Bankruptcy Court Judge Albert Radcliffe of Eugene will be asked to approve the settlement this week.

In court filings, Emporium's estate said the settlement will end "the delay and distraction of further litigation."

Much of Troutman's claim centered on the McVay headquarters, which Emporium leased from him.

Troutman said the company owed him $2.8 million for back rent, and for canceling the lease when Emporium folded.

Troutman said that under a cost-of-living allowance provision in the lease, he could have increased the firm's rent for a total of $1.6 million during the 10 years before the bankruptcy.

The estate argued, however, that this claim was invalid because Troutman never asked the firm for the higher rent.

Troutman also filed an employment severance claim for $269,730, and claims totaling $391,199 for two unsecured loans he said he had made the company.

The estate, however, disputed the validity of the two unsecured loans, calling them an "equity contribution disguised as a loan."

And the estate also attacked Troutman, saying he owed the firm money.

Troutman borrowed money from Emporium in 1983 to buy land in Coos County, the company said. Troutman still owes $236,380 on the note, the estate said.

The estate also said Troutman sold a company-owned ranch to an unnamed relative for $150,000, which was below fair market value, and gave away another piece of property to son Michael Troutman that was valued at $90,000.

The first property sale was a fraudulent conveyance, the estate charged, while the second was a breach of fiduciary duty to the company.

Troutman denied that he owes money to the estate.

Regarding the Coos County property loan, for example, Troutman "disputes the factual allegations surrounding the note and asserts that this obligation was never a personal obligation of his," the settlement said.

Troutman also asserted that Emporium's board of directors knew about the sale of the ranch and they "believed that the sale was in the best interest of the company."

Also, he contends, Emporium was not in financial trouble at the time, so the sale could not be considered fraudulent.

As for the property given to Michael Troutman, a former Emporium merchandise buyer, Troutman said the company was current with its bills at the time so the transfer did not violate the firm's duty to creditors.

Reached on Monday, Troutman attorney Peter McKittrick of Portland said: "Dallas denies that the estate has any valid claims against him or his family members." The estate and the creditors committee said they favor the settlement because it saves the estate money.

As of last month, the estate had $19.5 million in cash, all of it from selling assets.

The settlement proposes to pay Troutman $1.175 million for his claims as landlord, and a severance payment of $57,692. Priscilla Troutman - his wife and a former Emporium employee - is to receive a severance of $462. Michael Troutman, who had sought severance of $31,740, will receive $10,577.

What's left - about $18.2 million - will go to pay off the unsecured creditors, including a couple of hundred former employees who contend that they are owed severance pay.