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Trustee accuses Sewall of 'mismanagement, self-dealing'

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Trustee accuses Sewall of 'mismanagement, self-dealing'

PORTLAND — A judge on Wednesday granted a temporary restraining order barring the former president of M.W. Sewall & Co. from a variety of actions connected to the Bath fuel company.

The action was expected after a court-appointed Chapter 11 bankruptcy trustee accused Philip Sewall of "mismanagement and self-dealing" and using proprietary M.W. Sewall information to establish a competing business.

According to documents filed at U.S. Bankruptcy Court, Trustee Mark Stickney asked the court for the temporary restraining order and a preliminary injunction against Philip Sewall on Monday, Feb. 8.

Stickney said Sewall should be ordered to “refrain from using or disclosing the estate’s confidential information and from competing with the (company) in violation of the Maine Uniform Trade Secrets Act.”

Stickney told the court he has not yet conducted a thorough forensic accounting to learn “the extent of Philip’s mismanagement and self-dealing.”

But he said his investigation so far suggests Sewall was “breaching his fiduciary duty, he is engaged in self dealing to the detriment of the estate, and has, during his tenure as president, used his access to the estate’s property and confidential and proprietary business information with the intention of setting up a competing company.”

Family-owned M.W. Sewall sought bankruptcy protection last March and eventually filed a plan of reorganization that company attorney George Marcus last year said could bring the case to a close early this year.

But the plan was withdrawn so that Stickney could “take a fresh look at the situation,” Marcus said on Wednesday.

Stickney was appointed last October, at the request of Assistant U.S. Trustee Stephen G. Morrell.

In his motion to appoint Stickney, Morrell suggested the issues confronting M.W. Sewall were more troublesome than a family feud. He described the company as a business plagued not only by internal disputes, but by spiraling financial losses, management conflicts of interest and questionable business judgments.

Stickney – who essentially functions as chairman and chief executive of M.W. Sewall – fired Philip Sewall on Feb. 5, according to a statement of facts in support of his motion for the restraining order and injunction.

Stickney alleged that Sewall “has been misappropriating the (company’s) property, including confidential information, proprietary information, and trade secrets, and soliciting the (company’s) employees to switch their affiliations from the (company) to Mr. Sewall’s proposed new enterprise ‘Sewall Energy.’”

Alec Leddy, clerk of the District of Maine U.S. Bankruptcy Court, said Judge James Haines signed off on Wednesday on the temporary restraining order, which was entered with the consent of Stickney and Sewall.

Gayle Allen, Stickney's attorney, noted that Sewall had “consented to entry of the order, but he hasn’t admitted or conceded any of the allegations in the complaint or the motion.”

“Philip Sewall does not consent to the accuracy of the allegations,” Sewall's attorney, Peter Cary, said Wednesday.

Cary declined to comment further on Stickney’s allegations.

Allen said Sewall has the opportunity to file pleadings challenging the allegations.

The proposed order would “remain in full force and effect until such time as hearing is held on (Stickney’s) application for a preliminary injunction.”

Allen said that hearing is scheduled for April 28.

The order dictates that pending the hearing, Sewall, his employees, associates, agents, affiliates or other people acting on behalf of or in connection with them:

• Cannot contact any current (M.W. Sewall) employees, customers, funding sources, vendors or other business prospects or relationships except to conduct business on behalf of the company, and only with Stickney’s express written direction.

• Cannot transact business of any kind with current company employees, customers, funding sources, vendors or other business prospects or relationships in competition with any of the company’s operations;

• Cannot transfer, damage, use, and/or destroy any company property in Sewall’s custody and/or control, and such property must be immediately returned to Stickney.

Since M.W. Sewall is operating under the Bankruptcy Code’s protection “and has approached a critical stage in the bankruptcy process by formalizing bid procedures,” Stickney wrote in his motion, “protection of the (company’s) critical staff, customer base, vendor relations, funding sources and pricing structure, customer lists and other confidential information and trade secrets is essential to maintaining and maximizing value for the proposed sale.

"Mr. Sewall’s conduct is causing irreparable and unquantifiable harm to the (company) and immediate relief is requested because any delay could result in disruption and destruction to the (company’s) going concern value due to Mr. Sewall’s ongoing efforts to solicit the (company’s) employees, pricing arrangements and structure, confidential information and trade secrets for his own benefit, including his new venture.”

M.W. Sewall & Co. has served Mid-Coast communities since 1887 and also runs the Clipper Mart chain of convenience stores. Last March the company cited the poor economic climate as the reason it sought protection from its creditors.

M.W. Sewall lost more than $563,000 in 2007 and was expected to show a net loss of nearly $1.8 million for 2008.

The Chapter 11 filing froze past-due debts and allows the company to continue operating and paying its current expenses while it attempts to restructure its finances.

Alex Lear can be reached at 373-9060 ext. 113 or alear@theforecaster.net.