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Sale likely for Skyway Luggage as owner, receiver battle in court - Puget Sound Business... Page 1 of 6

From the Puget Sound Business Journal: http://www.bizjournals.com/seattle/print-
edition/2011/12/16/sale-likely-for-skyway-luggage-as.html

Sale likely for Skyway Luggage as
owner, receiver battle in court
Premium content from Puget Sound Business Journal by Jeanne Lang Jones,
Staff Writer

Date: Friday, December 16, 2011, 3:00am PST

Related:

Banking & Financial Services, Legal Services, Bankruptcies

Jeanne Lang Jones
Staff Writer - Puget Sound Business Journal
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Prominent Seattle businessman Henry “Skip” Kotkins Jr. is embroiled in a
multimillion-dollar legal battle with the receiver he selected to sell his family’s
struggling Skyway Luggage Co. and its assets to satisfy creditors.

The legal dispute arose out of a financial crisis that has hobbled the 101-year-old
Seattle company credited with popularizing the wheeled suitcase.

The receiver, Revitalization Partners LLC, in early November filed a lawsuit in King
County Superior Court accusing Skyway Luggage CEO Kotkins and other company
executives of “excessive wages” and “failures … to exercise any management or control,”
among other things, according to the complaint. The lawsuit also accused Kotkins of
“unjustly enriching” himself with $14.9 million in personal loans.

Kotkins denied the allegations, arguing that the company was dragged down by market
conditions, a dramatic industry consolidation, and that the temporary loans he received
were common practice for a family owned business.

Both sides agree that the company’s financial condition deteriorated and it needs to
be sold.

http://www.bizjournals.com/seattle/print-edition/2011/12/16/sale-likely-for-skyway-lugga... 12/16/2011


Seattle-based Revitalization Partners, acting on behalf of Skyway Luggage’s creditors,
is seeking at least $39.9 million from Kotkins, as well as at least $6 million each from
two other company executives, according to the lawsuit.

Kotkins, who chairs the Seattle Metropolitan Chamber of Commerce and is a director
for the Seattle Branch of the Federal Reserve Bank of San Francisco, told the Puget
Sound Business Journal he has done nothing wrong.

“I know what I did and why I did it, and I did not do anything wrong or illegal,” he said.
“If I had, I wouldn’t have chosen to go into receivership. Why expose myself to any
public document scrutiny if I had done anything wrong?

“I have lived my whole life as an upstanding, contributing part of the
community. Everyone knows me and my reputation is strong.”

Kotkins’ attorney, John Rizzardi of Seattle law firm Cairncross & Hempelmann PS, said his
client denies the allegations.

The receiver’s attorney, Michael Nesteroff, of Seattle law firm Lane Powell PC, declined
to comment on the case.

Whatever the outcome, the dispute is probably the beginning of the end of the Kotkins
family’s ownership of Skyway Luggage, which was founded by Kotkins’ grandfather in
1910 and survived the Great Depression. Three generations of the Kotkins family have
managed the company, which is now owned by Skip Kotkins and a family trust.

In recent years, the company made luggage under its own brand and under
a manufacturing licensing agreement for retailer Eddie Bauer, among others.

The lawsuit and related documents, along with several interviews with Kotkins and other
parties to the dispute, paint the picture of a third-generation owner who put his struggling
company into receivership, only to have the receiver sue him and other executives for
damages.

Kotkins said he put his own company into receivership in June, after Skyway Luggage
foundered under the onslaught of a “perfect storm” of business reversals. The
recession battered the company’s sales, one of its largest customers couldn’t pay its
bills, and the company struggled with its main Chinese manufacturer over quality
issues, he said. The recession has claimed a number of other wholesale luggage
makers that have either closed or been sold to competitors as the industry
consolidates.

The receiver, Revitalization Partners, specializes in business turnarounds,
receiverships and bankruptcy and crisis support.

Similar to a bankruptcy filing, receiverships in Washington state put litigation and
collection proceedings on hold, but the procedure does not follow the same strict
timelines as bankruptcy, allowing the receiver greater flexibility in selling assets.


Kotkins said he concluded that Skyway Luggage was worth more as a going concern,
and should be sold as an intact business.

“Skyway going it alone as an independent company did not make sense,” Kotkins said. “It
needed to be part of a larger operation. And, at my age and stage in life, it made sense
to be a seller.”

But the lawsuit filed by the receiver painted a different picture of what was behind the
company’s financial struggles.

Revitalization Partners alleged in its lawsuit that it “was appointed due to Skyway’s
mounting financial difficulties arising from the diversion of its working capital to fund
excessive wages to Kotkins” and two other executives, William H. Wilhoit, the chief
operating officer and president; and Jennifer Carmichael, the executive vice president and
secretary. Carmichael is Wilhoit’s daughter. Wilhoit, who joined the company in 1990, was
appointed president in 2003. According to Kotkins, Wilhoit oversaw much of the
company’s day-to-day management.

Skyway Luggage’s performance was also compromised, the lawsuit alleged, by “personal
loans” to Kotkins, as well as by “the failures of Kotkins, Wilhoit and Carmichael each to
exercise any management or control over the corporation’s business.”

“The company now faces potential liquidation because of its lack of working capital
and inability to access credit,” the lawsuit said.

The attorney for Wilhoit and Carmichael, Chris Nicoll, of Nicoll, Black & Feig PLLC in
Seattle, said, “Bill and Jennifer are capable and competent executives. They sought out
and relied upon the advice of professionals and we will be providing our defense in due
course.”

Kotkins said of the allegations: “Anybody can say anything they want in a complaint,
and they usually do.”

Revitalization Partners is asking for a judgment of at least $25 million against Kotkins and
$6 million each against Wilhoit and Carmichael, alleging breaches of fiduciary duty, waste
of assets and unjust enrichment.

The receiver is also seeking a judgment of $14.9 million for amounts owed on a series
of loans Kotkins obtained from the company between 2006 and 2010.

In detailing its claims against Kotkins, Wilhoit and Carmichael, the receiver put forth
its scenario of the company’s decline.

Between 2006 and 2010, the company’s gross sales plunged 69 percent — from $46.6
million to $14.6 million — and the company became insolvent, the receiver contends in its
lawsuit.

In his answer to the complaint, Kotkins denies the company was insolvent in 2007,
claiming it had a net worth of close to $20 million at that time. He admitted that Skyway



Luggage’s financial condition deteriorated between 2007 and 2010, but denied that the
decline was the result of his taking loans from the company. Instead, he said “the
greatest cause of Skyway’s deteriorating financial condition … was the drop in value of
Skyway’s marketable securities portfolio,” which was “the primary contributor to
Skyway’s inability to pay its vendors.”

The securities portfolio was later surrendered to the company’s bank.

Kotkins also “denies that he failed to exercise appropriate supervision and control
over Skyway’s officers and employees,” his answer to the complaint said.

Meanwhile, the receiver claimed the company paid $5.3 million in dividends to
Kotkins that was used to pay off unspecified prior loans, according to the lawsuit.

Kotkins’ lawyer, Rizzardi, points out that for Subchapter S corporations, such as Skyway
Luggage, shareholders are responsible for paying the company’s taxes and that
distributions are commonly made for that purpose.

In October, Revitalization Partners told the court it had a plan for selling Skyway Luggage
and its assets, and had received an offer on one of the company’s properties.

Revitalization Partners’ Al Davis said he believes the Skyway Luggage brand name
will survive.

“Our objective always is to maximize the value of the assets, and Skyway is an iconic
brand,” he said. “I believe we will be successful in having it survive.”

In mid-November, with the holiday shopping season nearing, the court authorized
the receiver to sell certain Skyway inventory for approximately $1.3 million.

Kotkins and his company face other challenges.

In July, Kotkins and his wife, Jacqueline, gave Columbia State Bank their home
in Seattle’s Magnolia neighborhood with a deed in lieu of foreclosure.

Kotkins said the couple, as empty nesters, had wanted to downsize to a smaller residence.
They had been trying to sell their home for 16 months and had dropped the price by 40
percent when they contacted the bank about taking the deed, he said.

“We initiated that idea and they agreed,” said Kotkins. “We are very pleased that this
allowed us to move to a smaller residence, as so many couples do at our stage in life.”

The house is currently listed for sale for $4.9 million, according to the online listing
service Zillow.com.

In November, Wells Fargo Bank sued Kotkins personally for $9.5 million in King County
Superior Court, claiming he unconditionally guaranteed a series of loan agreements
between Skyway Luggage and Wells Fargo that were not repaid.



Wells Fargo’s attorneys did not return calls for comment on that case. Rizzardi said it
was “unfortunate” that Wells Fargo took legal action rather than being willing to wait for
the assets to be sold.

Skyway Luggage’s main manufacturer and largest unsecured creditor, Suzhou Harmony
Travelware Co. Ltd. in China, claims it is owed about $6 million, said Harmony’s
attorney, Dean Messmer of Seattle law firm Lasher

Holzapfel Sperry & Ebberson PLLC.

According to a declaration that’s part of the court file in the receiver’s lawsuit, Skyway
Luggage made its last payment to Harmony in May, when the Chinese manufacturer
stopped shipments. At the time, Harmony claimed it was owed about $4.4 million for
shipped orders.

“We are waiting to see the results of the receiver’s liquidation of assets and the
receiver’s lawsuits against Mr. Kotkins and the other officers of the company,” said
Harmony’s attorney Messmer. “If he is successful, my client will be repaid in full.”

Rizzardi said Harmony’s claims are in dispute.

“Our understanding is the receiver wants to complete the receivership as quickly as
possible,” Rizzardi said. “It will sell the assets, possibly resolve the lawsuit in mediation
and obtain a decision on the disputed Harmony claim in coming months.”

Meanwhile, Kotkins is working on selling his family’s company with Davis, the
receiver, who is simultaneously suing him in King County Superior Court.

Davis said: “This is a business problem. It is not a personal problem.”

“It is a strange situation,” Kotkins said. “I’ve got someone who is suing me and I’m
working closely with them every day.”

JLJ@BIZJOURNALS.COM | 206.876.5426

A Three-Generation Endeavor

The legal battle between Henry “Skip” Kotkins Jr. and the court-appointed receiver for his
business, Skyway Luggage Co., is the greatest challenge yet for a family that has
weathered crises through three generations.
The Seattle-based company was founded in 1910 by Kotkins’ grandfather, Abe Kotkins, a
Lithuanian immigrant, as Seattle Suitcase, Trunk and Bag Manufacturing Co., according
to a history on the Skyway Luggage website.
Abe Kotkins built the business for a quarter century, then struggled to keep it afloat
during the Great Depression. He died of a heart attack at the age of 49, reportedly
having worked himself to death.
His son, Henry Louis Kotkins, was a year out of law school when he stepped in to save the
family business in 1936. He was an innovator, renaming the company Skyway Luggage to
capture the excitement of the growing airline industry. He rolled out colored luggage at a



time when most baggage was a somber black or brown.
Henry Louis Kotkins also had an active civic life. He served as a Port of Seattle
commissioner for 13 years, helping forge a relationship with China. That nation has since
become one of Washington state’s largest trading partners. He was a devoted Rotarian
and on the committee that helped stage the 1962 Seattle World’s Fair. He died in 2002,
according to newspaper obituaries.
His son, Henry “Skip” Kotkins Jr., joined the company full time in 1972 and became CEO and
chairman of the company in 1980. He, too, has a long résumé in civic affairs. Henry “Skip”
Kotkins Jr. is currently chairman of the Seattle Metropolitan Chamber of Commerce and a
director for the Seattle Branch of the Federal Reserve Bank of San Francisco. He is also past
president of the Rotary Club of Seattle, past chair of the Washington Council on International
Trade, and a former trustee of the Fred Hutchinson Cancer Research Center.


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