[Note: This is the second in a four-part series about Charlie McCallum, a local attorney involved in the transactions that lead to the dissolution of four Grand Rapids institutions: Autodie, Butterworth Hospital, Amway, and Old Kent Bank.]
BAIL-OUT BY BUTTERWORTH
Charlie McCallum is a senior partner with the law firm Warner Norcross & Judd L.L.P., headquartered in downtown Grand Rapids. We last left Charlie in middle of bailing Autodie founder Joe Spruit out of his financial troubles in the wake of his company’s collapse under $140 million in debt. It was the fall of 1992. It was apparent that Autodie’s declaration of Chapter 11 bankruptcy is just a stop along the way to a Chapter 7 dissolution of the company. Autodie’s creditors were after Spruit because he had personally guaranteed the company’s debts. With Autocam safe (along with whatever interest Charlie might have preserved for Spruit in Autocam), it was now time for Charlie to get Spruit’s creditors off his back by dealing out the pieces of his client’s shattered Monroe North empire.
Spruit had tied up a large number of parcels in Monroe North through a bewildering array of companies and agreements. (The former czar of the U.S. Justice Department’s S&L prosecution unit was flabbergasted at the complexity of Spruit’s land deals.) The effect of all this was that even if Spruit did not control a piece of property out-right, his consent was needed to sell or transfer it – unless his creditors were to force him into bankruptcy to liquidate his assets. So, Charlie’s mighty task was to preserve as much of Spruit’s fortune as possible by getting the creditors to take as little as possible without pushing Spruit into bankruptcy with Autodie.
A Friendly Buyer
One way to do this was to bring in a friendly buyer to purchase Spruit’s property. Why a friendly buyer? A friendly buyer would offer to throw a few bucks at the creditor in exchange releasing Spruit from all claims and then threaten to scotch the deal if the creditor balked. This way the friendly buyer would pose as the only hope of any recovery at all to the creditors and manipulate them to release Spruit on the cheap. Thus, Spruit would not have to give up everything Charlie had squirreled away for him. As it happened, Charlie had such a friendly buyer waiting in the wings: Butterworth Hospital.
Charlie had a powerful say in the deals the hospital would or would not do. He had been the chairman of the hospital and continued on as its corporate secretary and legal counsel. Meanwhile at Warner Norcross he was the hospital’s “client service manager” – in other words, the hospital was his personal account. Furthermore, his wife Lois Temple operated a for-profit unit of the hospital that just happened to have a plan for a new campus that would include occupational health, fitness, medical storage, and educational facilities. And we already know who needed to sell a contiguous group of properties that could house those facilities.
The Fly in the Ointment
So Charlie was in the perfect position to manage the affairs of one client to the benefit of another. However, there was a fly in the ointment: Proto-CAM Inc. Proto-CAM was a manufacturing company (owned and operated by my family) that hired Charlie’s law firm to make an acquisition of industrial property in Monroe North and then execute a $20 million initial public offering to raise capital to purchase adjacent properties for the expansion of its manufacturing operations. These were the same properties that Butterworth had targeted for its new campus.
Apparently Charlie entertained the possibility of getting behind the Proto-CAM plan. After all, an I.P.O. could bring a lot of cash into deals for Monroe North property that would get Spruit completely off the hook. His firm even paved the way for Proto-CAM to purchase and occupy its first acquisition in Monroe North – i.e., the plant the hospital wanted for a medical storage facility. However, Charlie and his partners hedged their bets by unethically concealing from Proto-CAM their representation of Spruit and Butterworth who had conflicting and competing interests in the properties Proto-CAM earmarked for its expansion. In the end, a Proto-CAM I.P.O. couldn’t be executed soon enough to keep Spruit’s creditors at bay and besides they, not Spruit, would get the benefit of that capital. Perhaps most important to Charlie, the Proto-CAM plan would cut out Butterworth completely and nix any opportunity for Charlie and his wife to gain through the hospital’s expansion into Monroe North. (See Part III for more on that.)
So by March 1993 Charlie and Warner Norcross began working against Proto-CAM and its plans for Monroe North. This included a last-minute queering of the closing documents for Proto-CAM’s purchase of its first Monroe North plant so that access to it remained under the control of Spruit. (This was finally corrected in Proto-CAM’s favor twelve years later by a decision of the Michigan Court of Appeals.) Notoriously, Charlie’s partner Boss Logie, as mayor of Grand Rapids, strong-armed the City Commission to approve the re-zoning of Monroe North to commercial use isolating the Proto-CAM plant on an island of industrial zoning. Worst of all, without ever disclosing their representation of interests hostile to Proto-CAM’s expansion plan, Charlie’s partners talked the manufacturer out of using an initial public offering to buy further property in Monroe North.
Thus, Charlie and his law firm cleared the way for Butterworth Hospital to acquire control of Spruit’s Monroe North properties as the “friendly buyer”. Just one hurdle remained. The hospital could not appear to be the buyer. That would shine a spotlight on Charlie’s conflict of interest in representing both sides of the transaction, seller Spruit and buyer Butterworth. And so, the creditors would know that Butterworth was a friendly buyer and its purchase offer was not an arm’s length transaction. For this reason a shill was recruited to act as the buyer on behalf of Butterworth.
That shill was the Charlevoix Club fronted by a couple of hucksters, John Sims and Mike Webb (now serving time in prison on an embezzlement conviction), who were backed by Butterworth benefactor Peter Cook. By August 1993 they closed the deal for one Spruit property, the old Autodie fitness center, and by February 1994 for another, the Berkey & Gay furniture factory (now known as the Boardwalk or “Toxic Towers”). Charlie and his partners then went to work to tie up Sims and Webb under agreements with Butterworth Occupational Health Inc., the for-profit subsidiary of the hospital operated by Charlie’s wife Lois Temple, that gave Butterworth all aspects of ownership of these properties except formal title.
A Rotten Deal
The creditors were told there was only $300,000 in cash to be had out of the Charlevoix Club’s $1.2 million land contract purchase of the Autodie fitness center. So, the creditors took the cash and walked away from any further claims upon Spruit or these properties, because there were persuaded that there was all to be had from a pair of nickel-and-dime bottom-feeders like Sims and Webb. Furthermore, a prominent local attorney, John Hendricks (who later went on to serve as corporate counsel for Peter Secchia’s company, Universal Forest Products), represented in writing to the bankruptcy court that there was nothing more going into the deal.
But the financial reports of the Charlevoix Club and Butterworth Occupational Health tell a different story. In addition to the $1.2 million land contract, they show the transfer of $2.4 million from the hospital through the Charlevoix Club to parties related to Charlie's client, Joe Spruit. So after the creditors released Spruit in exchange for the chump change of $300,000, the hospital subsidiary run by Charlie’s wife pumped eight times that amount of capital through the Charlevoix Club into the hands of someone other than the creditors.
It certainly smells like bankruptcy fraud and money-laundering. At least it stunk enough to prompt a local assistant U.S. Attorney to alert the Federal Trade Commission that there was evidence of self-dealing by top executives at Butterworth Hospital upon the eve of its merger into Spectrum Health Corporation. Stayed tuned for Part III of “The Fixer”.
[Click here for the third installment of "The Fixer". - The Editor]