Koffee Kup purchases Vermont Bread

On April 26, employees of Vermont Bread, a Brattleboro subsidiary of Burlington-based Koffee Kup, arrived at work to find themselves out of jobs. 

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BRATTLEBORO — Possible collusion and corruption. Former employees still without final paychecks. Millions of corporate dollars mixed into a personal account. Servers wiped clean and sold. Even chronic unopened mail.

These are just a few of the problems plaguing the dissolution of the Vermont Bread Co., and a court-appointed receiver says the blame falls squarely with the prior receiver.

“The PTO [paid time off] payments made under his watch had many discrepancies, and we were charged with reconciling those discrepancies and finalizing the PTO payments,” said Linda Joy Sullivan, appointed by Chittenden County Court Judge Samuel Hoar Jr. to reconcile a final accounting of Koffee Kup’s assets. “We are in the process now of putting together the appropriate claims process for these payments and filing with the court an appropriate claim form to be certain that these PTO payouts are not delayed any longer, so that these former employees are not harmed any further.”

The doors closed in April

On April 26, employees of Vermont Bread, a Brattleboro subsidiary of Burlington-based Koffee Kup, arrived at work to find themselves out of jobs. While most of the employees received their final paychecks, many of the nearly 500 employees of Koffee Kup, Vermont Bread and Superior Baking in North Grosvenor Dale, Conn., did not receive their paid-time-off balances.

After the three bakeries closed, Ronald Teplitsky was appointed by the court to be the receiver of Koffee Kup’s assets until the primary lender, KeyBank, received more than the $7.6 million it was owed. Following the payout in late June, Sullivan was assigned to reconcile what was left and pay off the rest of the creditors.

Before Teplitsky left his role on Oct. 15, he was told by the court to pay the former employees more than $838,000 in paid time off. But Teplitsky encountered difficulty when he switched payroll vendors and before the employees could receive what was owed to them, creditors filed an involuntary bankruptcy petition in federal court. A federal judge eventually ordered the payment of the balances, but some employees have yet to receive anything and others received the incorrect amounts.

A hearing on whether the bankruptcy should go forward is scheduled for late December. A separate lawsuit filed by former employees accusing Koffee Kup of not giving them the legally required warning before locking them out is on hold pending the bankruptcy proceedings.

After Koffee Kup closed, Flowers Foods, of Georgia, purchased Koffee Kup in June for an undisclosed sum. The purchase price is considered confidential. At the time of the sale, a spokesman from Flowers Food told the media it has “no immediate plans to reopen the bakeries but will be assessing how they may fit our strategic network optimization efforts in the future.” Since then, Flowers Foods has not responded to repeated requests from the Reformer for an update on the status of the bakeries.

Time-off pay starting to come in

“Under court order, employees began to get their unused PTO time paid out,” a source familiar with payroll at Koffee Kup told the Reformer this week. “However, there were many mistakes in the payouts, and it was clear that the KeyBank receiver wasn’t using proper records to determine who gets paid what.”

The source also told the Reformer that Teplitsky, along with the former CFO of Koffee Kup Bakery, did not turn over the books until an emergency hearing was held to demand they turn over the books; Sullivan confirmed the allegation.

Sullivan noted that the records presented to her are less-than-complete.

“As of to date, we have not received copies of the bank statements with detailed deposit slips, canceled checks and the detail of transaction activity,” Sullivan said.

Making matters more difficult, she said, Teplitsky, rather than establishing a distinct account for Koffee Kup’s assets, placed millions of dollars into his own personal corporate account, a commingling of funds that is making it difficult for Sullivan to determine what has been done with the money.

“Without the turnover of these records, we are not able to identify what has actually transpired as of yet in this corporate account,” Sullivan said.

Second report filed

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On Oct. 27, Sullivan’s attorney, David N. Dunn, of Phillips, Dunn, Shriver and Carroll in Brattleboro, filed Sullivan’s second report in Chittenden Superior Court.

The report states that Teplitsky did not turn over all the records required and retained and gave authority over Koffee Kup’s assets to the former CFO. Teplitsky also retained Koffee Kup’s former IT manager.

Sullivan said it’s not unusual for a receiver to retain people who are knowledgeable about an organization’s finances, but when a receiver does not take custody and control of accounts, they are exposed to money being moved around without the knowledge of the receiver.

“The KeyBank Receiver left [the CFO] with custody and control of other Koffee Kup accounts which the Receiver himself did not become a signatory of, but instead, allowed other former Koffee Kup officers and employees to remain as signatories on,” Dunn wrote in the report presented to Judge Hoar.

“[T]hese accounts were and still are being used to move monies through the LLC, as well as for other purposes,” he wrote.

The second report also notes that servers containing data about Koffee Kup’s assets were wiped clean and sold before Sullivan could review the data contained on them. Instead, notes the report, Sullivan received digital bank statements from Teplitsky’s account that lacked deposit detail, canceled checks, front and back and other detail information.

Teplitsky also has failed to identify outstanding credit cards, bank accounts and deposit information to Sullivan, wrote Dunn. In addition, he has failed to turn over computer logins and security identification of people with access to the assets of the estate and has failed to provide Sullivan with invoices of any amounts paid out.

‘The big question’

“What are they trying to hide?” Sullivan told the Reformer. “That is the big question.”

Sullivan is also in the process of addressing “the chronic unopened mail situation left by the KeyBank Receiver and his agents,” Dunn wrote, and is also assisting the Vermont Department of Labor with an investigation into Koffee Kup’s 401(k) plan.

Failure to turn over all the documents and allow her access to the servers is a violation of Judge Hoar’s court order, she said.

Sullivan’s options at this point include filing a lawsuit with the resultant subpoenas and depositions.

Sullivan also told the Reformer she was concerned about an alleged meeting between the receiver and creditors prior to the creditors initiating an involuntary bankruptcy proceeding in federal court.

The report asks why Teplitsky and the CFO “found it necessary to assist the creditors who filed the involuntary bankruptcy by holding an informal meeting” and providing them with reports on other alleged creditors, estate receivables and the Flowers purchase agreement.

“There is a hearing regarding the possible collusion and corruption of the filing of the involuntary bankruptcy that will probably happen in late December,” she said.

The CFO also paid out more than $14,000 to attorneys, notes the report, a payment that should have been conducted by Sullivan.

Teplitsky’s attorney did not respond to requests for comment.

Bob Audette can be contacted at raudette@reformer.com.