The battle by Roy and Pattie Ewers against the Ace Hardware chain, and by extension their struggle to keep Springfield’s venerable Fischer Hardware store alive, cleared a significant hurdle in the Illinois courts last week. And now Ace is facing federal investigations from two agencies, as well as a federal class-action lawsuit by dozens of other Ace store owners who claim that they were victimized in the same manner as the Ewerses.
The Ewerses bought the 60-year-old hardware store in 2009 after securing a $1.85 million Small Business Administration loan, based on what they allege were phony financial projections and past performance figures. The store’s sales then plummeted, which the Ewers have blamed on Ace’s management incompetence.
When the Ewerses couldn’t pay Ace’s bills for their goods and services, Ace sued them in DuPage County, Ill., outside Chicago, where Ace is headquartered. The Ewerses responded with a countersuit alleging fraud by Ace. They also filed complaints with the SBA and the Office of the Comptroller of the Currency, which oversees banks, claiming that filing false financial statements to obtain loans was a widespread Ace practice.
Last week in DuPage County, Judge Kenneth L. Popejoy rejected Ace’s motion to throw out the Ewerses’ fraud suit, dismissing some but not all of their counts. The case moves to the discovery stage, and Roy Ewers said the judge has strongly advised Ace to settle the case.
Ewers and his attorney, Harry Channon of Chicago, said they have documents showing that Ace submitted one set of financial numbers to Ewers, who signed off on them. But Ace then allegedly submitted a wholly different, clearly inflated set of numbers to National Cooperative Bank without Ewers’s approval, and the bank issued the loan.
Ewers, who put in $930,000 of his own money for the purchase, said he would not have bought the store without the loan, and without Ace’s detailed assurances of financial good times ahead.
“We’ve got a long way to go,” Channon said of the lawsuit, “but we will do everything possible to keep Fischer Hardware in business.”
Ewers said Ace “should negotiate a settlement. It would give me my money back and keep the store open.”
Sasha Bigda, a spokeswoman at Ace’s corporate headquarters in Oak Grove, Ill., said Ace would “vigorously defend itself against the Ewers’ one remaining claim. Ace is optimistic that it will prevail in this case. ”
Ewers, who has filed for bankruptcy for the store and signed on with an independent supplier, also sought help from federal regulators. In response to recent calls for an investigation of Ace by Rep. Gerry Connolly (D-Fairfax), both the SBA and the OCC confirmed this week that they have open investigations into the Ewers’s complaint, but could not say when or whether any action would be taken.
Bigda said, “We have no knowledge of any investigation or inquiry involving Ace by the U.S. Small Business Administration, the Office of the Comptroller of the Currency or any other federal or state government agency.” That may be, but officials at both agencies have told Connolly, Ewers and me that they consider the case an “open matter,” which they would most likely not do if they did not have jurisdiction, or interest.
Meanwhile, in Florida, the first two of what is thought to be at least 40 disgruntled Ace store owners have launched a class-action lawsuit against Ace. The allegations are virtually identical to those in the Ewers case: Promises of a modern, tightly organized store, based on false financial records, followed by store failures or steep declines. The case has not been certified as a class-action yet and is on hold while an Illinois court rules on Ace’s argument that the store owners are contractually obligated to enter arbitration first. (The Ewers have no such agreement with Ace.)
Two law firms with long experience in class-action suits — Zimmerman Reed of Minneapolis and Wexler Wallace of Chicago — have joined forces to take on Ace. They have a Web site soliciting disgruntled Ace store owners to join them. Large law firms typically do not take on such complex cases without a solid risk assessment that leads them to believe there’s gold in the settlement cards.
And this is not about a faulty lawn mower or some overcharges on a credit card bill. This is an allegation that Ace used its “Vision 21” plan to systematically defraud not only dozens of store owners but the banking system as well. That could be a hugely significant blow to the Ace corporation.
Bigda noted that my assertion in June that “many other hardware store owners around the country have filed lawsuits against Ace” is “simply not true.” Of the 4,100 stores affiliated with Ace, which operates as a co-op for local owners, only six stores have launched litigation, she said.
“For more than 85 years,” Bigda said, “Ace and our independently owned and operated retailers have successfully weathered competitive pressures in various economic cycles. While Ace wants all Ace store owners to be successful, for various reasons not every store attains the level of success that its owner desires.”
Here’s a story WJLA-7 did last week on Fischer Hardware.