The New York Times

April 19, 1998

A Broken Pact and a $97 Million Payday


COLUMBIA FALLS, Mont. -- In 1985, the Columbia Falls Aluminum Co. wrung a 15 percent pay cut from employees in return for an apparent will-o'-the-wisp: a share of profits from an aluminum refinery that was a perennial money loser.

Brack W. Duker, the corporate executive who had just bought the refinery from the Atlantic Richfield Co. for a symbolic $1, held out a firm promise, many workers recall. If the aluminum market ever recovered, Duker assured them as he lobbied for the plan, "a dollar in your pocket is a dollar in mine."

In the end, the workers reluctantly accepted the offer. And the price of aluminum did in fact recover -- far beyond anyone's expectations. Starting in 1986, Columbia Falls Aluminum became a money-making machine.

But over the next five years, rather than splitting the take, Duker and his minority partner, Jerome Broussard, funneled much of the money into secret offshore bank accounts. Before they cut off their union and salaried employees altogether, the two men had awarded $84 million to them and $231 million to themselves. As it turned out, a dollar in the pockets of workers would be nearly $3 in those of the owners.

In 1989, Duker and Broussard dismissed their chief financial officer after he raised concerns about their financial practices. With him gone, and with the plant's work force more concerned about job security than profit-sharing checks, there seemed to be no end to the gravy train.

But there was something ahead on the tracks that would derail it -- a 39-year-old accountant at the plant named Roberta Gilmore, who challenged the company's bookkeeping practices and was promptly told to keep her mouth shut.

Instead, after fuming for a couple of years, she filed a lawsuit. What ensued was a classic David-versus-Goliath business tale, a battle that from the beginning seemed almost hopeless for Ms. Gilmore and the workers. At one point, the two small-town lawyers she hired showed up in federal court in Missoula, Mont., wearing polar fleece jackets and Sorel boots. They were greeted by Duker -- flanked by three bodyguards and 13 lawyers in finely tailored suits.

Clearly, Duker had the upper hand in any war of attrition. And yet, five years and 10 months after the suit was filed, he threw in the towel. Just two weeks before Ms. Gilmore's lawsuit was scheduled for trial, he agreed to pay the workers $97 million -- nearly double his previous offer and eight times the initial proposal he made in 1995. When she heard the news, Ms. Gilmore broke into sobs.

Her unlikely victory has a special resonance in an era when everything seems stacked against blue-collar workers. Union membership is continuing a long decline; inflation-adjusted wages are stagnant, and millions of low-paid Americans struggle without health insurance. And all the while, the rich get richer: Executives at big corporations receive stratospheric compensation packages, and shareholders reap huge windfalls just by sitting back and watching the Dow industrials defy the law of gravity.

This time, though, romance wins and the workers are cashing in. More than 1,000 current and former employees at the factory here will be getting checks this month, ranging from a few thousand dollars to more than $300,000, depending on their length of service. But no one is celebrating it as an unambiguous victory. For even though the workers received far more than they ever thought they would, they also believe that Duker and Broussard are walking away with $57 million that is rightfully theirs, too.

"There's not a feeling anybody won," said Terry Smith, president of the Aluminum Workers' Trade Council, the hourly workers' union. "There's a feeling of relief."

"I believe this kind of stuff goes on across the country," he added bitterly.

This account is based mainly on court documents and interviews with workers and their lawyers. Both Duker and Broussard declined to be interviewed. But the thrust of their position -- as articulated in court records, a company response to written questions and telephone interviews with one of their lawyers -- is that there was no binding profit-sharing agreement. Furthermore, they contend that the complexities of the corporate-tax system accounted for much of the gap between what they paid workers and what they paid themselves.

While declining to go into specifics, the lawyer, Mark Shipow of Los Angeles, disputed the plaintiffs' calculation of the size of that disparity. "The numbers are wrong and their figuring is wrong," he said last week.

The aluminum refinery here, looks as if it had been airlifted from the Rust Belt and dropped into one of the most breath-stealing stretches of wilderness in America. Grizzly bears, wolves and moose roam the forests just north of this town of 3,000 people, just a few miles south of the jagged blue mountains of Glacier National Park.

But behind the sprawling 40-acre plant, built in the 1950s to take advantage of cheap hydroelectric power churned out by the dams of the Columbia River Basin, the slopes of Teakettle Mountain are denuded, their vegetation destroyed by fluoride emissions that used to belch from the smokestacks.

In 1985, ARCO was selling its metal division and wanted to get rid of the Columbia Falls plant, which was losing money. So the oil company devised a plan to sell it for $1 (plus $3 million for the inventory) to Duker, an ARCO executive in charge of divesting unwanted properties.

As part of the deal, the two sides agreed that workers would take a major share of all future profits, if any. In a one-and-a-half-page letter to Duker -- a document that would become pivotal evidence more than a decade later in Ms. Gilmore's lawsuit -- ARCO spelled out that condition, saying employees "will have a claim against at least 50 percent of the profits earned in each year." Far from objecting, court records show, Duker embraced the idea, originally suggesting that employees should receive 90 percent, not just half.

As soon as Duker and Broussard took over, they started a drive to cut operating costs, wielding the threat of closing the plant as leverage with politicians and government agencies. With the entire town behind them, they won huge cuts in the plant's electricity rates and property taxes.

A linchpin of the cost-cutting plan, though, was persuading the hundreds of workers to take a 15 percent pay cut in return for a 50 percent share of any future profits. With the specter of a shutdown looming larger, the workers consented.

"There was a lot of trust," said Smith, the aluminum workers' president.

The cost-cutting paid off handsomely. In the year ended July 1986, the first full year under Duker's management, Columbia Falls Aluminum went into the black. And according to court documents, the new owners honored their profit-sharing agreement to the letter, taking $1.3 million for themselves and distributing $1.3 million to workers.

The next year, they also divided the profits almost 50-50 -- but with a twist that bothered Revo Somersille, the company's chief financial officer.

In 1986, the two partners in the closely held company had borrowed their projected share of the profits from Columbia Falls Aluminum's coffers and paid it back with interest. In 1987, they borrowed $6.5 million for the same reason, and again they repaid the money -- but this time, there was something missing.

"I asked them how much interest they were going to pay," Somersille said, "and they said there wasn't going to be any interest." That, Somersille thought, was unethical.

He would soon have even greater reservations about the owners' financial dealings. With costs plummeting and the price of aluminum soaring, the smelter's profits kept surging.

Yet in 1989, according to Somersille's deposition in the lawsuit, the owners deducted the company's Social Security taxes from the workers' share of the profits. In his view, that maneuver violated the profit-sharing agreement. "I indicated my displeasure," said Somersille, who now runs an accounting practice in Whitefish, Mont. Soon after, he said, he was moved to a nearly empty office with no duties to perform. Then he was dismissed -- because, he said, "I was making waves."

With his departure, accounting duties fell to Ms. Gilmore, the accounting supervisor. She had moved to Montana from Columbus, Ohio, in 1977 so she could spend her leisure time hiking, climbing and paddling her kayak across its wild landscapes. Starting out at the plant as one of several accountants, it was only a few years before she was in charge of more than a dozen people.

In March 1990, she said, company executives asked her to sign a letter to the accounting firm Ernst & Young, which was conducting a routine audit, saying that the company had no "contingent liabilities." She refused because there were huge liabilities -- millions of dollars in profit-sharing money owed workers, she says she told them.

"I knew I couldn't sign the letter, ethically, morally and legally," Ms. Gilmore said in an interview. Her bosses were not pleased, instructing her, she said, "to keep my mouth shut."

Shipow, Duker's lawyer, said, "The company denies it did anything wrong or intimidated anyone." He also disputed employees' estimates of how much was owed to them, saying they did not take into account large sums that went to pay taxes on the profits. "When you consider all of the amounts we think should have been considered, the profit-sharing had been handled correctly," he said.

Then why settle for almost $100 million? "There's no such thing as a slam dunk," Shipow replied. "Instead of trying the case, moving on to make a lot more money for everyone seemed to be the way to go."

A court brief filed by the defendants in May 1996 shed additional light on their thinking. In that document, Duker and Broussard complained that employees took words and phrases out of context. Though the ARCO letter, for instance, stated that employees should "have a claim against at least 50 percent of the profits earned in each year," the partners' brief said that "Webster's dictionary makes it clear that a 'claim' is just a claim and not a right." The brief also characterized the phrase, "a dollar for me, a dollar for you," as "the alleged statements made by Brack Duker."

According to Ms. Gilmore, the admonition from her bosses kept her silent -- and the company without a completed audit -- for two years. But by 1992, she says, her frustration grew as profit-sharing distributions to workers stopped. So Ms. Gilmore turned for help to an old friend and fellow outdoor enthusiast, a small-town lawyer named Roger Sullivan.

Ms. Gilmore first met Sullivan in the late 1970s, when she and her husband built a cabin deep in the Montana woods a short walk from one where Sullivan lived with his wife. He was a lawyer at the firm of McGarvey, Heberling, Sullivan & McGarvey in Kalispell, 20 miles from Columbia Falls. The firm specializes in environmental law but also handles an assortment of cases typical of a small-town practice, from workers' compensation claims to land condemnations.

Sullivan recommended that she take legal action, and on Sept. 24, 1992, she filed a class-action lawsuit on behalf of herself and salaried workers at the plant. (Hourly workers would enter the suit later, through Powers & Lewis, a firm in Washington that specializes in labor law.)

The next morning, Ms. Gilmore reported to work as usual at 6:30. "At 6:40, I was surrounded by managers," she said. "They escorted me out the door like I was a criminal." Eventually, she said, most of the people in the accounting department lost their jobs and their activities were moved to Los Angeles, where Duker has his office.

Placed on paid leave, Ms. Gilmore started a kayak outfitting business and worked on the lawsuit with Sullivan and one of his partners, Allan McGarvey. She found herself shunned by many of her fellow workers who feared that the trouble she was causing might lead to the closing of the plant.

In August 1993, Ms. Gilmore was dismissed. She quickly sued the company, contending wrongful discharge -- and Columbia Falls Aluminum just as quickly filed a counterclaim, contending breach of confidentiality.

Sullivan and McGarvey, meanwhile, started what would become an arduous five-year discovery process to gain access to the company's financial records. What they ultimately unearthed astounded them.

In the first three years of the profit-sharing plan, payments had been at near parity, with the owners receiving $29.2 million and the workers $27.3 million. Because the agreement allowed the owners to deduct capital investments from the workers' share, the disparity was not surprising.

But then, a huge gap opened. Duker and Broussard allotted $43 million to themselves in the final five months of 1988, a transitional period to a calendar financial year, and gave workers just $14 million. In 1989 through 1991, they distributed $159 million to themselves but only $43 million to workers.

In all, the workers had ended up with $84 million over five years, compared with the owners' $231 million. In the same period, only $7.5 million had gone to capital investments.

According to court documents, Duker's legal justification for the lopsided apportionment was that there was no official profit-sharing contract, only a one-page attachment to the union contract.

"The board of directors of the Columbia Falls Aluminum Company will determine each year the amount of profits available for distribution," the attachment read. "Fifty percent of the distributable profits as determined by the parent company will be distributed to employees."

That might seem clear enough, but in 1990, Duker filed an amendment to the company's pension plan, where many employees were putting their profit-sharing money, contending that the attachment was an "inoperative document." There was no binding contract, the amendment asserted, and profit-sharing allocations were at the sole discretion of the employer.

Two years later, court documents showed, Duker informed employees that he would no longer make any profit-sharing payments to them.

The plaintiffs' lawyers argued that the attachment was binding. And they bolstered their contention with some powerful ammunition. As the legal battle unfolded, worker after worker testified in depositions that after taking control of the plant, Duker had attended several meetings with employees to pitch his profit-sharing plan. And each time, they said, he had repeated the same phrase: "A dollar in your pocket is a dollar in mine."

he lawsuit dragged along slowly for the first couple of years. Then, in a visit to ARCO headquarters in Los Angeles in 1995, Sullivan and McGarvey struck gold. They found the letter that the company had written to Duker, setting the condition that employees should have a claim to 50 percent of all profits.

As a result, the judge in the case ruled that a profit-sharing contract indeed existed and was binding on the owners. But how much money beyond their fair share, the lawyers now wondered, had Duker and Broussard awarded to themselves? And had they stashed it somewhere?

The beginning of an answer to both questions arrived in the law firm's mail a few months later from an anonymous source. It was a one-page memo from the files of Norsk Hydro, a Norwegian company that bought much of Columbia Falls Aluminum's production. Executives at Norsk were worried, the memo said, that they were being forced to "enter into a contract with an 'empty' company in the Cayman Islands."

Further investigation by the two lawyers revealed that Duker had created a shell company in the Caymans called Eural to receive the profits from the refinery rather than recording them on the American company's books, where they would be subject to claims by the workers. Shipow, Duker's lawyer, said recently that Eural was set up "because, given all the instability at the company, potential customers were not willing to take the risk of dealing with the company."

"They wanted to deal with the shareholders," he said. "It was done, we think, above board."

Based on that memo, the lawyers went to federal court in September 1995 and asked Judge Jack D. Shanstrom to place the assets of Columbia Falls Aluminum in receivership. Duker and Broussard were subpoenaed for a hearing, Sullivan said, but in a courthouse-steps agreement, the two men agreed to put the company's stock under federal court jurisdiction and to suspend all profit-sharing payments. They also proposed a $12 million settlement of the lawsuits, taking out a full-page ad in the local newspaper urging the workers to accept it. The deal was rejected overwhelmingly.

Two months later, in November 1995, the union contract at Columbia Falls Aluminum was up for renegotiation. Duker wanted to eliminate any mention of profit-sharing, and company officials again trotted out the threats of closing the plant. They also hired a private security force that had worked for coal companies during violent strikes in Appalachia in the 1980s. The 18 guards wore uniforms and berets and carried surveillance cameras. In small-town Montana, the message was clear, said Smith, the union leader: "If we went out on strike, it was going to be hardball."

To that stick, Duker added a carrot: He would reinstate the wages that had been reduced in 1985. Facing the prospect of a long strike they could end up losing, the workers agreed to his terms.

By 1997, after years of frustration and a contempt citation for Duker for failing to produce financial documents, the plaintiffs' lawyers finally had received the bulk of the partners' personal financial records. According to court documents, the lawyers learned that a great deal of money earned by the company had been transferred to the personal accounts of Duker and Broussard in offshore bank accounts on the Isle of Man and Gibraltar. ( Shipow, Duker's lawyer, said the accounts were set up as trusts for the two owners' families "as part of estate planning.")

All this was heady stuff for the Montana lawyers, who estimate that in the course of the legal battle, they dealt with 30 to 40 opposing lawyers, including luminaries like Joe Giroir of the Rose Law Firm in Little Rock, Ark., where Hillary Rodham Clinton was once a partner. To pay expenses, they were forced to take out an $850,000 bank loan. "We personally guaranteed payment," Sullivan said. "Our wives had to sign also. My wife literally cried."

That spring, Duker raised the settlement offer to $50 million. Again, the workers voted no.

Last December, Sullivan and McGarvey moved to a hotel in Missoula to prepare for a Jan. 3 trial date. The proceedings were scheduled to last two months, and hundreds of witnesses had been summoned to appear. Five days before Christmas, at a mandatory settlement conference, Duker raised the offer again, to $97 million.

This time, the workers accepted, by a 4-to-1 ratio. The two lawyers will receive more than $6 million of the $32 million share received by salaried employees. The union lawyers will receive 10 percent of the $65 million awarded to hourly employees. The remaining $84 million is being split by roughly 1,000 workers and former workers: The average amount to union members employed throughout the profit-sharing period is $100,000, while salaried employees with similar tenure will receive about $150,000.

Columbia Falls Aluminum, in its written statement, said that the settlement, combined with previous profit-sharing disbursements, made its employees "among the highest paid -- if not the highest paid -- workers in the aluminum industry."

In recent weeks, numerous newspapers and television news programs have reported on how they will spend the money. Little has been said about how they got it.

For her role in the affair, Ms. Gilmore, known as Bobbie, has become something of a heroine in Columbia Falls. In 1996, signs proclaiming "Bobbie for Governor" sprouted at the aluminum plant. "There's no question there was tremendous heroism on her part," said Somersille, the ousted chief financial officer.

There is a bitter tinge, however, to the sweetness of victory for Ms. Gilmore. The aluminum company had rehired her in 1995, albeit in a job with less responsibility than she once held. When the class-action lawsuit was settled, she dropped her wrongful dismissal complaint against the company in return for an undisclosed award, and it dropped its breach-of-confidentiality suit.

But today, Ms. Gilmore is on medical leave for stomach problems caused by stress. "It's awkward," she said, working for a company that she feels conducted psychological war against her.

Duker's headaches are not over, either. In a lawsuit filed last month in federal court in Missoula, one of his lawyers, Douglas Wold, contends that Duker refused to pay him a promised bonus of $3 million for holding the final settlement to $100 million or less.

Wold did not return phone calls. But Shipow said: "We think he has no claim. We are fighting the complaint vigorously."