Daymark Struggles After Sam?s Club Contract Gets Ax

In June 2001, Daymark Group Inc. stopped paying invoices from Erb Transport of Elverson, Pa., the earliest known indication of financial problems for the Russellville trucking company once known for its fleet of refrigerated trailers.

But the biggest blow apparently came in August, when Daymark lost its contract with Sam’s Club, the warehouse-store division of Wal-Mart Stores Inc. of Bentonville that had been its largest customer.

Since March, at least six lawsuits seeking collection of debts have been filed against Daymark. The company’s lot at 3501 E. Main St. only has a few cars on it these days. At least 30 trucks have already been repossessed by the leasing company.

Tim Hill, president and CEO of Daymark, declined to comment for this article, but he said the company was still open.

“We’ll be prepared to make a comment at the first of August, but not before then,” Hill said. “Prior to that, anything you print will be whatever you discover and may or may not be reflective, probably won’t be reflective, of the facts or the situation.”

While many of the complaints against Daymark are in dispute, some facts are well established. For instance, Daymark sold its 15,000-SF office on 10 acres to a member of its board of directors, Jim Sweeden of Russellville, for $847,000, according to the paperwork filed Feb. 15 in the Pope County Tax Assessor’s Office. The property is again listed for sale and the asking price is $1.5 million.

With Sam’s Club as a client, Daymark reported revenue of $97.9 million in 1999 and had 600 employees with a fleet of 241 tractors.

In 1999, Daymark also landed another major contract, this time with Sara Lee.

But that relationship turned sour last year, and now the companies are accusing each other of not paying bills.

Sara Lee sued Daymark on May 13 for $481,000 for breach of contract, and Daymark on June 3 filed a counterclaim for breach of contract seeking $1.05 million.

When they agreed to work together, Sara Lee said it would pay Daymark a monthly management fee of $25,400 on top of the costs to store and deliver its goods, according to the suit Sara Lee filed in U.S. District Court in Chicago.

Under the agreement, Daymark would arrange and pay for the warehousing and shipment of Sara Lee bakery division products. Sara Lee then would reimburse Daymark for the payments that it made.

Who owes whom?

The two companies tell conflicting accounts of their falling out.

According to Sara Lee, in the summer of 2001, Daymark stopped paying certain carriers and warehousemen all or part of what they were owed for handling Sara Lee products.

“Despite Daymark’s failure to pay all the carriers and warehousemen in full, Daymark continued to send invoices totaling $481,000 to Sara Lee requesting full reimbursement,” the company said in its suit against Daymark.

Sara Lee also continued paying Daymark its monthly management fee, Sara Lee said.

Sara Lee first learned something was wrong when unpaid carriers and warehousemen began contacting the baked-goods company directly and threatening to stop service or to file lawsuits.

“Because Daymark refused to pay the carriers and warehousemen despite having already received the funds to do so from Sara Lee, Sara Lee had to pay certain carriers and warehousemen directly in order to ensure the proper handling and distribution of Sara Lee products as well as the continued operation of Sara Lee,” the company claimed.

On Sept. 24, Daymark sent Sara Lee an invoice for $167,570. Sara Lee inadvertently paid it twice, but when Sara Lee asked for the money back, Daymark refused, Sara Lee said.

According to the contract, Sara Lee could inspect Daymark’s books, which it asked to do in November.

Daymark agreed and set up a time for Jan. 7-9, but Daymark canceled the inspection, Sara Lee said. Sara Lee tried unsuccessfully to set up a time in February as well, it said.

In its counterclaim, Daymark said it was on the short end of the deal.

In August, Daymark’s suit said, Sara Lee started withholding from Daymark payments for warehousing and delivering goods.

Daymark said it continued shipping Sara Lee’s goods while racking up invoices for storing and delivering the items.

By December, Daymark said it was owed $1.05 million for expenses.

A court date hasn’t been set in the case.

Bad year

Other lawsuits against Daymark suggest that 2001 was a hideous year for the company.

Erb Transport said it hasn’t been paid $18,950 for work done May 15-June 1, 2001, according to its lawsuit filed March 14 in Pope County Circuit Court. Another one of Daymark’s attorneys, James Pate of Russellville, denied the allegation in court documents.

ATI Enterprises Ltd. of Rock Falls, Ill., filed suit May 3 in Pope County Circuit Court against Daymark for $18,275 for outstanding bills dating back to July 2001. According to an exhibit filed in the case, Daymark paid more than $7,000 in early November but had paid nothing since.

Most of Daymark’s equipment was leased, a business strategy that the company bragged about on its Web site.

“This provides our drivers with new equipment on a regular basis and reduces maintenance costs,” the Web site said.

But the company even suffered financial hardships with its leased trucks.

Daymark didn’t make its monthly $36,390 payment to Transamerica Business Credit Corp. (now M Credit), which leased Daymark 30 tractors between Dec. 4, 1997, and July 13, 1998, according to M Credit’s lawsuit filed April 29 in Pope County.

M Credit didn’t indicate in the lawsuit when the last payment was made, but it has repossessed the vehicles and is still trying to collect unspecified damages connected with Daymark’s failure to pay.

Another lawsuit showed Daymark suffered more financial trouble in February 2002.

In that month, Daymark didn’t make its $29,200 monthly payment on loans originally totaling $1.28 million made by United Capital, a division of Hudson United Bank, in 1998 and 1999, according to the bank’s lawsuit.

As of May 15, Daymark owed $412,417 on the loans, with interest accruing each day, United Capital said.

It’s not unusual

Daymark is not any different than hundreds of other trucking companies across the country, said Lane Kidd, executive director of the Arkansas Trucking Association.

An A.G. Edwards report showed that about 300 trucking companies a month have closed since January 2001, Kidd said.

“Each company is unique and has its own set of circumstances that may lead to closing their doors,” Kidd said. “I wouldn’t want to speculate on what those were [for Daymark]. … Daymark was a well-managed trucking company that had a specific customer base, and it could be that customer base experienced a slower economy than others.”

In the late 1990s, the truckload industry set records for profits. During that period, most companies increased driver pay and invested in new equipment.

By the middle of 2000, however, fuel costs for most carriers had more than doubled. That, coupled with a reduced demand for freight, was a deadly combination for the industry.

With the lower demand came a shrinking market for used trucks, which in turn dropped the value of the companies’ assets.