The Alabama Department of Revenue has filed a lawsuit seeking an injunction that would cease operations of MS Industries II, LLC, based on allegations the company failed to pay withholding tax to the State of Alabama as required by the Code of Alabama.
The lawsuit, originally filed erroneously in Russell County, was properly filed in Franklin County on February 5, 2020, by Assistant Attorney General Keith Maddox on behalf of the Alabama Department of Revenue.
Chuck Kelley, MS Industries II general counsel, said his company is aware of the suit concerning overdue payroll taxes and he expects the matter to be resolved by MS Industries II satisfying the payroll tax debt.
“We are communicating with the attorney and representatives of the Alabama Department of Revenue concerning payment of the payroll tax bill,” Kelley said. “We fully intend to pay the taxes and do not believe that any formal proceedings in the suit will be necessary.”
The Department of Revenue case is one of four civil actions pending against MS Industries II, which has its principal place of business at 430 Walnut Gate Road in Russellville.
Steven D. Smith, MS Industries II CEO, acknowledged his company has “experienced financial difficulties” over the last year, but he attributes them to “engineering miscues” during the construction of the company's Walnut Gate Road tract.
The 58-acre tract was conditionally transferred to MS Industries II from the Industrial Development Board of the City of Russellville pursuant to a lease-purchase agreement originally executed on April 14, 2016.
In a statement to the Franklin Free Press, Smith said:
“It's no big secret around Russellville that MS Industries has experienced financial difficulties over the last year or so,” Smith said. “Like so many new, start-up companies, our company has encountered numerous hurdles in reaching our revenue projections for 2019 and the first quarter of 2020. We are firmly committed, however, to reaching our goal of being the largest producer and shipper of industrial silica and related products in the Southeast. We are working hard with lenders and other resources to overcome the financial hurdles we have faced, and are extremely confident that better days are ahead for MS Industries.
“The problems we have experienced can be traced back to early 2018, when we learned for the first time that engineering miscues created a $14 million shortfall on the construction budget for our silica processing and distribution plant on Walnut Gate Road. That shortfall created an immediate and unexpected cash shortage, and left our company facing significant construction invoices while we began the process of re-capitalizing the company,” Smith said.
The company's agreement with the board included several conditions, including minimum employment levels, that had to be satisfied in order for the property to be transferred to MS Industries. Those conditions included a minimum of $10,000,000 in capital improvements to the site and at least 50 full-time jobs paying a minimum of $20/hour by the end of the third year of the agreement.
While the capital investment in the property exceeds the $10,000,000 requirement, MS Industries II failed to reach the 50-employee threshold at any time since the agreement was signed.
According to Industrial Development Board Chairman Greg Trapp, MS Industries II officials asked for and received an extension on the time allowed to meet the 50-employee minimum. A second request for a time extension has not been acted on by the Industrial Development Board as of March 18, 2020. Trapp said the employment condition was the lone benchmark that has not been met by MS Industries II.
The lease purchase agreement also provides that MS Industries II, in the event it does not comply with the conditions, may purchase the property outright for $360,000.
Kelley said his company is working closely with the board to extend the lease agreement one year beyond its April 14, 2020, ending date.
“MS Industries has invested over $40 million in constructing its silica plant on Walnut Gate Road. The extension has been requested to give MS Industries the opportunity to financially rebound, and either add the 50 jobs specified in the lease, or raise the land purchase price of $360,000 which was determined by appraisal arranged by the Russellville Industrial Development Board,” Kelley said.
Regardless of the result, Trapp said the Industrial Development Board will be on solid footing when it comes to the MS Industries property. With the construction of a railroad spur to the property, if the land reverts back to the board, it would make an attractive location for new industry. If MS Industries officials end up purchasing the land for $360,000, the board will come out whole, and if MS Industries moves forward with its business operations and employs at least 50 good-paying jobs, that's also a win-win for the community.
A foreclosure sale on the company's downtown building, located at 101 North Jackson Avenue, was set for March 18th based on the company's default on a mortgage filed on the property.
According to Russellville attorney Jeff Bowling, who represents TBS Factoring Service, the foreclosure sale was postponed until April 22, 2020, due to legal questions regarding whether foreclosure sales may go forward during the government shutdowns resulting from the COVID-19 virus.
The Franklin Free Press also confirmed that numerous MS Industries II employees were laid off effective March 13, 2020. A source familiar with the layoffs said some of those employees had not received paychecks for a month. According to the source, company officials told the laid off employees they could be hired back in approximately 30-45 days.
Smith said the layoffs were temporary and resulted from issues with two of the company's largest customers.
“MS Industries values the men and women who work for our company, making these layoffs a difficult thing to do,” Smith said. “Our employees were advised that the layoffs should be considered temporary in nature, as we are hopeful to be in a position to recall them within the next 30-45 days.”
Smith also said that, as of March 20th, the company's employees have been paid in full through the layoff date.
Smith said the layoffs resulted from “delays because of equipment issues” at one of MS Industries' customer plants.
“These problems were worsened during 2019 when we faced lengthy delays beyond our control in bringing two new, very sizable silica supply contracts online in a timely manner,” Smith said. “With one customer, the delays were caused by prolonged flooding that interrupted its production. The other contract was delayed because of equipment issues at the customer's plant. Unfortunately, these delays put an additional strain on our monthly cash flow, and we were forced to make the difficult decision on Thursday, March 12, 2020, to temporarily suspend shipments of silica to our largest customer, and to also temporarily lay off the majority of our work force,” Smith added.
According to the company's website, www.msind.com, “MS Industries is a mining research and development company centrally located in Russellville... who offers a range of high-grade silica products, including whole grain silica, silica flour, metakaolin, and clay.”
On October 30, 2019, Contractor Service & Fabrication, Inc., obtained a consent judgment against MS Industries II, LLC., in the amount of $1,900,705.70. Essentially, MS Industries II entered into an agreement to satisfy the amount owed by a date certain and that was filed with the court in the form of a judgment.
That lawsuit also named the Industrial Development Board of the City of Russellville as a defendant, although the judgment was against MS Industries only.
In that civil action, Contractor Service maintained it provided materials, service, labor, equipment and supplies to MS Industries II, and was not paid for its work. The Industrial Development Board was named in the lawsuit as “the holder and owner of title of record” to the Walnut Gate Road property.
As to the Industrial Development Board, that lawsuit remains pending.
Another lawsuit, filed in March of 2019, by Global Maintenance, LLC, sought more than $600,000 from MS Industries II for failure to pay for materials, equipment, service, labor and supplies. This civil action also named the Industrial Development Board as a defendant.
The parties reached a consent agreement that was filed into court on October 30, 2019. That judgment against MS Industries II was for $676,672.03 plus attorney's fees. As of March 25, 2020, officials with Global Maintenance say the judgment remains unsatisfied.
Earlier this month, another civil action was filed against MS Industries II, LLC, by Kice Industries, Inc., alleging MS owes a balance of $135,541.80 for certain industrial equipment and merchandise, and that the company failed to pay the remaining balance by September 28, 2018, the deadline for payment according to the complaint.
A lawsuit recently filed in Lawrence County Circuit Court by Caterpillar Financial Services Corporation against MS Industries II seeks $781,250.13 in damages for the company's alleged failure to pay for certain equipment.
When MS Industries announced its plans to locate its silica plant and corporate headquarters in Franklin County, it was hailed by many, including the Franklin Free Press, as a 'renaissance' for Russellville.
With an 'all-in' mentality for Russellville, including the purchase of the downtown building that houses its corporate headquarters and construction of the Walnut Gate Road plant, MS Industries II CEO Steve Smith said his company's total investment in Russellville would approach $100 million.
The question now becomes whether the company will be able to raise the additional capital necessary to satisfy its creditors and complete the construction of the plant necessary to operate at full potential.
Smith, though, remains confident that will happen.
“The City of Russellville and its leaders have been very supportive of MS Industries, and we are very proud to be located here,” Smith said. “Our company has invested heavily downtown and in the community, and we plan to be here for a long, long time.
“We appreciate the kind words of encouragement that we have received from our friends in the community, and look forward continuing on with our mission of adding to the local economy,” Smith added.
