“So it’s really disheartening what Fagan’s done,” says Vavra, “because vendors have to have absolute faith that the store is paying you correctly, legitimately. I would love to have him audited to see what he was putting into his own accounts.”
From her Point Loma home, Rebecca Berggren can look down on Newport Avenue. “I was one of the first vendors at Rock Paper Scissors,” she tells me. “I started selling my products there in June 2006.”
Under her business name, Karma Market, Berggren sells fair-trade jewelry and home decor. “The fair-trade movement,” she says, “markets products that are certified to have been produced justly, no child labor or debilitating working conditions involved. It means that the people who create the jewelry are all paid a fair wage. You can buy these products instead of purchasing jewelry that may have been created in a sweatshop or by kids abroad. The movement helps support artisans around the world. The reason I went into Fagan’s store was to give fair trade some exposure in local communities.”
Berggren says she experienced no problems with Fagan until the end. She was paying $300 a month until, in January, her rent rose to $500. Then came February 3, when Fagan began informing vendors that Rock Paper Scissors was closing. “By that time, I had already taken my products out of the store, so I was lucky in that way, I guess. In December, I noticed that my sales had dropped significantly versus the previous December, and I figured it was probably time, plus Karma Market is a second job,” says Berggren. Her first is marketing aquariums.
“When I received word that Fagan was closing down,” she continues, “and he told us he was going bankrupt, I hightailed it to the bank. I was hoping there still would be money in the bank to cover the December check that he wrote me.”
But the bank told Berggren there were insufficient funds to cover the check. The check was a little over $1500. By the time January’s figures came in, Berggren was owed a little over $2500.
Berggren suspects that Fagan “commingled” vendors’ profits with his own funds. “The products were never his to sell for his profit,” she says. “The money was never his to use.” The separation of vendors’ spaces in the store, she thinks, should have meant that, in bookkeeping, their profit accounts were kept separate from each other’s and any store accounts. If profits were put into and never taken out of vendors’ accounts, they would still have been there at the end. Fagan then would have been able to pay off vendors on the day Rock Paper Scissors closed.
One other vendor with whom I spoke briefly said that is exactly what happened at a similar store in which she also sold products. When the store announced it was going bankrupt, it invited all vendors in to collect their last profits and any other money in their accounts.
If Fagan did commingle funds to pay his bills, the vendors who lost money might be able to prevail in court. To check the possibilities, I place a call to Paul Graf, professor of business law at SDSU. Graf tells me that corporations and limited liability companies are different for tax purposes but similar in protecting owners from the organizations’ debts.
How about, I ask, if Fagan commingled vendors’ profits with his own funds? “Ah, commingling is a different matter,” Graf says. “If that were proved, it could allow for what’s called ‘piercing the corporate veil.’ ” Then, even in small-claims court, “where you can get good justice,” he says, the judge might want to put aside limitations on liability to enforce fairness. “Although the small-claims process for an individual takes some time, I would not want to discourage any claimants from using that process. I frankly do not know if a small-claims judge will contemplate a class action. It may be necessary to file the class action in a regular court.”
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