Bankruptcy Puts Nordstrom On Spot -- Retailer's Role In Small Company Is In Question

The Chapter 11 bankruptcy filing of a small, minority-owned telecommunications company is threatening to drag Nordstrom Inc. into a quagmire of charges and countercharges about its role in a company some say the retailer invested in to avoid a defamation lawsuit by a former employee.

Myriad Distributions Services, a company owned by former downtown Nordstrom store manager Jim Nicholson, filed Chapter 11 in July.

After making a 5 percent investment in the company, Nordstrom gradually took control, says Myriad. Myriad accused Nordstrom of keeping a stranglehold on the company while at the same time refusing to provide enough money to Myriad so the company could succeed. Myriad finally filed to reorganize the company under Chapter 11 bankruptcy laws in July, and Nordstrom subsequently withdrew its financial support.

Nordstrom acknowledges that it invested in Myriad - not to avoid a suit but to support a minority-owned business with a good idea. Myriad supplies telecommunications equipment to telephone companies and large telephone users.

Nordstrom said it guaranteed a $3.6 million line of credit to Myriad from Seafirst Bank. Its involvement with Myriad, Nordstrom says, only included looking out for its investment.

Nicholson left Nordstrom in 1986 for reasons he nor the company will talk about. At the time, he and Nordstrom signed an agreement barring either side from talking about Nicholson's departure. Nicholson then began concentrating on a consulting business he had formed in 1984 called Myriad Systems and Services.

In late 1987, Nordstrom hired Myriad Systems and Services to do a study of its minority hiring and promotion practices at the downtown Seattle store.

At the time, Nordstrom, The Bon Marche and Frederick & Nelson were under fire by black community leaders for not hiring and promoting minorities in greater numbers.

The final report, which was delivered in April 1988, was critical of Nordstrom's treatment of black employees.

Nicholson said Nordstrom was angry about the report.

"From then on, even after they invested in Myriad, Nordstrom had a personal vendetta against Jim Nicholson," said Nicholson.

At the time the Myriad report was finished and delivered, Nicholson was seeking investors for a sister company of his consulting business, Myriad Distribution Services.

Charles Robinson, assistant to the president of the Minority Business Enterprise Legal Defense and Education Fund, a Washington D.C.-based legal-defense fund for minority-owned businesses, said Nordstrom bad-mouthed Nicholson to potential investors of Myriad Distribution.

Consequently, said Robinson, Nicholson went to Nordstrom and threatened to sue for violating the agreement he had with the company when he left in 1986. Nordstrom agreed to invest in Myriad Distribution to prevent the suit, said Robinson.

Nordstrom says its investment in Myriad Distribution had nothing to do with the report by Myriad Systems and Services.

Myriad continues to operate two warehouses in California, but Nicholson said Myriad has little money to keep operating without new investors.

Seafirst Bank, Myriad's major lender, moved Wednesday in federal bankruptcy court to have a receiver appointed to operate Myriad while it tries to reorganize. A decision on a receiver was put off until next week.

Robinson's Minority Business legal group says as part-owner and prime financier of Myriad through the loan guarantee, Nordstrom exercised "negative control" over Myriad, resulting in a possible violation of federal laws that give minority-owned businesses preference on certain government contracts.

"Nordstrom had the ability to say `no' to expenditures and the hiring of top management. That's what we mean by `negative control," said Robinson.

Robinson's group sent Nordstrom a letter last month outlining the group's allegations that Nordstrom may have illegally controlled Myriad.

Nordstrom responded saying the company never participated in Myriad's "day-to-day management."

Nicholson said Myriad's minority status helped it gain several large contracts, including a $400,000 contract to install communications equipment in the Metro Tunnel and a continuing contract to provide telecommunications services for the Washington State Convention and Trade Center.

David Mackie, a Nordstrom vice president who oversaw the company's investment in Myriad, said Nordstrom did exert more influence over Myriad as time went on because the company was trying to protect its investment. But he said Nordstrom never "controlled" Myriad in violation of government laws.

Nordstrom officials say Nicholson and those around him are looking for scapegoats to blame Myriad's failure on.

"We didn't want to control that company (Myriad)," Mackie said.

"We were guaranteeing a loan that was in default. We were trying to protect our investment."

Mackie said Myriad was in default of its credit-line agreement with Nordstrom at least four times between 1989 and this summer. Mackie said Nordstrom tried to help the company reorganize each time until July, when Myriad filed for bankruptcy protection.

After the filing, Seafirst wrote to Nordstrom that it was pulling its credit line from Myriad. Mackie said Nordstrom then made the decision that it would no longer support Myriad financially.

Mackie said Myriad began to have serious financial troubles in late 1989. Myriad had violated the terms of its credit line with Seafirst, and Nordstrom suspended its guarantee of the credit line while the retailer and Myriad worked out a new agreement, Mackie said.

Mackie said Nordstrom never directly benefited from its involvement with Myriad. He said Nordstrom actively encouraged Nicholson to find a new investor that could replace Nordstrom.

Fred Paulsell, a former Smith Barney manager who puts together venture-capital money for small businesses in the Seattle area, said he brought the Myriad investment to Nordstrom because he thought it was a good deal. Paulsell said Nicholson was ecstatic when Nordstrom agreed to invest because he, Nicholson, was having such a hard time finding investors.

"It was a helluva gesture for Nordstrom to do that," said Paulsell. "Their initial investment, with guarantees and all, amounted to about $3 million."