Hollister-based American Electrical Services has closed and its
50 employees are out of work, while the owner also could lose The
Vault building as collateral in a legal battle with a bank seeking
payback of $1.8 million on a line of credit.
HOLLISTER
Hollister-based American Electrical Services has closed and its 50 employees are out of work, while the owner also could lose The Vault building as collateral in a legal battle with a bank seeking payback of $1.8 million on a line of credit.
American Electrical and Ignacio Velazquez, who owns the contracting business and restaurant building, this week filed a lawsuit against San Jose-based Heritage Bank of Commerce seeking damages for lost income due to its foreclosure action taken earlier this month.
He contended to the Free Lance that the bank misled him about their agreement and he noted how he never missed a payment before Heritage began collecting debt from American Electrical clients, prompting the lawsuit.
Velazquez said he believes the bank’s action runs contrary to its publicly announced commitment – to use the infusion toward customer needs – after receiving $40 million in November as part of the federal bailout.
The suit alleges fraud, breach of contract and a range of other accusations regarding the relationship starting in August 2006 when Velazquez accepted a $2 million line of credit – a loan of sorts – to finance American Electrical. The suit includes declarations – or written testimony in favor of Velazquez – from a banker, an American Electrical vice president and a client of the business.
The court document also had sought a temporary restraining order to stop Heritage from continuing its recent practice of foreclosing on the business’ sole income source by requesting that Velazquez’s active clients directly pay the bank, not him.
Superior Court Judge Harry Tobias on Wednesday, though, denied the request for the temporary restraining order and cited how he must abide by the credit agreement and what Heritage is allowed to do under the law.
That means American Electrical is out of business and its employees are out of work, said Velazquez, who contended that Heritage is “just trying to get rid of us.”
A Heritage marketing representative said the company does not comment on litigation. Velazquez noted today, though, that a Heritage representative had called him Wednesday night and set up a meeting this afternoon over the credit line.
Velazquez stressed that aside from making payments, his business had been performing well. With the housing market’s effect on his business, which primarily contracted with developers, revenues dropped and Velazquez coincidingly cut costs. He said he turned a profit, but not enough to pay down the loan in the 12-month finance period, after which Heritage agreed to several extensions while Velazquez sought a longer-term agreement.
He also believes his situation reflects a larger problem with the national economy and bank bailouts.
“It’s a sad thing that the banks are destroying the economy, and they’re the ones getting our tax dollars to do it,” Velazquez said.
He pointed to a November press release from Heritage announcing the $40 million capital infusion.
That company statement, in part, reads as follows: “This capital infusion will provide the additional capital base for us to increase our ability to meet the needs of our customers and the communities we serve.”
If Heritage follows through, Velazquez stands to potentially lose more than his electrical business, which has been in Hollister since the mid-1990s.
Heritage requested in 2007 that he use The Vault building as collateral – he said it was assessed at $1.4 million six months ago – after the one-year financing period had matured.
“I should have never done it, if they had been honest with me,” he said.
Velazquez alleged in the suit that Heritage misled him about potential consequences.
“Heritage said not to worry about the short-term nature of the facility as it could keep renewing it as long as payments were (made timely),” the lawsuit reads.
As a result of the bank’s action and the judge’s decision on the restraining order, Velazquez officially closed the electrical business Wednesday.
