Goggin became very familiar with Pioneer because he helped Kaufman clear up some Pioneer troubles last summer with the Internal Revenue Service and the California Department of Corporations. The IRS was seeking overdue taxes, while the California agency raised questions about the legality of Pioneer continuing to sell franchises when the chain appeared to have "liquidity problems."
Goggin said in a recent interview that Pioneer lost $2 million during the first 10 months of 1987. The losses were mostly the result of disgruntled franchisees who withheld royalty payments from Pioneer, he said.
In addition, Goggin said, Pioneer owed $1.5 million in back taxes and was behind $1.3 million in store rents. Another $1.5 million was owed to the Commercial Mercantile Bank.
Management Upheaval
Despite all the problems, Goggin saw potential for the chain. "The company has fundamentally a good name in this town," he said. 'It's got well-placed stores" with relatively inexpensive long-term leases.
The Goggin group had pledged to infuse Pioneer with $8.1 million--$6.6 million in borrowed money and $1.5 million from New York investor Peter Lusk. Kaufman was to receive $5 million plus interest, payable in monthly installments. Kaufman also was entitled to certain profits from a sale of common stock to the public.
Shortly after taking over, Goggin's group laid off 17 of the 65 corporate staff people and cut executive salaries by 30%.
The new management hired Goggin's wife, Susan McCabe, a real estate expert and member of the California Coastal Commission, at an annual salary of $65,000 to handle Pioneer's real estate and lease activities. Goggin's former campaign manager, John Husing, took the position as interim director of operations at $100,000 a year. Goggin's salary was set at $150,000 a year.
Goggin said the new staff soon discovered an additional $1.3 million owed in back rent. Nearly 100 store sites were in immediate danger of being taken back by their landlords, Goggin said.
On the day that Kaufman posted armed guards to keep Goggin out of Pioneer's company headquarters, franchisee Satish Desai said he was in court in Torrance defending his Pioneer outlet against his landlord who wants him out because of back rent that was not paid by Pioneer.
He said in an interview that he paid rent to Pioneer, as required, but the money was allegedly not forwarded to the landlord.
sh Ill Will Escalates
Goggin said he estimated that it would cost about $1.2 million to defend the leases--Pioneer's major assets. As a result, he said he withheld a $100,000 payment to Kaufman called for in their sales agreement. Goggin said he was entitled to use the $100,000 to offset the unexpected back rent payments.
"We didn't expect the golden goose," Goggin said. "But we expected something that was functioning properly."
The two met Dec. 17 to discuss the back rents, but no agreement was reached. Kaufman agreed to a meeting on Jan. 4 after he returned from a holiday vacation in the Caribbean, but the meeting never took place. During New Year's weekend, Kaufman, who owns the three-story Pioneer headquarters building, changed the locks and posted guards to keep Goggin and his staff out.
Kaufman refused repeated requests for an interview for this story. Through a spokesman, he referred questions to his lawyers.
Kaufman acted properly in canceling the agreement, the lawyers said, because the Goggin group failed to come up with $1.5 million in cash from Lusk and because he missed a required payment of $100,000. Furthermore, Kaufman's attorney charged that Goggin's staff failed to make rent payments due during the period Goggin was in control.
"Not so much as five cents was paid for the purchase of Pioneer," said Leonard Venger, an attorney representing Kaufman. Venger said Goggin was aware of the total amount of rents that were yet to be paid. "He knew the company backward and forward. To say otherwise is utterly unbelievable."
Kaufman and Goggin, who were once seen together at cocktail parties and in the mountain towns of Lake Arrowhead and Blue Jay, will have their next standoff in bankruptcy court. "We were social friends," Goggin said.
Serious Money Woes
In their letters to franchisees, the two have zeroed in on the back rents. Kaufman claimed that Pioneer, under Goggin's management, paid $26,000 to Goggin's personal trust: Flynn Ranch Trust. Goggin says the money was for part of the $100,000 worth of legal services he performed for Pioneer during 1987.
Goggin's problems with Pioneer have brought his personal financial problems into the spotlight. "If you owe a lot of money the best thing to do is to make a lot of money so you can pay it off," said Goggin.
He has a string of court judgments pending against him for failure to pay bank loans and defaulting on payments to contractors. The five-term state assemblyman was also fined $13,000 by the state Fair Political Practices Commission in a longstanding financial disclosure dispute.
His failure to pay off the debts, Goggin says, stems from campaign expenses. "I went broke in politics," said Goggin, who represented the 66th Assembly District in San Bernardino from 1974 to 1984. "I have been struggling to pay off bank loans for several years now."
Meanwhile, Kaufman has financial problems of his own at Pioneer. One week after he took Pioneer back, the California Board of Equalization sought to recover taxes from Pioneer.
Meanwhile, some Pioneer franchisees say that they are looking to bankruptcy court for help in straightening out their difficulties. "I just hope somehow the franchisees will survive," Liu adds.
