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Other Shoe Drops in Kerner Case
by Doniphan Blair
Congratulations: Kerner's last CEO Eric Edmeades is marrying Elise Crozier, his long term sweetheart as well as accountant. photo: D. Blair
In a surprise development to last year's collapse of Kerner Optical (KO), the trustee of the Santa Rosa Bankruptcy Court filed suit against Eric Edmeades, the last owner of the renown action miniature and effects studio.
The trustee, Linda Green, alleges that Edmeades transferred out of KO the manufacture of animatronic dummies, also called medical assistant trauma trainers (MATT). Opening shop a few blocks from KO, KernerWorks (KW) is currently making dummies for KForce Government Solutions, a military subcontractor, and doing well.
No one was more surprised than us at CineSource. While researching "
Kerner Collapse: Hubris, Hustle or Outright Scam?
", in September 2011, we accepted Edmeades' claims, corroborated by associates, that he started and financed KW himself, after KO's other investors turned him down, but then subcontracted the work back to KO.
"KernerWorks turned a small profit while Kerner Optical received over $750,000 of high margin revenue," Edmeades told CineSource. "It is very safe to say that without this transaction, Kerner Optical would not have survived 2010. It is also really important to remember that [Kevin] Duncan twice refused to put money into this venture or into Kerner Optical so that Kerner Optical could pursue the venture."
Opposing claims were made by Kevin Duncan, who lives in Denver. KO's primary investor in 2006, Duncan and his partners continued to hold a promissory note securing all of KO's assets after Edmeades took over in 2009. Relations have not been friendly. Edmeades' first action was the board resignation of Duncan who later petitioned the court to oversee Edmeades' management. When CineSource contacted Duncan last year for his side of the story, under advise of counsel, he declined to tell it, until last week.
Although Kevin Duncan (shown here atop Ice Mountain, 13,951 feet, Colorado) is a critic of Eric Edmeades, they both love of mountaineering and both climbed Kilimanjaro. photo: K Duncan
"He did a land grab and moved the [KW] business down the street," Duncan claims. "When I asked him how much do I own of it, Eric said, 'Nothing.'"
According to the bankruptcy suit, filed on May 30th (case no. 11-10413), "On March 17, 2010... the party contracting with KForce was changed from the Debtor 'Kerner Optical, LLC' to 'Kerner Optical dba Kernerworks'. There was no explanation at the time."
Incorrect, insists Edmeades who, through his lawyer Mikel Bryan, states: "if there was a 'Pre-Petition Transfer,' which this defendant denies... the transfer had no prejudicial effect on the debtor [KO]'s financial condition, but in fact, improved the debtor's financial condition." Bryan also "denies that Eric Edmeades is the defendant [KO]’s principal but admits that he is the defendant’s manager," according to their July 6th rebuttal.
Meanwhile, to thicken the plot with romantic interest, Edmeades is marrying the personable Elise Crozier, his longtime sweetheart as well as accountant, this weekend, in the breathtaking British Columbian town of Whistler. Indeed, as this piece goes to press, he is bombing north in the KW company jeep. As it happens, living large while addressing business complexities is not unfamiliar territory to Edmeades.
An avid world traveler, nature lover and photographer, originally from South Africa but now a Canadian, Edmeades also works as a motivational speaker, helping people overcome obstacles. His site,
, features statements like “The only real measure of success in life is the number of days that you are truly happy” and "Occupy your body."
"Eric can rationalize all he wants," says Duncan. "But I owned the company at the time the relationship with KForce was created. Kerner Optical built the first prototype product KForce was eventually interested in. After the sale to Mr. Edmeades I became his largest debtor. I would never have allowed the removal of valuable assets without being paid back first."
A shot from KForce's
, depicting animatronic dummies in action, not for the feint of heart. image: courtesy KForce.
Although CineSource characterized Duncan in previous articles as the money man, he also has film experience. Duncan produced the 2007 indie thriller "
" about a woman (Kristine Blackport) turned vigilante which got some international exposure through Curb Entertainment.
On July 19th, Edmeades' lawyers obtained a 60-day postponement; Green's case will reconvene September 21st. If no deal is cut, it will go to trail sometime this fall, at which point all will be revealed, hopefully.
Alas, film folks don't often tell all, unless Kardashians are involved, since loose lips can sink future pay checks. Meanwhile, the KO bankruptcy keeps getting more complicate, with some folks intimating there is a lot more to come.
When CineSource started reporting the story, we realized a Woodward/Bernstein-like effort was warranted. But as we reviewed court filings, contacted private investigators and lawyers, to defend against possible libel suits, it soon appeared we could not afford such an effort. Still, the story had to be told. As the only film/video magazine in Northern California, after Film/Tape, Film Art and SF360 closed in 2008, 2009 and 2011 respectively, CineSource was obliged.
Clearing the air is important for investor confidence in an industry already beset by snake oil salesmen, especially in Northern California, which has a lot of players lacking Los Angeles-level experience. With the demise of local media magazines, we also lack a robust fourth estate, although Variety Magazine did cover the Kerner bankruptcy.
Hence, CineSource turned to the Gothic tribal justice system, which relies on oaths and dunking. Although we foreswore the latter, we asked people to testify about character when interviewing KO executive producer Rose Duignan, see "
Straight Shooter: Rose Duignan and the Kerner Closing
", friends of Edmeades and Kerner employees. We concluded that Edmeades is extremely ambitious and a bit narcissistic but those are not crimes nor even notable in the entertainment industry.
Edmeades had worked as a photographer and authored children's books. He had arrived at investing in KO through the good offices of Gavin Wilding, the Canadian indie filmmaker who produced "The Battle of Seattle" (2007), making him one of the tribe.
Any possible malfeasance at Kerner, according to Edmeades and others, was committed by Joe Sevitski (a k a Siuicki), of Santa Barbara, who had done three years federal time for Westlake Oil and Gas, a multimillion-dollar pyramid scheme, according to the Los Angeles Times (4/30/1996). Sevitski passed away on April 21, 2012.
"I think it is very convenient to blame Joe Sevitski," Duncan told me, when we spoke by phone on July 17th. "I am not here to defend him—he was a convicted felon and I am not washing over that—[but] there was no Ponzi scheme in Kerner Optical. Eric [Edmeades] knew his past. I knew his past. Joe was not on any of the bank accounts; he had no control over any of the money when I was involved or when Eric was involved."
Sevitski died at 66, rather young these days and for unknown reasons, since no details were released and no obituary was published, only a funeral home notice. A decorated Vietnam veteran, replete with multiple bullet wounds, Sevitski may have died from cancer incurred from Agent Orange. Although Sevitski didn't discuss his military experiences, he was an open book about his colorful life, which included loving father, oil man, 3D film innovator and investment consultant.
In the latter two capacities, Sevitski was introduced to Duncan by an acquaintance. Together they went to Mark Anderson, the charismatic KO employee organizing the buyout from Lucasfilm. After acquiring KO in 2006, they became equal one-third partners, Duncan doing financing, Anderson running operations and Sevitski heading 3D development, new investors and new technology. Sevitski was a man of a million ideas, many innovative, some not entirely logical, like trying to get stereo images up on a screen without a 3D TV, others not entirely ethical.
"I was brought in in April 2007," recalled KO's executive producer Duignan. "Mark [Anderson] was on vacation, so my first day was with Joe Siuicki [Sevitski]. [After] three days, I knew he was totally insane. They did disclose to me that 'Yes, he did serve time,' but everyone's interpretation was that was acceptable white collar crime, tax evasion. After spending three days with Joe, I said to Mark, 'I want nothing to do with Joe or the 3D stereo business. You need me to help you keep solvent the action miniature division.'"
"This [Sevitski] argument has gotten tiresome, frankly," Duncan said. "What did Joe do? Joe brought a lot of people into the company to look around and help out different parts of the business—some worked, some didn't. Joe brought in some pretty smart folks to look at camera rig technology, and other software products—projects Eric liked. Frankly, Eric drove them away with his personality: his way or the highway. There wasn't a big massive conspiracy to set all this up to defraud Eric Edmeades."
Sevitski changed his name to Siuicki upon arrival in San Rafael, entertained some fairy tale notions about 3D technology, and pushed KO from its core action miniature business into riskier 3D ventures. But, according to the man signing the checks, Duncan, he didn't steal anything.
Duncan alleges it was Edmeades who improperly obtained assets from KO. The court trustee agrees, saying when Edmeades filed KO's Chapter Eleven in February 2011 and registered KW as a business in April, he abrogated bankruptcy law, by taking assets from a bankrupt company. The trustee is asking for "two million or whatever the court deems appropriate" on behalf of creditors like PG&E, the landlord and Duncan, who has no involvement in the case. Duncan declined to sue Edmeades supposedly due to cost, headache and flight-risk factors.
The auction held last fall disposed of Kerner's equipment and some interesting memorabilia and generated about $900,000 which went to first note holders like attorneys and the landlords. "My group has never received a dime," Duncan said.
"At one point, he needed some extra money to buy products to build the medical dummies and I turned him down," Duncan continued, finding the bone of contention with Edmeades. "He has used that ever since to say, 'They abandoned KernerWorks so I can do whatever I want.' I had no obligation to do that and, frankly, I didn't trust him."
"As it turns out, he didn't put in any money and my attorney’s research has confirmed this. He went to KForce and got an advance, a check for almost $200,000. We actually did offer to put money in, when KO was in chapter seven. He said, 'It was too late.' He didn't need the money, he had already gotten it from the buyer [KForce]."
In addition to getting married, Edmeades has spent much of the year travelling, including climbing Mount Kilimanjaro and attending the Cannes Film Festival, which appears to annoy Duncan. Moreover, KW has turned into a lucrative business, despite the recession and Edmeades absence, due to excellent managers and a talented staff. This suggests they will undoubtedly continue the business, regardless of court orders or ownership, simply because such world-class model and dummy making expertise is only available in San Rafael.
Even if Edmeades had offered him a fair share of KW, Duncan wouldn't have trusted him, he said. Duncan even claimed Edmeades threatened him with lawsuits, to the tune of three million dollars, if he didn't walk away from his $1.5 million note, the implied crime being Duncan's involvement with Sevitski.
"I am surprised he hasn't sued me," noted Duncan. "The only thing I can figure is that he doesn't have a case. He has [probably] taken it to attorneys on contingency. I don't believe he has the money to hire an attorney, otherwise he would have done it."
"I looked at Joe's actions. Then I look at Eric's actions: forming multiple companies in the Kerner name, trying to raise money for camera rigs that were still part of the assets of KO—even though he debates that—forming KW. I believe KO would still be operating in those buildings," Duncan said, warming to an overview of the situation.
"The special effects film business comes and goes—it is not an easy business with the power of computers now. It just seems to me that if there is enough cash flow to fly around the world and pay 25 employees [at KW] you could have done that at KO. But he didn't want to. He wanted to walk on his responsibility to my group, the landlords and all of the other companies. It seemed pretty convenient."
"I would feel differently about all of this if KW didn't exist, if it had all gone down together. Then shame on him and shame on me. We are just not very smart business guys, I guess. But that is not the case. He is manipulative and he is pretty proud of what he has done."
"My goal is to return my partner's investment," said Duncan, whose group is out about $1.5 million. "If that means taking the company back over for a certain period, sure, I would be willing to consider that. The frustrating thing I don't know how long KForce is interested in this product. [Edmeades] certainly wouldn't talk to me about that and it is not my place to pick up the phone and call KForce. It is the trustee’s case, so I am just waiting like everyone else to see what the outcome will be. It just takes longer then one would hope. It has been a long year."
It would seem that Edmeades, who depends very much on his image to sell his motivational speaking and media projects, would look for a way out of this mess. If KW is doing as well as it seems and if Edmeades, a Canadian, wants to carry on with a lucrative US Government contract, some positive movement appears imperative. Rather then retreating to nature photography and semi-retirement on the Turks and Caicos north of Haiti, he would be well-advised to fashion something that satisfies all stake holders and restores his reputation.
Posted on Jul 25, 2012 - 03:01 PM