U.S.’ Only Black Owner of a Dairy Ousted From L.A. Firm

In a potential embarrassment for the Los Angeles Community Development Bank, the nation’s only African American owner of a full-service dairy has been ousted by his South-Central Los Angeles beverage company’s board of directors.

Kevin Copeland, 37, said he was fired as president and chief executive in a hostile meeting Wednesday after the three other directors expressed concern that Copeland Beverage Group was nearing default and needed a proven turnaround team at the helm.

The federally funded Community Development Bank has risked $10 million on the dairy--by far its largest loan. Without weekly infusions of cash from the bank, the dairy would be unable to buy raw milk and therefore would be forced to close its doors.

Backed originally by financing from the 3-year-old bank and from GE Capital, Copeland’s company took over ownership of the former Santee Dairies on May 1. Copeland has since been struggling to negotiate multimillion-dollar deals to boost its bottom line.

In interviews Thursday, Copeland and bank officials sharply disagreed on just about every issue.

Copeland blamed the bank for handpicking executives and board members whose micro-management stymied his efforts to run the company. Bank officials contended that Copeland had picked his team and had failed to negotiate vital deals and control costs.

The unraveling of the relationship highlights the inherently risky nature of the bank’s mission: to make loans to businesses rejected by conventional lenders and to create jobs in low-income areas. It also raises questions about how long the bank should hang in when a deal begins to go sour.

C. Robert Kemp, the bank’s president and chief executive, maintained that such a crisis is to be expected occasionally, given the bank’s mandate. He said it is “not yet” an embarrassment for the bank. In fact, he said the bank believes that the dairy can be salvaged.

The dairy’s board is expected to select a turnaround specialist this week to assess just how deeply troubled the company is. In the meantime, the bank board is approving more incremental loans to keep the dairy afloat.

Last year, the bank approved a $6-million loan to Copeland Beverage Group, confident that affiliations with the former Santee Dairies and Copeland’s background in beverage marketing would position the dairy for success.

But by May, the money was gone. The bank board then approved an additional $4-million loan. Already subordinate to GE Capital on the first loan, the bank asked that Copeland and his wife, Monica, pledge their 51% stock ownership in the dairy as collateral. (GE Capital, originally on the hook for $2.5 million, has upped its exposure to nearly $3 million.)

By this week, that money, too, had run dry. The bank board approved a further loan boost Tuesday so that the company could continue to buy raw milk and keep its workers employed.

“It’s a week-to-week situation,” Kemp said. “If you can’t purchase raw milk, the company is in fact no longer operational. Until we can assess the condition of the company, we need to keep it going.”

Technically, Kemp said, the dairy could be in default on several conditions of the loan, including benchmarks set for sales and costs. But he said bank officials are holding off on that option for now “because we want to retain those jobs.”

Kemp said the dairy’s payroll numbers more than 130. Copeland contended that the dairy’s chief operating officer, Robert Purbeck, had instituted layoffs recently that trimmed the work force to about 90--hampering the plant’s efficiency. According to a document supplied by Copeland, the bank required that Purbeck be employed as a loan condition.

A source familiar with the initial transaction said bank officials knew as early as last spring that key sales deals had fallen through.

“At that time they were talking about replacing him,” the source said of Copeland. “The bank took a risk going with Kevin Copeland. It’s not paying the dividends that they expected.

“I’m surprised that they gave additional money when they knew some time ago that there may be some problems,” the source said. “Why do you reward this type of management with more money?”

Copeland, a longtime soft drink salesman with no dairy-operating experience, struggled for years to get financing for what he hoped would become a major soft drink manufacturing concern, but he was unable to secure a site or investment capital.

Then he learned that Stater Bros. Markets and Hughes Markets, co-owners of Santee Dairies, had decided to build a state-of-the-art facility in Industry and to abandon the aging South-Central plant.

In June 1996, he approached the Community Development Bank, a private-public partnership formed by the U.S. Department of Housing and Urban Development, the city and county of Los Angeles and various lenders to provide loans to businesses and create jobs in low-income areas.

The bank worked with him for more than a year to develop a business plan and insisted that he have some experienced executives in his stable. Santee Dairies helped cinch the deal by agreeing to contract with the facility for cream and sour cream.

Copeland acknowledged in a memo to the bank in late July that the company was “in a tailspin.” In July and August, he supplied data indicating “the company was . . . bleeding badly . . . because sales had not been realized and costs were runaway,” Kemp said.

Kemp met with Copeland earlier this week and said Copeland vowed to supply a turnaround plan within 24 hours. He did not provide it, Kemp said.

Copeland Beverage’s board Wednesday offered him a senior marketing position at the company. Copeland said he declined the post.