Rockport cheese company owner sues partner after $91,063 loan Claim in Superior Court seeks to dissolve partnership due to insolvency

ROCKPORT – A little-used but standard provision in a partnership agreement is the mechanism Catherine Morrill’s attorneys hope will remove Morrill’s part of the business from the company.

Morrill and William Swartzbaugh formed the State of Maine Cheese Co., a business that manufactures cheese and operates a Route 1 retail outlet, in 1996, according to documents filed in Knox County Superior Court in Rockland this week.

Swartzbaugh owes the company and Morrill more than $100,000, according to the claim filed on Morrill’s behalf by Rockport attorneys Dana Strout and Robert Rubin.

The 50-50 partnership arrangement between the two was set up so that each maintained separate capital accounts reflecting their personal earnings and investments in the business. By the end of 2000, Morrill’s account totaled $32,000, while Swartzbaugh’s account was at a negative $112,804, according to the court claim.

In the period from 1997 to 1999, according to the claim, Swartzbaugh withdrew $145,000 from the business account and received a personal loan from Morrill of $91,063.

A provision in the partnership agreement, which Strout and Rubin said Friday is standard, but not often used, provides that a partner of the company “shall cease to be a member of the company upon the occurrence of … bankruptcy or insolvency.”

Rubin said the bankruptcy provision is often used to eliminate a partner because once someone is issued a bankruptcy by a court, that designation is clearly documented. The attorneys believe they can show Swartzbaugh is insolvent, pointing to testimony he gave in Rockland District Court in 2000 when a bank filed a claim against him.

“He’s already testified that his interest in the company is worthless,” Rubin said.

In the District Court case, the judge ruled that Swartzbaugh did not have the resources to pay a $23,174 judgment won by Fleet Bank, Rubin said.

Swartzbaugh is being represented by Portland attorney William Knowles, who was unavailable for comment Friday afternoon. Swartzbaugh’s listed home phone number was disconnected.

On April 8, Morrill sought repayment of the loan she had made to Swartzbaugh in the amount of $111,278, which includes interest.

The cheese company constructed a larger building on Route 1 two years ago, and worked with the town of Rockport in securing grant funding for a sewer extension to the new plant.

According to the court filings, the company’s net worth in 2000 was $220,051.

Strout and Rubin said Swartzbaugh is no longer working at the company, and that Morrill wants to run it as a sole partner. The court filing also seeks an injunction preventing Swartzbaugh from claiming that he is a member of the company in other business or financial dealings.