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Grand finale

Dueling lawsuits accompany end of Petrof-Geneva partnership

By Markéta Hulpachová
Staff Writer, The Prague Post
August 8th, 2007 issue

COURTESY PHOTO
Piano producer Petrof and U.S-based piano dealer GIC joined forces in 1985, but are no longer playing to the same tune.
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COURTESY PHOTO
Miroslav Lebeda tunes pianos at the Petrof factory in Hradec Králové, east Bohemia, in 2005 — before the current lawsuit.
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Before the U.S. piano dealer Geneva International Corporation (GIC) joined forces with the Czechoslovak piano producer Petrof in 1985, GIC’s owner, Earl Matzkin, had to cut through a barbed-wire fence of political resistance.
He braved interrogation by the East German military, paid out disadvantageous trade tariffs and broke into a wary U.S. market, all to see the vision that drove him to Czechoslovakia blossom into a profitable venture: For the past 22 years, GIC has acted as Petrof’s exclusive U.S. distributor, with American exports accounting for about 30 percent of Petrof’s total sales.
But now, the companies’ decades-old relationship is on the brink of complete failure: After months of legal and financial disputes between the companies, Petrof — now the largest European piano manufacturer — has severed ties with GIC and, July 28, founded Petrof USA, its first American subsidiary.
The decision directly challenges a July 16 lawsuit filed in the United States by GIC against Petrof, as GIC seeks to retain the brand’s exclusive U.S. distribution rights.
“It’s no secret there’s been a contentious relationship between Petrof and GIC for a long time,” said Al Rich, Petrof USA’s chief executive officer.
Formerly CEO of the U.S. branch of Pearl River Piano Group, the world’s largest piano dealer, Rich is set to head Petrof’s Pan-American operations, which he expects to launch by the end of the year.
Since April, when the most recent dispute between GIC and Petrof began, sales of Petrof pianos in the States have stopped entirely. Even before then, sales had slowed to a trickle.
Although he said Petrof has substantial grounds for winning the GIC lawsuit, Rich is prepared to take alternative steps to enable Petrof’s re-entry to the U.S. market should the suit fail.
“Of course, we have a Plan B and a Plan C,” he said.
Key change
The companies first locked horns in April, when GIC filed a bankruptcy petition against Petrof in the regional court of Hradec Králové, east Bohemia. According to the petition, Petrof was unable to reimburse GIC for $112,141.68 (2.3 million Kč) worth of damages resulting from a 1999 transaction in which Petrof sold defective pianos to GIC.
The petition also alleged that Petrof had longstanding debts with other creditors, which the company was unable to repay due to its rough financial state. The petition even provided the court with a list of these creditors.
On June 18, the court dismissed GIC’s petition, stating that it did not find sufficient grounds for issuing a seizure order against Petrof. According to the decision, which can be appealed by GIC, Petrof was not insolvent, or even indebted.
Petrof’s general manager, Zuzana Ceralová-Petrofová, maintains that GIC built its case on a fraudulent claim. The pianos it sold to GIC in 1999 were not defective, she says, while attributing GIC’s legal actions to its own financial struggles.
“GIC’s proposal was speculation aimed at damaging [Petrof],” she told the Czech News Agency May 16. “The true reasons behind the bankruptcy petition are GIC’s economic problems, which it wants to resolve at our expense.”
Petrof is now preparing an arbitration suit against GIC for the damages it suffered as a result of GIC’s allegations.
“The proposal to impose bankruptcy on Petrof was very harmful,” said Ceralová-Petrofová. “Preliminary estimates have gone up $3 million to $4 million. Our claims will seek to redress this damage.”
But reimbursement claims are only a fraction of the Petrof-GIC conflict. On June 21, days after the court decision to dismiss the bankruptcy petition, Petrof pulled out of its long-term contract with GIC.
In response, GIC filed its July 16 suit against Petrof, saying that Petrof had no right to terminate its exclusive distribution rights.
“We are sad that the Petrof Company has taken the position of not standing behind the warranty of their pianos, which in the U.S. is very crucial,” said John Elliott, GIC’s product development manager.
Petrof’s management said it adhered to the contract’s six-month withdrawal clause.
“When Petrof canceled the contract, we followed all the rules,” Rich said. Additionally, the contract’s validity is disputable. “GIC has never met its forecasted obligation toward Petrof,” he said.
Sour notes
The recent legal dispute is the latest in a series of disagreements between the companies. According to Elliott, GIC has found Petrof to be an untrustworthy business partner.
“GIC has, many times in the past years, been asked by Petrof to advance money so they would be able to make payroll for their employees,” he said, adding that the disagreements began soon after Petrof’s return to family hands in 1991.
“GIC and the Petrof Company started many years before the Petrof family gained ownership,” he said. “The relationship has [since] become more and more difficult.”
Unlike GIC, which mainly distributed Petrof’s midrange products, Ceralová-Petrofová sees potential for selling higher-end grand pianos to the U.S. luxury goods market.
“GIC was selling our pianos at a cheap price. We want to compete with the most expensive German producers,” she said. She also added that since 2004, when Petrof underwent drastic downsizing to combat plummeting profits, GIC had bought only one-third of the pianos it originally ordered.
Whatever the outcome, the lawsuits between Petrof and GIC signify the end of a longstanding partnership.
“GIC has worked hand-in-hand with the Petrof Company since 1985,” said Elliott. “Before GIC took on distributorship of Petrof in the United States, there had not been one Petrof sold in this country.”

Markéta Hulpachová can be reached at mhulpachova@praguepost.com


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