Neafie & Levy - Naval Contracts and Bankruptcy, 1900s

Naval Contracts and Bankruptcy, 1900s

In 1898, Jacob Neafie, who had successfully steered his company through the most turbulent half-century in American shipbuilding history, retired from the business at the age of 82 and died a few days later. His will assigned the business to a trustee, a real estate broker with little shipbuilding experience named Matthias Seddinger, who was to manage the estate on behalf of Neafie's daughter Mary. Seddinger, now the firm's nominal President, passed managerial control to the new vice president of the company, a marine engineer named Sommers N. Smith.

Repudiating Jacob Neafie's longstanding avoidance of Naval contracts, Smith sooned booked contracts for three US Navy destroyers—the Navy's first vessels of the type—the Bainbridge, Barry and Chauncey. He also booked contracts for the protected cruisers USS Denver and USS St. Louis.

Smith quickly ran into trouble with the new Navy contracts. Firstly, his bid of $374,000 per ship for the three destroyers proved too low. Delays in delivery of specialty steel for the ships meant postponement of Navy payments which were made on a milestone basis. Furthermore, the Navy design proved too ambitious, as the ships' hulls were too light to absorb vibrations caused by the powerful engines. As a result, the USS Bainbridge was subjected to more Navy trials than any other warship, and by the time the vessels were finally delivered in 1902, Smith had lost a total of $180,000 on the three destroyer contracts.

Similarly, delays in steel delivery for the USS St. Louis resulted in deferments of payment by the Navy, forcing Smith to obtain loans to pay for the ship's completion. At around the same time, a boiler exploded on a ship recently completed by the company, the river steamer City of Trenton, killing 24 passengers in one of the Delaware River's worst accidents. Relatives of the passengers sued, and though the company was eventually exonerated, its reputation was harmed in the meantime and business slowed. By November 1903 the company was unable to service its debts.

Initially, a group of benevolent creditors placed the company into receivership, believing it just needed some time to trade its way out of difficulty. Unfortunately, the group appointed Sommers N. Smith himself as receiver, and when it was discovered that Seddinger and Smith had awarded themselves a large dividend out of capital in the midst of the company's troubles, as well as engaging in fraudulent bookkeeping, the remaining creditors' confidence was shaken. Seddinger and Smith were removed from their positions, and a more competent receiver appointed, but the latter was unable to persuade the creditors to make the necessary investments to revive the company's fortunes, and in May 1908 the Neafie & Levy plant was sold for the sum of only $50,000.

The company's last vessel, the steel tug Adriatic, was delivered in September 1908, after which the new owners discontinued shipbuilding operations.