- Report: #1070243
Complaint Review: Office Depot - Boca Raton Select State/Province
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Office Depot
Boca Raton, Select State/Province, USA
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Office Depot Starboard Value Fund, Officemax Office Depot Hides Whistleblower Lawsuit Liabilities from Starboard Value Fund and Office Max Boca Raton Florida
(((link redacted)))
Is Office Depot disguising
its huge liabilities?
Is OfficeMax ignoring systematic
fraudulent overcharging cases?
Written by Peter Frost Thursday, 11 July 2013 21:30
11 Jul’13
Lost in the hoopla of OfficeMax and Office Depot shareholders merger approval was the potential cost of the Whistleblower lawsuit to the new combine of $100m+. Is Max aware or choosing to play deaf?
The case (State of California ex. el David Sherwin vs Office Depot, CV 12-9952 FMO) is known as a Qui Tam action and was filed under the California False Claims Act (CFCA), and unsealed in 2012.
The whistleblower's case centres on a national contract that Office Depot marketed through the U.S. Communities Government Purchasing Alliance (U.S. Communities), which guaranteed participating agencies that they would receive Office Depot's lowest pricing to government entities.
According to the complaint Office Depot knowingly deceived the agencies by charging them higher prices then they were contractually entitled to, as well engaging in a "bait and switch" scheme.
On July 18th, 2013, Office Depot's final hearing is scheduled to have portions of the case dismissed. On April 9th 2013, the court denied Office Depot's previous motions to have the case dismissed. A Depot loss at the hearing on the 18th opens the way to a lengthy, costly, and embarrassing jury trail that could end up costing the combined shareholders of OfficeMax and Office Depot hundreds of millions of dollars.
Currently, the City of Los Angeles and 21 other agencies are leading the legal challenge to Office Depot in a case that represents a total of 2,000 California agencies allegedly victimized by Office Depot's fraudulent overcharging schemes. The estimated amounts of potential damages range from $300-500 million, as actual overcharges are tripled and heavy penalties would be levied should Office Depot lose.
The big question is how aware are Max shareholders of this potential financial disaster looming over the soon to be merged company?
(((link redacted)))
State of California ex. rel David Sherwin v. Office Depot, Inc.
09 May '13
State of California ex. rel David Sherwin v. Office Depot, Inc., In 2009, David Sherwin, a former Account Manager III at Office Depot’s Business Solutions Division, filed under seal a qui tam action on behalf of the State of California alleging that Office Depot violated the California False Claims Act, Government Code section 12650 et seq (CFCA), by overcharging for office and classroom supplies pursuant to a contract with the U.S. Communities Government Purchasing Alliance (U.S. Communities). The court recently unsealed the action, and public entities on whose behalf Sherwin brought the action intervened and filed their own complaints in intervention largely adopting the relator’s original allegations and adding claims for breach of contract and fraud.
The complaints in intervention allege that U.S. Communities selected Los Angeles County to negotiate and manage on its behalf a contract with Office Depot pursuant to which state and local public entities purchased office and classroom supplies from Office Depot (USC Contract) and Office Depot earned $122 million in annual revenue. Intervenors allege five different practices by which Office Depot overcharged the public entities pursuant to the USC Contract.
First, the USC Contract guaranteed the public entities “most favored public entity” pricing, fixed price discounts and protections against price increases. The public entities relied on these guarantees both in their marketing of the USC Contract and adoption of it without competitive bidding. However, Office Depot negotiated separate contracts with other public entities outside U.S. Communities at prices lower than those charged pursuant to the USC Contract. Office Depot did not incorporate these lower prices into the USC Contract.
Second, Office Depot marketed an alternative pricing model under the USC Contract that it knew was more expensive than the USC Contract’s original pricing model, and sometimes switched the public entities to the more expensive model without their knowledge or consent.
Third, Office Depot overstated its costs for certain items, allowing it to charge the public entities its minimum “floor” price for those items, when it should have charged them its normal discount price. Specifically, Office Depot padded its invoiced cost from the manufacturer with other costs and failed to factor in manufacturer rebates that it received for the items.
Fourth, Office Depot increased its list prices more than twice a year, as permitted by the USC Contract.
Finally, Office Depot improperly discontinued heavily discounted items knowing that the public entities would order the same items at the more expensive discounted wholesale price.
According to the complaints in intervention, the above five practices rendered the claims that Office Depot presented to the public entities pursuant to the USC Contract false and fraudulent in violation of the CFCA. Further, the public entities allege that Office Depot knowingly failed to disclose material facts in order to obtain payment and approval from the public entities, and knowingly made and used false records and statements, which omitted material facts in order to induce the public entities to pay the false and fraudulent claims. The public entities seek three times the amount of damages that they sustained and a $10,000 penalty for each false claim.
On February 8, 2013, Office Depot moved to dismiss Sherwin’s and Intervenors’ CFCA and fraud claims on the grounds that they failed to allege false claims or comply with the particularity requirements of Federal Rule of Civil Procedure 9(b). Office Depot also moved to dismiss Intervenors’ breach of contract claims. The parties fully briefed the motion, and, on April 22, 2013, three days before the hearing date, the court denied the motion without prejudice.
