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American Auto Guardian, Inc. v. Kramer

July 8, 2008


The opinion of the court was delivered by: Judge George M. Marovich


Plaintiff American Auto Guardian, Inc. ("AAG") filed a six-count second amended complaint against defendants Sherri Kramer ("Sherri" or "Kramer") and Harry G. Kramer, III ("Harry"). In the amended complaint, AAG asserts claims under the Racketeer Influenced and Corrupt Practices Act ("RICO") and several common-law torts. Plaintiff moves for summary judgment on each of its claims. For the reasons set forth below, the Court grants in part and denies in part plaintiff's motion for summary judgment.

I. Background

Local Rule 56.1 outlines the requirements for the introduction of facts parties would like considered in connection with a motion for summary judgment. As the Court notes on its website (and has mentioned in multiple opinions), the Court enforces Local Rule 56.1 strictly. Where one party supports a fact with admissible evidence and the other party fails to respond, the Court deems the fact admitted. See Ammons v. Aramark Uniform Services, Inc., 368 F.3d 809, 817-818 (7th Cir. 2004). This does not, however, absolve the party who asserted a fact of its initial burden of putting forth admissible evidence to support its fact. Asserted "facts" not supported by deposition testimony, documents, affidavits or other evidence admissible for summary judgment purposes are not considered by the Court.

In this case, the defendants failed to respond to plaintiff's statement of material facts, and the Court has been informed by plaintiff's counsel that defendants do not intend to respond. Accordingly, the Court now considers plaintiff's motion for summary judgment without any response by defendants. The Court has carefully reviewed the record and has deemed admitted only those facts asserted by plaintiff that plaintiff supported with admissible evidence. The following facts are undisputed.

Sherri Kramer, with some assistance from her husband Harry, embezzled nearly half a million dollars from AAG over the course of four years. AAG discovered the embezzlement, which started soon after Kramer was hired, only after Kramer's employment with AAG ended.

AAG markets and administers vehicle-service contracts (which pay for repairs to covered automobiles), vehicle GAP insurance (which, in the event of the total loss of a vehicle, covers any difference between the payoff amount due on a vehicle loan and the amount of an insurance settlement) and coverage for excess wear and tear on leased vehicles. AAG markets the products to automobile dealers, who sell them in connection with vehicle purchases. AAG was founded by President Al Ranieri ("Ranieri") and two other people in February 1998.

AAG hired Kramer in April 1999 as a part-time Finance Manager in charge of cash management. Her duties and responsibilities greatly increased over time. Initially, Kramer was responsible for keeping accounting records, issuing checks on AAG's account to pay corporate expenses and maintaining AAG's corporate credit cards, which it used to pay repair shops in connection with its vehicle service contracts. By November 1999, Kramer was also in charge of human resources. By September 2001, Kramer was a full-time employee, was promoted to Assistant Secretary and Vice President and was put in charge of the accounting department. Soon, she was also in charge of compliance and sales and marketing. By March 2003, Kramer was a Director of AAG.

AAG continued to grow rapidly and, by the summer of 2005, Ranieri decided it was time to put someone with a finance background (which Kramer lacked) in charge of accounting. Ranieri was also dissatisfied with Kramer's management of the sales and marketing department. On July 18, 2005, Ranieri informed Kramer that she was no longer in charge of accounting, human resources or sales and marketing. Although she was being demoted rather than discharged, an upset Kramer "stormed out" of AAG's office and never returned.

The new Finance Director, James Devers ("Devers") jumped in where Kramer left off, and it was not long before he discovered Kramer's embezzlement. When Kramer left, she had been in the middle of sending quarterly profit-sharing bonuses to agents and dealers. Devers picked up the project and noticed records suggesting one agent had been paid twice. He investigated further and learned that the AAG accounting records showed two checks to the one agent but that the second check was, on its face, written out to "Bosley Design and Imaging." AAG had, in the past, done business with a Bosley Design, but that Bosley Design had been dissolved several years earlier. Devers discovered, from the back of the check, that it had been deposited into an account at TCF National Bank ("TCF"). From TCF, Devers learned that the account into which the check was deposited was opened by Harry Kramer, who was also the authorized signer on the account. When Harry opened the account, he provided TCF the address of a post office box in Schaumburg, Illinois, and TCF mailed bank statements for the account to "Bosley Design" at that address.*fn1 AAG continued to investigate, and it discovered (1) that Sherri Kramer had issued 64 separate checks between October 19, 2001 and June 24, 2005 to Bosley Design and (2) that those checks were deposited into Harry's account at TCF. The total amount of checks issued by Sherri Kramer and deposited by Harry was $285,264.22. Kramer covered up the checks in AAG's "QuickBooks" accounting software by entering in the accounting software a payee different from the one she put on the actual check she issued.

Kramer did not stop with issuing checks to be cashed by her husband. Kramer also regularly used AAG's corporate credit cards to purchase things for the benefit of herself and her family. Kramer made 155 unauthorized purchases for herself and her family from July 2, 2001 to March 2005. Among other things, Kramer charged to AAG's credit cards ski vacations, a down payment on a Honda Pilot, iPods, computers, printers, cameras, speakers, dinners, lunches, airline tickets and jewelry. Kramer also used her position at AAG to issue checks drawn on AAG accounts to pay the credit cards charges. In total, Kramer's personal purchases on AAG's credit cards added up to $71,151.90.

In the beginning, it was easy for Kramer to cover up her personal credit card purchases. She was in charge of reconciling the credit card account statements mailed from the bank. In the QuickBooks software, Kramer described her personal purchases as business-related purchases. For example, when Kramer charged five round-trip plane tickets to Vail, Colorado for her family, she described the purchase in QuickBooks as "Deposit for NADA Convention," NADA being the National Auto Dealers Association. As Kramer grew busier and delegated more responsibilities, it became more difficult for Kramer to disguise her personal credit card charges. She sometimes told the staff she would do the reconciliation herself. Other times, she removed the incriminating pages from the credit card bills, told her staff those portions were confidential, and did the reconciliation of those pages herself. Sometimes, she intercepted the mailed bills, downloaded a list of the charges from the credit card companies' websites into a spreadsheet and then changed the name of the vendors before giving the spreadsheets (rather than the bills themselves) to her staff to reconcile.

AAG used its credit cards regularly to pay for the vehicle repairs it owed on its vehicle service contracts. Accordingly, it accumulated vast quantities of reward points, which Kramer used--without permission--as her own. For example, in the first half of 2005, Kramer made a series of purchases totaling $19,455.25 on AAG's Merrill Lynch credit card for a ski vacation her family took to Canada. Kramer then contacted Merrill Lynch (either by the telephone or via the internet) to redeem 1,292,134 of AAG's reward points to pay for the $19,455.25 she had charged. This was not the only time Kramer redeemed AAG's points for her own benefit. She redeemed 2,917,127 of AAG's American Express reward points to pay for golf clubs, cameras and gift certificates (for, among others, the Gap, Home Depot and Toys R Us). The value of the American Express reward points Kramer redeemed without permission was $28,371. To redeem the American Express points, Kramer used the telephone and the internet.

In addition to the sums outlined above, Kramer also embezzled $34,363.53 worth of cash, merchandise and gift certificates. Among these were two checks (one for $6,153.09 and one for $5,291.00) that Kramer wrote to herself on AAG's accounts. Kramer also reimbursed herself for expenses that were either personal or not incurred. These improper reimbursements were for such things as a fabricated $3,000 party cancellation fee, personal cell phone usage and personal computer equipment.

II. Summary Judgment Standards

Summary judgment should be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). When making such a determination, the Court must construe the evidence and make all reasonable inferences in favor of the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). "A genuine issue of material fact arises only if sufficient evidence favoring the nonmoving party exists to permit a jury to return a verdict for that party." Brummett v. Sinclair Broadcast Group, Inc., 414 F.3d 686, 692 (7th Cir. 2005).

III. Discussion

A. RICO ยง ...

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