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Wickes Furniture Company, Inc. v. Carpman

September 12, 2008

WICKES FURNITURE COMPANY, INC., A DELAWARE COMPANY, PLAINTIFF,
v.
IRA CARPMAN, CAMCO PACIFIC CONSTRUCTION COMPANY, INC., AND PCI FLORTECH, INC., DEFENDANTS.



The opinion of the court was delivered by: David H. Coar United States District Judge

HONORABLE DAVID H. COAR

MEMORANDUM OPINION AND ORDER

Wickes Furniture Company, Inc. ("Wickes") brought suit against Ira Carpman ("Carpman"), Camco Pacific Construction Company, Inc. ("Camco") and PCI FlorTech Inc. ("Flortech") (collectively, the "Defendants") alleging several violations of state law including breach of fiduciary duty and constructive trust against Carpman individually, inducing breach of fiduciary duty against Camco and FlorTech, breach of contract against Camco, conversion against FlorTech, and conspiracy to defraud against all Defendants. Wickes also alleges Racketeering against all Defendants in Count VII. Jurisdiction is alleged to be proper under 28 U.S.C. § 1331 (federal question jurisdiction), 28 U.S.C. § 1367 (supplemental jurisdiction), 28 U.S.C. § 1337 (regulation of commerce), and 18 U.S.C. 1964(c) (civil RICO). Before the Court now are motions to dismiss filed by Camco and FlorTech, Camco's motion made pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1) and 12(b)(6) and FlorTech's motion pursuant to Fed. R. Civ. Pro. 12(b)(6) only. For the reasons stated below both motions are GRANTED in Part and DENIED in Part.

I. FACTUAL BACKGROUND*fn1

Wickes is a Delaware corporation engaged in the business of retail furniture sales in various locations throughout the United States. Wickes' corporate headquarters is located in Wheeling, Cook County, Illinois. Carpman was, at all times relevant to the Amended Complaint, a citizen of Wisconsin, and employed by Wickes as its Construction Manager. In that capacity, Carpman was responsible 1) for the development and administration of contracts for the construction of Wickes' store facilities in several states, including California and Illinois; 2) for the selection of architects and general contractors and subcontractors; and 3) for deciding whether to accept work and pay amounts billed to it by such contractors. Camco is a California corporation with its principal place of business in California. Flortech is an Illinois corporation with its principal place of business in Addison, Illinois.

Carpman began his employment as Construction Manager for Wickes in 1998. Wickes alleges that the Defendants associated themselves in two distinct schemes to defraud Wickes through mail fraud, wire fraud, and the interstate transportation of stolen property. The first scheme involved the construction of several Wickes' store facilities in California and the second scheme involved the construction of several Illinois stores. In connection with the construction of seven new stores for Wickes, located in California and Illinois, the Defendants agreed that Carpman, in exchange for loans and other considerations from Flortech and Camco, would contract for construction work on behalf of Wickes, often on a no-bid basis, and accept change order requests from Flortech, Camco, and others. The combined effect of the contracts and change orders was to overcharge Wickes by inflating the cost of the construction of each building beyond what Wickes had authorized Carpman to pay and in excess of the fair and reasonable value of the work performed.

Scheme One- California Stores

In early 2004, Wickes decided to open a new store in Rancho Cucamonga, California (the "Rancho store"). After receiving bids for the construction, Carpman recommended to Wickes, and Wickes agreed, to award a general contract for the Rancho store to Camco for a stipulated price. In addition, Carpman recommended, and Wickes agreed, to contract directly with FlorTech to provide flooring materials, also at a fixed price, for the same store. FlorTech's bid contemplated that FlorTech would provide extra materials to be warehoused by FlorTech for use in the event that flooring needed to be replaced in the future.

In exchange for loans and other consideration provided by Camco to Carpman, Carpman agreed to accept the substitution of cheaper materials and building techniques (without insisting on a price credit) and to permit Camco to complete the project at a profit. Carpman also accepted change order requests from Camco for non-existent and over-valued work, which resulted in raising the costs of the Rancho store. Camco's stipulated price for the Rancho store included flooring. However, in exchange for loans and other consideration provided by FlorTech to Carpman, Carpman arranged for Wickes to contract directly with FlorTech to provide flooring materials for the Rancho store, ostensibly because Wickes needed to use the same source for flooring for each of its stores to obtain economies of scale and to obtain warehousing services for "scrap" flooring. Wickes alleges those same supplies could have been obtained by other providers based in California and included in the general contract. Ultimately, the economies of scale never materialized and no "scrap" flooring was ever warehoused by FlorTech for the California stores. Wickes concedes that although the direct contract between it and FlorTech meant that Camco no longer had to provide flooring for the Rancho store, Camco only partially credited the amount saved against the stipulated contract price. The ultimate effect of this scheme was to inflate Wickes' payments to FlorTech and to Camco.

In connection with three subsequent California projects, Carpman accepted bids from Camco without competitive bidding. Camco did not include flooring in these bids because it understood that FlorTech would provide flooring. Wickes alleges that Camco could have subcontracted to obtain the same flooring material, instead of Wickes directly contracting with FlorTech, which would have saved Wickes money due to the extra costs and delays deriving from logistical complications of having dual direct contracts.

During the construction of the three California projects, Camco submitted and Carpman accepted, change orders increasing the cost of the projects. Wickes concedes some of the change orders were legitimate, but nonetheless alleges many of the change orders obligated Wickes to pay additional sums for work that 1) was already properly included in Camco's original bid, 2) was not actually performed, 3) was unnecessary, or 4) represented contractual penalties for which Wickes was not responsible.

FlorTech's bids contemplated that it would supply and warehouse additional flooring materials for the three subsequent California stores to be held in reserve in case flooring was damaged in the future but FlorTech did not, in fact, provide the additional materials. Furthermore, Wickes alleges that the "scrap" flooring materials from one project were used in subsequent projects, for which FlorTech charged Wickes again. In addition, Camco charged and Carpman authorized, additional sums for change orders for flooring work that it performed but should have been performed by FlorTech.

Camco submitted bids, change order requests, and demands for payment to Wickes at its offices in Wheeling, Illinois primarily by means of commercial interstate carrier delivery. Wickes details the dates of some of those deliveries, with the initial date as September 27, 2005 and the last date as November 1, 2005. FlorTech obtained flooring materials in interstate commerce, including from a carpet supplier doing business in Georgia, and submitted bids, invoices, and demands for payment to Wickes primarily through intrastate courier delivery from its offices in Chicago. Wickes details the dates of some of those deliveries are identified, with the first date as May 3, 2005 and the last date as September 13, 2005. Carpman arranged for the overpayment of Camco and FlorTech both by approving fraudulent change orders and by obtaining payment by Wickes to Camco and FlorTech for amounts in excess of their contract prices.

Wickes financed the construction of the California stores through "build to lease" arrangements pursuant to which landlords reimbursed Wickes for many of its expenditures from tenant improvement allowances, which are in turn amortized over the life of long-tern leases between Wickes and the landlords. In order to obtain reimbursement for Wickes expenditures for the California stores, Carpman submitted demands for reimbursement to each landlord by means of commercial interstate carrier services. These demands included the inflated amounts Wickes had already paid to Camco and FlorTech. Wickes claims to have been damaged by the inflated charges for the construction of its stores because each store ended up costing more than its respective tenant improvement allowance, and Carpman caused the gaps to be paid by Wickes. In addition, the amortized amount of each tenant improvement allowance is included in the lease payments for which Wickes is responsible, such that the ultimate cost of the overcharges, with interest, has been and will continue to be paid by Wickes for the life of the leases.

In November of 2005, Wickes discovered some of Carpman's activities because of the accumulation of cost overruns on the projects whose construction he managed. Upon its discovery of Carpman's activities, Wickes immediately terminated him and reviewed its open construction contracts and the payments claimed thereon, to ensure that it would not be further victimized. Wickes states that delays and disruption caused by that review, together with legal expenses in litigation that resulted, ...


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