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Groot Industries, Inc. v. Cordell

November 17, 2009

GROOT INDUSTRIES, INC., A DELAWARE CORPORATION, PLAINTIFF,
v.
ROBERT CORDELL, AN INDIVIDUAL, AND ROBIN CORDELL, AN INDIVIDUAL, DEFENDANTS.



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

HONORABLE DAVID H. COAR

MEMORANDUM OPINION AND ORDER

Groot Industries has filed suit for conversion, alleging that Robert Cordell, a former employee, pocketed approximately $500,000 from cash transactions and cooked the company's books in an effort to cover his tracks. Groot also contends that Robin Cordell (Robert's wife) is jointly and severally liable as a cosignatory on the bank account into which the converted funds were deposited. Groot is a Delaware corporation with its principal place of business within Cook County, Illinois, and the Cordells are citizens of the State of Florida. The court therefore has diversity jurisdiction over this state-law suit. See 28 U.S.C. § 1332(a). Groot has moved for summary judgment on both liability and damages, seeking compensatory and punitive damages; recovery of all compensation paid to Robert Cordell, on account of his breach of fiduciary duty; establishment of a constructive trust over the Cordells' assets; pre-judgment interest; and costs. For the reasons set forth below, Groot's motion is GRANTED in part and DENIED in part.

FACTS*fn1

Groot's Operations

Groot Industries is in the waste-disposal business. It maintains its primary corporate office in Elk Grove Village, Illinois and employs approximately 650 people. (R.77 ¶¶1-2.) Groot operates various "transfer stations" where customers can dispose of garbage and recyclable materials; one such station, commonly known as the "1759 Transfer Station," or "1759," is located at 1759 Elmhust Road, in Elk Grove Village, Illinois. (R.41 ¶9.) While Groot has many contract customers who frequently use 1759 and are billed on a monthly or other regular basis, the station (like Groot's other transfer stations) is also open to the public for waste disposal on a fee-for-use basis; payment may be made in cash or by check. (R.41 ¶¶11,12; R.71, ¶17; R.43, Tab C ¶10.)

Groot's computerized accounting system is known as the "solid waste accounting system." It tracks the weight and variety of each customer's waste; after a truck is "weighed in" and "weighed out" (i.e., before and after it dumps its waste), the system automatically generates invoices or "tickets" used for billing purposes based on the weight differential. (R.41 ¶10; R.73, Ex.3 at18:17-22.) All four of Groot's transfer stations, as well as Groot's corporate headquarters, are networked through this accounting system. (R.77 ¶¶4-6.)

For cash transactions, known as "10C ticket transactions," customers are charged and cash is collected on the basis of the information contained on a "10C ticket;" the customer's name in a 10C ticket transaction is recorded in the solid waste accounting system as "Misc."

(R.41 ¶14; R.43, Tab C ¶9.) Cash payments are collected by the scale operators and placed in a safe to which all of the scale operators have access. (R.73, Ex.3 at 22:19-23:3.)

Robert Cordell's Employment at Groot

As the Facility Manager or Operations Manager (both titles frequently appear in the record) at 1759 from July 21, 1997 until his voluntary retirement on May 29, 2008, Robert Cordell*fn2 was responsible for oversight of all the facility's operations and reported to Larry Groot. (R.41 ¶8; R.73, Ex.3 at 17:13-15.) Specifically, he was responsible for determining the daily balance of cash and checks received, and physically taking the cash and receipts to Groot's corporate offices on a daily basis. (R.41, ¶¶17-18.) Sometimes, he would delegate responsibility for balancing the daily accounts to the scale operators, and when he was not at work, another employee would have to take the cash to the corporate office. (R.71 ¶¶17-18; R.73, Ex.3 at 27:15-28:3.) Cordell had access to the solid waste accounting system and had the ability to "zero out" previously entered 10C ticket transactions (R.41 ¶20) but also alleges that at least thirty Groot employees had the knowledge and access to do this (R.73, Ex.4 ¶5). He was not responsible for collecting cash payments from customers. (R.73, Ex.3 at 22:19-23:3.)

Missing Funds From Cash Transactions

In June 2008, John Garrity (Groot's CFO) ordered an investigation into 10C ticket transactions at 1759 after Paul Wilson (Cordell's successor as Operations Manager) told him that some number of these transactions appeared to have been "zeroed out" in the preceding months.

(R.41 ¶¶41-43; R.43, Tab C ¶¶22-24.) When a transaction is zeroed out, the price charged to the customer is changed to zero in the accounting system, so that the record of the transaction specifies a weight but no price and thus the transaction does not appear as paid. (R.43, Tab C ¶14; R.73, Ex.2 at 25:12-21.) Garrity further testified that Groot would not ordinarily become aware of zeroed-out transactions without specifically looking for records of them in the accounting system. (R.43, Tab C ¶16.)

Garrity asked Groot's controller and staff accountants to perform an audit of the records stored in the solid waste accounting system in order to uncover all zeroed-out 10C ticket transactions at 1759 from January 1, 1998 through May 29, 2008. (R.41 ¶33; R.43, Tab C ¶25; R.73, Ex.2 at 24:22-25:15.) Garrity prepared a Proof of Loss Form from the report, which listed all such transactions and a calculation of their cash value based on the data recorded in the accounting system. (R.41 ¶47; R.43, Tab D; R.43, Tab C ¶34; R.73, Ex.2 at 23:16-23.) The report, submitted as Exhibit A to Garrity's affidavit, yielded the following annual totals:

YEARCASH VALUEYEARCASH VALUE 1998$870.902003$29,948.84 1999$1,4082004$86,983.20 2000$9952005$85,201.72 2001$325.502006$117,457.20 2002$805.502007$145,270.50 2008$36,608.85 (figure through ...


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