| This is another
public document which outlines again the past and continuing Racketeering
activities of Airborne Express and now DHL. Nothing has changed, the beat
goes on. =================================================== UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA FOURTH DIVISION Gorman Enterprises, Inc. Plaintiff, v. COMPLAINT Airborne, Express, Inc., Robert F. Cline, Robert G. Brazier, Marvin Tabor, William Simpson, Raymond Berry, Raymond Van Bruwaene, Carl Donaway, William Ashby, Betsy Bacon, Carl Rodriguez, James Pope, Brian Bates and Carl Clark, Defendants. Plaintiff for its claims against the defendants states: JURISDICTION 1. Jurisdiction of this Court is based on 28 U.S.C. § 1332(a) and 18 U.S.C. § 1964. This action asserts claims of fraud, negligent misrepresentation, promissory estoppel, violations of the Racketeer Influenced and Corrupt Organizations Act. 18 U.S.C. § 1962(c) and (d) and breach of contract. There is diversity of citizenship between plaintiff that is a citizen of Minnesota and defendants. Defendant Airborne Express, Inc. has its principal place of business in the State of Washington. The individual defendants other than defendants Brian Bates and Carl Clark, are citizens of various states other than Minnesota. Defendants Brian Bates and Carl Clark, who are residents of Minnesota, are only defendants on the Fourth Claim and the Fifth Claim, where jurisdiction is not based on diversity. The amount in controversy, exclusive of interest and costs, exceeds $75,000.00. 2. Defendants do business and are found in the State of Minnesota. Defendant Airborne has personnel and operates facilities in the State of Minnesota. The individual defendants' participation in the scheme to underpay contractors like Gorman Enterprises and W&G Transport involved activities consummated in the Sate of Minnesota. The individual defendants knew that the damages caused by their underpayments scheme would occur in the State of Minnesota. The actions of the individual defendants named in the Sixth Claim caused damage to plaintiff which they knew would occur in the State of Minnesota. It is reasonable that the individual defendants should defend plaintiff's claims in the State of Minnesota. Some of the individual defendants have also come to the State of Minnesota on the business of Airborne. VENUE 3. Venue lies in this Court under 28 U.S.C. § 1391. AVERMENTS COMMON TO ALL CLAIMS Gorman Enterprises, Inc. and David Gorman 1. Gorman Enterprises, Inc. ("Gorman Enterprises" or "Gorman") is a corporation located in Minneapolis, Minnesota. It has been a contractor for Airborne Express, Inc. f/k/a Airborne Freight Corporation ("Airborne") since October 1, 2000. Gorman Enterprises' predecessor, W&G Transport, Inc. (W&G) was jointly owned by David Gorman and George Wessin and had been a contractor for Airborne since 1972. As of October 1, 2000, W&G was split into two companies. With the consent of Airborne, Gorman Enterprises continued to perform ten of the contracts which W&G had with Airborne. As a contractor for Airborne, Gorman Enterprises had substantial financial commitments. In the period 2000-2001, Gorman had equipment bank loans of over $900,000, had a letter of credit of $162,000 for self-insured workers compensation and had another for $500,000 of working capital. 2. By an order of the District Court of Hennepin County, Minnesota, dated May 23, 2000, the assets of W&G were divided between Gorman and Wessin, the half of the assets going to Gorman being transferred to a separate corporation, Gorman Enterprises, Inc., and the half of the assets going to Wessin remaining in W&G, that corporation now continuing under his sole ownership. By a second order dated December 31, 2000, Gorman was allocated half of all undistributed assets and previously unknown claims formerly belonging to W&G Transport, Inc. 3. David Gorman has been a co-owner/contractor for Airborne since December 1972, first as a co-owner of W&G Transport, Inc. and recently as the sole owner of Gorman Enterprises during the period 2000-2001. 4. Over the years, Gorman Enterprises and its predecessor had worked with Airborne's efficiency engineers, who visited their operations annually, to progressively refine their operations to an extremely high state of efficiency. Gorman Enterprises and its predecessor received compliments on the companies' service from a long list of Airborne station, district, and regional managers as well as other officials. The companies designed an organization that was efficient, innovative and could beat the price of the many contractors that sought their locations over the years. Because of the size of its operations, Gorman Enterprises and its predecessor could save substantial costs because they could afford to operate their own maintenance shop to service a fleet of over 300 vehicles. The cost to maintain vehicles was less, and so Gorman Enterprises and its predecessor could also afford to operate a vehicle longer, reducing the cost necessary to purchase new vehicles. The number of employees had reached over 500. Gorman Enterprises had building leases signed in eight cities, Minneapolis, St. Cloud and Mankato, Minnesota; Eau Claire and La Crosse, Wisconsin; Paducah, Kentucky; Evansville, Indiana; and Mount Vernon, Illinois. 5. In the fall of 2000, Gorman Enterprises, Inc. had contracts for ten cities. Gorman Enterprises, Inc.'s predecessor, W&G Transport, Inc., had separate contracts with Airborne for twenty cities. Occasionally on renewal of a contract it would be lost to another party that would submit a bid that Gorman 's predecessor chose not to match, but then would win a bid for other contracts which would offset the loss of such a contract. The total number of W&G's Airborne contracts grew over the years. Vehicles used for deliveries on a contract that was lost could be reassigned to another city, without significant disruption. 6. The last contract adjustment for W&G's largest Airborne contracts, Minneapolis and Golden Valley, was signed in July of 1999 and had back-dated payments to March 1999. Those contract renegotiations lasted over six months, involved competitive bidding on many of the contracts, review of the operations by an efficiency engineer and finally resulted in new contracts that allowed a narrow profit margin. 7. In addition to the cost efficiencies that had been developed in the organization of Gorman Enterprises and its predecessor, the organization had a second major benefit to Airborne. Its size and sophistication enabled Gorman Enterprises and its predecessor to take on a major new account on short notice and to deliver a level of service acceptable to a large sophisticated account. On or about December 1, 2000, David Gorman was informed by Brian Bates, Airborne station manager, that Airborne Sales had received the go ahead to service Target's holiday business for its catalog order division. Bates also informed Gorman that if Gorman Enterprises performed well, Airborne would receive the additional multi-million dollar contract business of Target Corporate. Gorman Enterprises met with Target to devise a plan to move hundreds of thousands of shipments. On short notice, Gorman Enterprises performed flawlessly during Target Direct's holiday shipping. Gorman Enterprises was able to restructure and reassign duties for various managers and administrative people to handle the management of the Target account. Gorman Enterprises was told over and over by Brian Bates, other Airborne officials and various Target managers how much they appreciated Gorman's work in successfully handling this major project. A "mom and pop" organization could not perform in the manner needed for this type of sophisticated account. Airborne personnel told Gorman Enterprises this would help both Airborne and Gorman Enterprises financially in the future. 8. In addition to its Airborne contracts Gorman Enterprises had non-Airborne delivery business and had plans for future development of such business. Airborne Express, Inc. 9. Airborne Express, Inc. is in the business of transportation of over-night and deferred deliveries of packages. Airborne has separate delivery contracts for each city or portion of a city, involving approximately 300 local contractors. 10. Although the contracts contained a provision for termination by either party on 60 days notice, Gorman and W&G had a history of long term contracts. They had the contract for Minneapolis for 29 years, for Golden Valley for 9 years, for Rochester, Minnesota for 17 years, for St. Cloud for 12 years, for Eau Claire and LaCrosse, Wisconsin for 16 years, and Mankato, MN for 4 years. Contract prices were renegotiated on average about every 2.3 years. 11. The individuals named as defendants are present and former officers and managers of Airborne: a. Defendant Robert F. Cline was the former chairman and CEO of Airborne Express, Inc. He was one of the founders of the company in 1966. Previous positions held included vice chairman and chief financial officer, executive vice president and CFO and senior vice president of finance. He is a resident of the State of Washington. b. Defendant Robert G. Brazier was the president and COO of Airborne Express, Inc. He was one of the founders of the company in 1966. Positions previously held included executive vice president of operations. He is a resident of the State of Washington. c. Defendant Marvin Tabor was vice president of field services, the division of Airborne Express, Inc. that has responsibility for station managers and regional field service managers. He is a resident of the State of Georgia. d. Defendant William Simpson is vice president of ground services. Previously, he was an area vice president of field services. He is a resident of the State of Illinois. e. Defendant Raymond Berry was vice president of field service administration, with responsibility for cartage and field service engineering. He held various positions over the years at Airborne Express, Inc. He is a resident of the State of Washington. f. Defendant Raymond T. Van Bruwaene. He was executive vice president, field services division. The area vice presidents reported to him. Previously, he was senior vice president and vice president of Airborne Express, Inc. He designed the present incentive plan for district managers and station managers. He is a resident of the State of Washington. g. Defendant Carl Donaway is the president and CEO of Airborne Express, Inc. He is a citizen of the State of Washington. Prior to becoming the president, he was a long-time Airborne employee who held various positions in the Airborne system, including district field services manager for the Minneapolis station, vice president of business analysis and vice president of customer support. h. Defendant James Pope is a regional field service manager for Airborne Express. He is a resident of the State of Illinois. Prior to becoming a regional service manager, Pope was a supervisor and a district manager and a district field service manager in the Airborne system. i. Defendant Brian Bates was the Minneapolis district field services manager. He is a resident of the State of Minnesota. Bates was the Minneapolis district field services manager for the Minneapolis station for approximately 10 years. Previously, he had held a similar position with the Airborne station in Des Moines, Iowa. j. Defendant Carl Clark is the Golden Valley district field services manager. He is a resident of the State of Minnesota. As a station manager, Clark was responsible for managing the Airborne payment system for the Golden Valley and St. Cloud stations. Prior to becoming Golden Valley district field services manager, Clark was a station manager elsewhere in the Airborne system. k. Defendant Carl Rodriguez is an area vice president of field services for airborne. Prior to becoming vice president, he was a regional field service manager. He is a resident of the State of Pennsylvania. l. Defendant William Ashby is vice president of field services and cartage contracts for Airborne Express, Inc. Previously, he was vice president for engineering. He is a resident of the State of Washington. m. Defendant Betsy Bacon, formerly Betsy Tate, is the manager of cartage contracts for Airborne Express, Inc. Previously, she was a district field services manager for several Airborne Express, Inc. stations. She is a resident of the State of Washington. Each of the individual defendants was familiar with and understood how the Airborne computer system was used to compensate Airborne contractors. Each of the individual defendants understood how the computer system was used to underpay contractors and had each personally used the system to underpay contractors or was aware of the practice of other Airborne personnel to take actions that resulted in the underpayment of contractors. 12. A substantial part of the compensation of individual officers and managers of Airborne is paid in the form of a bonus. An important factor in the amount of the bonus is the profitability of the activity for which the individual is responsible, and the profitability of the company. Reduction of cartage costs by underpayment to contractors increases the profitability of Airborne operations and increases the bonus pool. Each of the individual defendants received substantial increases in their large personal bonuses because contractors like Gorman Enterprises and W&G were not paid for all of the work done by them. In 2000, Airborne increased Gorman's costs 13. In bidding new and renewed contracts with Airborne, Gorman Enterprises and its predecessor had to project and anticipate normal fluctuations in business conditions that might occur over approximately the next two years. That occurred in the Airborne contracts which were renegotiated in July 1999. However, in the fall of 2000, Airborne took actions which could not be anticipated and which had the effect of greatly increasing Gorman Enterprises' costs. a. In October, there began to be a substantial increase in the amount of residential shipments due to the Airborne contract with Qwest Cellular, which started to provide cell phone deliveries in Minnesota. These deliveries were almost all to residential areas and required a signature. Many times, multiple return trips to find someone at home to sign for the delivery were needed. Gorman Enterprises was paid rates of only $0.61 in Golden Valley and $0.80 in Minneapolis for a successful delivery, regardless of the actual number of stops to make the delivery. b. Airborne started a program for delivery of residential return shipments to post offices. Gorman was paid base rate on the first shipment, $0.25 for shipments 2 through ten and $0.10 per shipment above ten shipments. The rates offered amounted to between $0.15 and $0.16 per piece. Gorman Enterprises' costs to sort and deliver this business was around $0.83 per piece. Gorman made several requests to increase this rate but was told this would not be done. c. There had been increases from some of Airborne's other customers in the type of shipments that were costly for delivery, residential shipments with a signature required. d. Airborne increased the service level it demanded of Gorman Enterprises in September of 2001. When the contracts were negotiated in 1999, Airborne management called for service levels of 95% of all deliveries to be completed by noon. This was raised to 96% in September 2000. In February 2001, it was raised again to 97%. To meet this accelerated service level, Gorman Enterprises was required to add additional costly resources of vehicles and drivers. e. Due to the thriving Minnesota economy, drivers were leaving for better paying jobs and qualified replacement drivers were difficult to attract. Productivity and service suffered while Gorman Enterprises attempted to fill routes and train drivers. Airborne, Inc. was well aware of the low unemployment in Minnesota (the lowest in the nation). However, instead of accepting lower service levels to hold down costs, Airborne not only insisted on getting levels up to the 95% contract level, but actually increased the contract service level first to 96% and later to 97%. Airborne was well aware that increasing the service level would mean more and higher quality personnel. After increasing the percentages required while Gorman Enterprises was struggling to find suitable new employees, Airborne gave Gorman Enterprises no time to adjust to new conditions. Airborne issued a breach of contract notice for the Golden Valley (GVM) contract which required Gorman Enterprises to fix the problem in 15 days or lose the contract. Gorman Enterprises poured significant amounts of personnel time and pay into the situation, in addition to increasing its starting and upper wage levels. This turned the situation around but increased its costs significantly. Gorman had no Margin to Absorb Major Cost Increases Caused by Airborne 14. Because of the tight margins allowed by Airborne in its existing contracts and because of its operations that Airborne and W&G had already tightened up to the maximum, when Gorman's costs began to increase substantially, Gorman Enterprises immediately was thrown into a loss position, starting in November 2000. Airborne knew the Gorman Contracts had to be Adjusted 15. Airborne was fully aware of the narrow margin in its existing contracts, of the substantial increases in the costs of Gorman Enterprises caused by the actions of Airborne, as described above, and that those increases would immediately put Gorman Enterprises into a loss position. Airborne was also fully aware that Gorman Enterprises could not continue very long to subsidize Airborne in a loss position without going bankrupt. Airborne knew that a delay in making the necessary contract adjustments would make it necessary to make retroactive the contract adjustments that would reimburse the losses caused by the delay. Airborne Duty to Notify 16. Airborne had a duty to immediately notify Gorman if Airborne did not intend to recognize its changes in the contract conditions and adjust the Gorman Enterprises contracts retroactively. Airborne gave no such notice to Gorman. Gorman's Initial Request to Discuss Adjustments 17. Initially, Gorman Enterprises did not have enough information to know exactly the increases needed on its contracts but it had become apparent that adjustments were urgently required. David Gorman notified Brian Bates, the District Field Manager for Airborne in Minneapolis, in mid-November that an increase was needed. Mr. Bates' response acknowledged that he was aware of the changed conditions and understood the need for adjustments in the contracts. In reliance on Bates' comments and the past history of contract adjustments as required by changed circumstances, retroactive when necessary, Gorman Enterprises, Inc. continued to deliver Airborne packages at an increasing rate of loss. Prior Contract Adjustments had been Retroactive 18. Retroactive increases were part of the completed contract renegotiations in numerous contracts adjusted in 1999. In that year, Airborne drew out the contract renegotiations approximately six months but then made increases retroactive. In all of the 2001 contract discussions with Airborne, Gorman made the point that the delayed adjustments had to be retroactive to cover its losses. Airborne representatives never took issue with this point. Gorman's Second Request to Discuss Adjustments 19. Near the end of December, David Gorman had heard nothing about a meeting on rate adjustments. He spoke again to Brian Bates concerning the mounting losses and the size of the losses and the desperate need for an increase. Gorman losses for January were increasing at a rate of $46,385 per week. Gorman losses for Minneapolis and Golden Valley for January 2001 were $204,095 for the month. Gorman's Third Request to Begin Discussions 20. When no action was forthcoming to adjust the contracts, David Gorman again contacted Airborne. On January 8, 2001, Joe Wozniak, Gorman Enterprises area manager, and David Gorman met with Carl Clark, the district field services manager of Golden Valley for Airborne, Inc. to stress the emergency nature of the need for increases. They informed Carl Clark that this had become an emergency situation due to the lack of action to adjust the contracts. Carl Clark assured the Gorman Enterprises representatives that he appreciated Gorman Enterprises work and would help in getting an increase. Clark was supportive of Gorman Enterprises operation and he indicated that he had an excellent relationship with Jim Pope, the regional manager, who also had to approve Gorman Enterprises increases. He would convey the information of the emergency need along to Jim Pope. On January 30, 2001, Gorman put in writing the request for increases for the Minneapolis and Golden Valley contracts and sent it to Jim Pope, the new regional manager for Airborne, Inc. with copies to Carl Clark and Brian Bates. No Response by Airborne 21. For three weeks there was no response from Jim Pope or anyone at Airborne. Meanwhile, its losses continued. Gorman Enterprises' losses for the month of February for Minneapolis and Golden Valley were $123,401. Airborne urged Gorman Not to Give Notice of Termination 22. At that point, with Airborne not responding, Gorman was forced to consider giving a 60-day notice of terminating the Minneapolis and Golden Valley contracts, which is the practice of some contractors to secure new contracts with Airborne. Giving the 60-day notice has the prospect of either getting a new contract in 60 days or getting out of a losing situation. Brian Bates indicated that giving notice of termination would not be wise and that Gorman Enterprises could have a better of relationship with Airborne, working out new contracts in a cooperative manner with Airborne's new regional manager. Gorman was encouraged not to give a 60-day notice. David Gorman was told that other contractors gave notices and would lose contracts because of their tactics. In reliance on this conversation and past assurances, Gorman Enterprises did not give a 60-day notice and continued making deliveries, incurring significant losses, on the basis that the eventual price adjustment would be retroactive to cover its losses. Airborne Assurance of Contract Increases 23. On February 22, 2001, David Gorman contacted Jim Pope to follow-up on Gorman's letter and his conversations with Carl Clark. David Gorman told Jim Pope that Gorman was not giving a 60-day notice and that Gorman was counting on getting the necessary adjustments to its contracts. Jim Pope commended David Gorman for not giving a 60-day notice. He said that this was the honorable thing to do. Gorman and Airborne had to work together to get the increases processed. Jim Pope indicated that Airborne would reward the contractors who worked as a partner with Airborne. Gorman Enterprises opened its books 24. Because of Gorman's long relationship with Airborne, Gorman considered itself as a part of the Airborne team. Accordingly, David Gorman told Jim Pope that he would be willing to open up Gorman's books to Airborne's inspection, to eliminate any doubt on the part of Airborne management that Gorman was actually experiencing severe losses and needed the increases. Airborne accepted the offer of Gorman Enterprises and had Gorman Enterprises provide its financial statements for Minneapolis and Golden Valley. Gorman Reliance on Airborne's Assurances 25. Gorman was relieved by Pope's words, trusted that Gorman Enterprises would get its financial relief in time, and was assured that this was truly a better relationship with Airborne management. Jim Pope said that he needed more financial data to justify the amount of the increases. He commented on the need to give better service than ever before. He asked Gorman to hit 30 or less missed by noon deliveries. This would be an average of 97% service counting misroutes and other shipments not available to deliver before noon, a full 2% better than what Gorman had agreed to do on its present contracts. This, of course, took additional drivers and vehicles to obtain. Gorman trusted Airborne would compensate Gorman Enterprises for this increase in service level. Continued Assurances of Increases by Airborne 26. Again, David Gorman heard nothing from Airborne, so after several attempts to get in contact with Jim Pope, he was finally able to talk to Jim Pope on March 2, 2001 to ask what was being done in regards to getting the increase. Pope apologized for the delay and said that he was very busy. Pope made an appointment to meet in Minneapolis on March 6, 2001. 27. At the meeting on March 6, 2001 in attendance were Jim Pope, Carl Clark and Brian Bates with David Gorman and six of Gorman Enterprises' managers. The Gorman group gave an hour-long presentation documenting again the need for increases. Gorman was asked to put off the increases for Rochester and Mankato, Minnesota and to first focus on working out the Minneapolis and Golden Valley contracts. Jim Pope repeated his assurance that Gorman would work with Airborne as partners to work out the increases. Gorman complied with this request to hold up adjustments for Rochester and Mankato until after Minneapolis and Golden Valley were done. At this time, Gorman's bank and many of its vendors were getting very concerned about Gorman's financial condition. Gorman Enterprises was behind in paying its vehicle and workers compensation insurance. Although Gorman went into the meeting thinking the parties would be discussing an increase amount, no such thing was discussed. Instead, at the end of the meeting Jim Pope told Gorman Enterprises that he was not experienced in negotiating with contractors and he was going to bring in Jim Dumbauld, a regional manager from Florida, for the negotiations. At the end of the meeting, Jim Pope set up an appointment for a conference call with Jim Dumbauld for March 9, 2001. The role of Jim Dumbauld 28. At the time, David Gorman did not understand why Jim Dumbauld, who was just another regional manager like Jim Pope, was now being brought into the contract negotiations. As time went on Dumbauld was only to have a few isolated contacts with Gorman, never conducted any negotiations with Gorman for new contracts and never scheduled any negotiation meetings with Gorman. What Gorman was to learn later at the end of June 2001 explained why Jim Dumbauld was brought into the Gorman situation. It was at the end of June 2001 when David Gorman was given three days notice that all of Gorman's contracts were being terminated that Jim Dumbauld reappeared on the scene, to orchestrate Gorman's replacement by other contractors. Airborne Decision to Defraud and Then Terminate Gorman Enterprises 29. Unknown to Gorman, Airborne had made an internal decision in early 2001 that Gorman would get no increases. This decision was never communicated to Gorman. At least as early as March 6, 2001, Airborne was implementing plans to string Gorman out as long as possible, subsidizing Airborne at a huge loss and then dropping Gorman as a contractor instead of reimbursing it. As of March 6, 2001, Gorman Enterprises' cumulative losses had grown to approximately $507,465.00. Airborne was well aware that Gorman Enterprises had been accumulating these major losses because of its delay in adjusting the contracts. Gorman had been telling Airborne representatives about the growing losses since November 2000. Airborne further knew that the magnitude of debt that Gorman Enterprises had taken on to subsidize Airborne was such that retroactive reimbursing it for that debt would have to be part of new contract adjustments. At some point prior to March 2, 2001, Airborne made a decision that it would not make a retroactive adjustment of the Gorman Enterprises contracts to reimburse Gorman for the losses it had accumulated up to that point. Instead, it would keep Gorman going as long as possible, get all of the below-cost service that it could and then discard Gorman as a contractor. 30. Once Airborne made that decision, it was then a matter of trying to induce Gorman to keep on providing service to Airborne as long as possible, until Gorman finally had to close its doors. What followed after Airborne had made that decision was continued assurances to Gorman that relief was just around the corner while bringing in Jim Dumbauld from Florida to manage the planned replacement of Gorman Enterprises with new contractors on all of its contracts. Conference call on March 9, 2001 31. On the conference call with Jim Dumbauld on March 9, 2001, were Brian Bates, Jim Pope, Jim Dumbauld from Airborne, and David Gorman, Tom Best, Gorman's Minneapolis manager, and Joe Wozniak, area manager for Gorman. Gorman Enterprises repeated the emergency nature of the request and the need to backdate the increases. 32. Gorman Enterprises let Airborne know that Gorman might not be able to make the upcoming payroll of March 23, 2001 without an increase and back pay. During the week of March 5, Gorman's bank had notified Gorman that because of Airborne's delay in action to adjust Gorman Enterprises' contracts and the resulting losses, Gorman's bank was pulling its $500,000 working line of capital. The bank agreed to cover the payroll scheduled on March 9, 2001, but required the advance to be paid back the next week. The bank informed Gorman that they would not do the same for the March 23, 2001 payroll. Gorman informed Airborne of this development and that the emergency situation had now escalated into a crisis situation. Airborne ended the conference without any specific discussion of increases, but Gorman thought that at least Jim Pope, apparently the key person, had been briefed on the problem. More False Assurances by Airborne 33. When David Gorman heard nothing back from Airborne, he made a number of calls to the station managers Brian Bates and Carl Clark, stressing the need for action. Finally, another conference call was set up for March 20, 2001, which was attended by Jim Pope, Brian Bates and Carl Clark for Airborne and Joe Wozniak, Rebecca Gorman and David Gorman for Gorman Enterprises. Gorman began by pleading to get the increase in place. With the new partnership relationship between Airborne and Gorman Enterprises, he could not understand how this was being delayed. As of that date, both Brian and Carl were very happy with Gorman's service. During the call, Gorman Enterprises was assured of the following by Jim Pope: a. Airborne's goal was to work as partners with Gorman and to keep Gorman Enterprises in these stations. The goal was not to turn over contracts but to find a way to get both companies through this difficult time. b. Airborne needed to get an operational review on Minneapolis to negotiate the contract. c. The Golden Valley operational review was completed but Bill Kotz, Airborne's employee who completed the review, was in Mexico on vacation. Gorman was not allowed to have a copy of the review and Jim Pope said that he had not received a copy from Bill before he left. Kotz later told Gorman that he had left a copy with Carl Clark in Golden Valley before leaving on vacation. d. Jim Pope would request a loan from Airborne to help Gorman Enterprises with cash flow. Of course, a loan needed to repaid and was not a substitute for an increase. e. Airborne would make the Golden Valley increase retroactive to February 1 but Airborne would take that amount into account in figuring the overall increase. f. Airborne again stated that it was "honorable" that Gorman Enterprises did not give a 60-day notice of termination as some other contractors did and that Gorman Enterprises would work as a partner with Airborne. Gorman was told it was not appropriate to give a notice of termination. g. Airborne stated that the "worst case" would be that the negotiations would take 30 days. However, Golden Valley would be quicker because the operational review was complete and negotiations could be completed in 7 to 10 days. Minneapolis would be done in 30 days. All of the above statements were later discovered to be false, and only made to cause Gorman to keep subsidizing Airborne as long as possible. Continued Reliance 34. Gorman Enterprises relied on these assurances and passed them along to its bank and vendors. These assurances were taken at face value by Gorman. In the long run, the assurances only caused Gorman Enterprises to continue operating while incurring further losses and allowed Airborne to continue to get service at below the cost of accomplishing the service. Another False Assurance 35. David Gorman heard nothing from Jim Pope again so he called him on April 2, 2001 to ask about the increase. Pope assured David Gorman that it was being taken care of. Pope would be receiving Kotz's operational reports and cost analysis for Golden Valley and Minneapolis on Wednesday of that week. David Gorman told Pope that Gorman Enterprises could not make payroll. Pope assured David Gorman that it was "not a problem" to wire funds for Gorman's payroll. The conversation ended with more assurances. Continuing False Assurances 36. On April 5, 2001, after putting off vendors and needing funds wired for payroll, David Gorman was at his wits end. David Gorman called Jim Pope to address the urgent crisis. Pope assured Gorman numerous times during the conversations that Gorman's increases were coming. Airborne would not loan Gorman Enterprises the money but would wire funds to Gorman's bank in early payment of its receivables to cover payroll. Airborne began wiring funds directly to its bank to cover payroll. Gorman was concerned that Airborne was not aggressively concluding the negotiation process, which was increasing the amount Gorman Enterprises was in debt to vendors. Gorman was assured by Airborne that Golden Valley would get an increase. Relying on this assurance, Gorman Enterprises kept increasing Gorman's debt to vendors. Jim Pope stated that Bill Kotz, Airborne efficiency engineer had determined that GVM was greatly under funded. Airborne could not replace Gorman for less and that MSP and GVM were two of Airborne's most profitable stations. Pope was sending the numbers to Betsy Tate, the manager of cartage contracts, to get her approval because that would carry weight with Vice President, Bill Ashby, who would be approving the request. Jim Pope, was very convincing in assuring Gorman that with just a little more time and patience the increases Gorman Enterprises needed would come. Gorman was relieved once again after hearing Jim Pope's assurances. Based on these continuing assurances, Gorman Enterprises continued to assure its bank and creditors that Gorman Enterprises would soon be back to normal. April 11, 2001 Conference Call 37. On April 11, 2001, a conference call took place with Carl Clark, Bill Kotz, Joe Wozniak and David Gorman. Bill Kotz informed David Gorman that he was going to work on getting the numbers necessary to present to Jim Pope to get both contracts done at once. Kotz said that he wanted to speed up the process. David Gorman stated that he had been promised back pay to February 1, 2001 and informed Airborne that the resolution date had come and gone. David Gorman let them know Gorman Enterprises would soon be at a point where it could not continue its services because of Airborne's delay. In this call, there was no negotiation of any contract, as Kotz stated that he did not have authority to do so. 38. David Gorman was getting no feed back on progress so he called Bill Kotz on April 17, 2001. Kotz stated that he was reviewing the request and then the request would go to Bill Ashby, vice president of operations 39. On April 19, 2001, David Gorman called Bill Kotz who stated that he had finished the reports for Bill Ashby but was sending them first to Gary LaPlante. He planned to speak to Gary LaPlante later that day regarding the increase. 40. David Gorman called Bill Kotz again the following day on April 20, 2001. Bill Kotz said he had not sent the report but wanted to negotiate with Gorman first, although he had no authority or authorization to do so. Now, David Gorman was informed that Ashby was not the person the report would be sent to. The report was going to Pope and vice president, Carl Rodriguez then to president, Carl Donaway. The report would go to Ashby if Carl Donaway wanted it reviewed. Kotz suggested an offer of $9,000 per week for an increase on Golden Valley. This was the first number ever offered by Airborne and was insufficient. He stated that this proposal was from him alone and not approved by anyone. When David Gorman stated that the proposal would not cover the losses in Golden Valley. Kotz suggested that Gorman review Gorman Enterprises' request and give to him its lowest price that he could take into a meeting with Carl Rodriguez and Jim Pope. April 26, 2001 Kotz Phone Call 41. On April 26, 2001, Bill Kotz called David Gorman and stated that after Kotz's discussions with Pope and Rodriguez, Gorman Enterprises was offered nothing on either contract by Airborne. This was in spite of the fact that Airborne had been assuring Gorman Enterprises for months that it would get the increases. Gorman said that this made no sense, as Jim Pope knew there was no way Gorman Enterprises could possibly continue without an increase. Gorman pointed out to Mr. Kotz that Jim Pope had repeatedly assured Gorman that an increase and back pay was coming. Kotz said that he knew nothing about that. That ended the phone call. The phone call from Kotz, who had no authority to negotiate contracts, was contrary to all of the prior assurances of Airborne, Gorman Enterprises assumed that this was Airborne's style of hardball negotiations to cause Gorman to reduce its requests and to incur more losses. Over the years Gorman had become accustomed to threats from Airborne as a part of its negotiation style. Gorman e-mail to Airborne Management 42. Following the phone call from Bill Kotz, Gorman decided that he had to restate in strong terms to all of Airborne management that Airborne could not continue to delay any longer in acting on the retroactive increases. Accordingly, Gorman sent an email on May 1, 2001, to president Donaway, to vice president. Rodriguez, to vice president Ashby, to regional manager Pope, manager of cartage contracts Betsy Tate, district field service manager of Golden Valley Carl Clark, district field service manager of Minneapolis Brian Bates, cartage contracts manager Gary LaPlante, Minneapolis sales manager John Silanoff, and Sales Manager of Golden Valley Steve Yakesh documenting that Gorman had exhausted its resources and had been operating on the credit of its providers and that those providers were not going to extend any further credit without payment. The major unpaid providers were workers compensation insurance and vehicle insurance. These creditors were within hours of forcing Gorman Enterprises to close its doors by cutting off the workers compensation and vehicle insurance. Therefore, Airborne's continued delay in acting on Gorman Enterprises' contracts and paying the back-pay would directly close its doors. Placing Gorman Enterprises' trust in Airborne had increased the indebtedness. Whatever the reasons for putting Gorman Enterprises off for months, this had reached an end. Gorman could not believe that his company had been forced to this point after its long history of exceptional service for Airborne. The Meeting in Philadelphia 43. Jim Pope contacted Gorman after receiving Gorman's e-mail. Pope did not repeat Kotz's statement, but on the contrary, requested that Gorman fly to Philadelphia to meet with Mr. Carl Rodriguez and Mr. Pope on May 3, 2001. When Gorman received this request from Jim Pope he stated to Pope that he did not want to make a trip to Philadelphia for nothing. Pope indicated that Airborne would not do that. In reliance on this assurance, David Gorman flew to Philadelphia on short notice, at Gorman's expense taking with him two of his managers. Gorman assumed that Airborne would not have them fly to Philadelphia unless Airborne was finally going to adjust the contracts. The meeting began by being told by Mr. Rodriguez, for over an hour, how they had no increase to offer. Rodriguez tried to delay action further, stating that he had an operational expert who could come in and revise Gorman's operations to save Gorman Enterprises a lot of money. When Gorman responded that Bill Kotz had just gone over all of its operations, Rodriguez replied that Kotz did not know what he was doing. Gorman further pointed out that in any event there was not time to await further engineering studies because Gorman's creditors were not waiting any longer. Rodriguez also criticized Gorman for discontinuing its training operations saying that training programs save money. David Gorman explained that the reason Gorman Enterprises discontinued its sophisticated training program was that Jim Pope had told Gorman to do so to save money. Airborne's position was inconsistent. Up until April 26, David Gorman was assured by Airborne that Gorman would get its increases. On April 26, he was told he would get no increase. When he protested that Airborne had put him out of business he was then called to Philadelphia apparently to decide the increases. At that meeting, he was then told Gorman Enterprises would get no increase. Gorman left the meeting to go to the airport. When Airborne saw that Gorman would not agree to no increase, Mr. Pope came down to the parking lot and asked what it would take for Gorman to come back to the meeting. Gorman said it was very simple. Gorman Enterprises had no options. Airborne had to finally come through with the increases and the back pay for creditors as promised or it was out of business. Mr. Pope told Gorman to come back to the meeting. There was then more discussion. The Airborne representatives finally stated that they were going to increase Gorman Enterprises' contracts and to make the payment retroactive to February 1 for Golden Valley and April 20 for Minneapolis. They told Gorman that as a condition of this increase Gorman Enterprises would have to agree to give the 60-day notice of termination on all nine of its contracts. Gorman was asked if he would agree to this condition. He replied that it was not agreeable but Gorman Enterprises had no choice but to accept it or be out of business. Pursuant to the agreement Gorman was paid $278,607.40 in back pay for the Minneapolis and Golden Valley contracts, retroactive to February 1, 2001 for Golden Valley and April 20, 2001 for Minneapolis, and received increases. These funds enabled Gorman Enterprises to pay some of the past due workers compensation and vehicle insurance premiums and to continue in business. 44. The amount of back pay that Airborne stated it was paying did not cover the losses attributed to the actions of Airborne. However, the contract rates that Airborne stated that it was going to pay went beyond what would have constituted the historical minimal profit allowed by Airborne. Assuming that Gorman Enterprises continued to receive these rates long enough, it would eventually amortize the balance of its losses. 45. The Airborne offer of back pay was accompanied by more threats that if Gorman Enterprises accepted these funds Airborne would terminate its contracts. Gorman had come to expect that he had to withstand a lot of pressure to get his increases. 46. Making Gorman Enterprises give notice on all of its contracts was directly contrary to Airborne's prior statements that Gorman should not give notice on his contracts, more inconsistency. Giving this notice could theoretically allow Airborne to put Gorman out of all of its contracts, but if Gorman did not agree to this demand it was out of business. Gorman had to trust Airborne because despite its hardball negotiating tactics its representatives had categorically promised Gorman that it would get the necessary contract adjustments. Over 26 years Airborne would eventually make the adjustment. Gorman wrote up a handwritten statement giving notice and the meeting ended. False Assurances that Gorman still Could Keep its Contracts 47. After the meeting, Gorman was very concerned about the status of his company in view of having been forced to give notice on all of its contracts, including cities on which Gorman Enterprises was not seeking increases. Could Gorman Enterprises still keep its existing contracts? Gorman contacted Mr. Dumbauld regarding how Gorman Enterprises would bid on its contracts. Gorman was told that Gorman Enterprises definitely was a bidder. Dumbauld stated that Gorman Enterprises' present contract rates would be Gorman's bid for the seven cities other than Minneapolis and Golden Valley. In Minneapolis and Golden Valley, he requested a weekly rate, which Gorman provided. Mr. Dumbauld also requested that the 60-day notice period be shortened by three days for ease in Airborne's accounting system. Dumbauld's assurances indicated to Gorman that the Airborne statement at Philadelphia about no increases, followed by increases, and Gorman Enterprises would be out on all contracts, followed by assurances that Gorman Enterprises definitely would keep its contracts if its bids were competitive, caused Gorman to conclude that, as usual, Airborne was simply trying to get the best possible deal in its contracts with Gorman Enterprises. 48. Normally, when Airborne goes out for bids on contract, it meets with the contractor after it has obtained bids and discusses with the contractor what the contractor will accept in a new contract, in light of the other bids. This had been the experience of Gorman in past situations where on occasion Airborne had sought bids before negotiating a contract. On June 15, 2001, Gorman specifically requested from Carl Dunaway, President of Airborne, that Gorman Enterprises be allowed to match bids received by Airborne on Gorman Enterprises contracts. Now Gorman wanted to know when Jim Dumbauld would want to meet with Gorman to discuss its bids. Gorman made several attempts to meet with Jim Dumbauld. Once a meeting was set and then Dumbauld cancelled it because he said that he was not yet ready to meet. Another meeting was set and when the Gorman representatives arrived at the meeting place they were told that Dumbauld had gone out of town. Airborne Continued to Urge Reliance 49. Gorman Enterprises was told not to reduce services in an attempt to reduce costs and to continue to hire and train employees. In June, local management and Jim Dumbauld continued to tell Gorman Enterprises not to inform its employees and to continue to operate as usual, that Gorman Enterprises would only hurt itself after June 30, 2001 if Gorman Enterprises lost employees and then retained its contracts. The Final False Assurance 50. On June 26, 2001, David Gorman e-mailed Mr. Dumbauld and asked that Dumbauld be honest with him about what Airborne was going to do with Gorman Enterprises so that he could arrange what Gorman Enterprises needed to arrange with its vendors and the bank. Mr. Dumbauld responded that Gorman Enterprises could keep some or all or none of the contracts but that no decision had been made yet. Airborne personnel cautioned Gorman that Gorman not tell its employees anything about possible expiration of its contracts because if Gorman Enterprises kept the contracts, Gorman Enterprises would need those employees. Gorman out of All Contracts 51. The following day, on June 27, 2001, Jim Dumbauld met for approximately five minutes with Gorman's management team and David Gorman and told Gorman that Airborne was replacing Gorman in all contracts as of June 30. 52. When Gorman gave this information to Gorman's bank, the bank reacted by calling all of Gorman's loans and withdrawing all funds in Gorman's checking account to apply on the loans. This action caused over $200,000 in checks to bounce that had been issued for payroll and vendors. 53. This fraudulent activity added in excess of $221,000 to Airborne's bottom line by fraudulently inducing Gorman Enterprises to subsidize Airborne deliveries by in excess of that amount and then terminating all of Gorman Enterprises' contracts without reimbursement to Gorman. Line Haul Contracts Terminated 54. In addition to the contracts which Gorman had with Airborne, Gorman also had three contracts with a separate subsidiary corporation called ABX Air, Incorporated to haul freight from one city to another (between distribution points). These contracts are called line haul contracts. Gorman did not request any adjustment in these contracts in 2001, and had no discussions with the personnel of ABX Air about these contracts in 2001. However, when the representatives of Airborne terminated Gorman's contracts with Airborne the Airborne representatives also terminated Gorman's line haul contracts as well thereby cutting off all of Gorman's revenue from ABX Air. Subsequent Discoveries 55. After termination, progressively it became apparent that Airborne had been working behind Gorman's back for some time, lining up contractors to take over the contracts of Gorman Enterprises while falsely assuring Gorman that his company was under consideration to keep all of its contracts. Gorman Enterprises, Inc. was urged to keep on making deliveries, training and staffing new drivers, and not informing present work force of possible changes, so that it would be able to continue servicing its contracts. 56. Airborne submitted to contractors bidding on Gorman's contracts false bid materials understating the volume of work to cause contractors to submit bids below the prices in Gorman's contracts. In informing Gorman that it was being replaced on all of its contracts Gorman was told that Airborne had received lower bids from other contractors. 57. Gorman further discovered that Airborne did not intend to give Gorman Enterprises the back pay supposedly given in Philadelphia. Airborne knew at the Philadelphia meeting that after Gorman Enterprises was terminated, Gorman Enterprises would be owed by Airborne for the last week's deliveries. Airborne's weekly payment to Gorman were in the range of $320,000. Airborne knew that it could and would withhold enough of that last week's payment to get back the $278,000 payment of "back pay" that Airborne promised to pay Gorman in Philadelphia. While Gorman believed at the Philadelphia meeting that he had actually been paid back pay in exchange for giving notice of termination on all of its contracts, in effect Gorman was only being advanced his last week's payment so that Gorman Enterprises could operate a little longer, giving Airborne time to arrange for other contractors to replace Gorman Enterprises. After Airborne had terminated all of Gorman Enterprises' contracts it did refuse to pay the final payment. Thus, Airborne got back most of this "back pay" from Gorman after they had replaced Gorman Enterprises on all of its contracts. At that time, Gorman Enterprises was owed over $214,000 for the last period of deliveries and Airborne wrongfully refused to make that payment, thereby taking back most of the contract back pay that it had represented that it was giving to Gorman Enterprises. Airborne still owes Gorman Enterprises over $214,000 for that last payment. 58. In addition, Airborne changed the date of the last day of the contract period, thereby shortening the days Gorman Enterprises was subcontracting for Airborne. This reduction of three days of pay at the adjusted rates kept $76,000 from Gorman Enterprises, in addition to the withholding of the $214,000 described in paragraph 57. Liquidation of Gorman Enterprises. 59. The next weeks were a nightmare, Gorman Enterprises having to sell vehicles and get out of lease agreements. Airborne's new contractors needed some of the facilities Gorman Enterprises leased. All but one new contractor took possession and used Gorman Enterprises' facilities, former employees and building equipment immediately on July 1. Some agreed to sublet. Some refused and met with Gorman Enterprises' leaseholders to negotiate new deals while using its facilities in the meantime. Some contractors used Gorman Enterprises' computer and equipment without paying Gorman for them and Gorman had to go repossess its property. Gorman Enterprises had agreements both verbal and written with contractors for vehicles that fell through. One contractor signed a written contract, never paid Gorman Enterprises but used the vehicles and equipment. Airborne Attempt to Take the Equity in Gorman's Vehicles 60. During this process, David Gorman had a call from Gorman Enterprises' bank to inform Gorman that Betsy Tate, the Airborne contract manager, had called the bank and tried to get the bank to cut Gorman Enterprises out of the equity in its vehicles. She stated that Airborne had a party that would buy the vehicles from the bank if the bank would foreclose on Gorman Enterprises. The assumption was that the bank would sell the vehicles at or slightly above its lien amounts. After this conversation, two of the deals Gorman Enterprises had with contractors for the purchase of vehicles fell through. Gorman Enterprises' banker refused to be a party to this scheme to deprive Gorman Enterprises of the equity in its vehicles. Airborne's False Billing 61. In the Airborne system, the majority of the compensation paid to contractors is through Airborne's extremely complicated computer system. This computer system tracks pickups and deliveries through information initially transmitted to the Airborne computers by drivers making the pickups and deliveries. This pickup and delivery information comes from an "airbill" which is a tracking label attached to each package and a "manifest" which is a list of all airbills handled by one driver on one day. The Airborne contract with contractors states that a contractor is compensated on the basis of each shipment (or airbill) handled. If a shipment is not properly credited to the contractor, the contractor is not compensated for handling it. The information transmitted by drivers to the Airborne computers is used to prepare various reports that are used to compute the compensation paid to the contractor. In the Airborne system, the individual station manager's responsibility includes assigning approved route numbers that determine whether the route is one that is automatically included by the computer in calculating payments to the contractor. If the Airborne manager does not set up the route for payment to the contractor, all revenue for shipments by that customer always goes to Airborne. 62. Underpayment of the contractor has the effect of increasing the profitability of both the individual station and of Airborne corporate. 63. In the Airborne system developed and managed by the individual defendants and others for officers and managers, the profitability of the area of responsibility for the officer or manager is a significant factor in determining the amount of quarterly bonus for that individual, affects the annual review for that individual and possibly promotion, as well as affecting the salary increase for the following year. This major financial consequence of profitability on individuals in the corporation applies to both station manager and to upper management officials. 64. Contractors are not given all of the Airborne documentation that is required in order to understand the payments to contractors and to reconcile the payments made to the work performed. 65. Thus, the Airborne system for compensating contractors, as developed and maintained by the individual defendants and others provides an opportunity and an incentive for individual Airborne officers and employees to underpay contractors by manipulating the computer system. This is what happened with the Gorman Enterprises contracts. As an example, Gorman was underpaid for work done for the Golden Valley station for one week in June 2001 for almost 9,000 shipments. Multiplied by $0.72 per shipment, Gorman was underpaid $6,600 in that one week. Preliminary analysis of earlier periods show larger amounts of shipments were not set up to be paid to Gorman. In the case of the Golden Valley station preliminary analysis shows that in January, 2001, 25.95% of the automated accounts were not set up to be paid to Gorman. In April it was 28.26%. In June it was 28.2%. 66. David Gorman subsequently learned that commencing in about March 2001, other Airborne contractors had begun investigating underpayments and other wrongful conduct by Airborne. After discovery and research began to expose the underpayment practices of Airborne, the individual defendants and others had to change its practices. The preliminary analysis for the Minneapolis station showed in January 2001, 26.19% of the automated accounts were not set up to be paid to Gorman. In April, it was 4.7%. This change was made without notice to or discussion with Gorman. As a further example, in the Golden Valley station, in April, 2001, 28.26% of the automated accounts were not set up to be paid to Gorman. Airborne changed its practice after Gorman's contract was terminated and a new contractor was brought in to replace Gorman. In August 2001, 4.4% of the automated payment accounts were not set up to be paid to the contractors. 67. Gorman discovered these false billing practices of Airborne after Gorman learned that its contracts had been fraudulently terminated by Airborne. After Gorman received reports of possible underpayments, Gorman retained a consultant to audit its Airborne receivables. The results showed that shipments on which Gorman Enterprises was entitled to payment were being reported as non-payment manifests. In addition, Airborne was not paying Gorman for shipments that by the contract it should have been paying. Airborne by various methods had been underpaying Gorman in every contract for years. Airborne could give Relief at No Cost 68. During 2001, when Gorman Enterprises was losing money rapidly and asking Airborne for adjustments to its contracts, Airborne could have given Gorman substantial assistance at no cost to Airborne. If it had just stopped the false billing practices and started paying Gorman the full compensation that Gorman was earning that alone would have been substantial relief to Gorman. Airborne could have reduced service levels and discontinued the Qwest account. Instead, Airborne continued its fraudulent underpayments of Gorman and its existing activities while Gorman was losing more and more money, until finally Gorman was out of money. Then Airborne took away all of Gorman's contracts rather than reimbursing Gorman. False Bid Packages 69. A part of Airborne's strategy for its terminating of all of Gorman's contracts and replacing Gorman with supposedly lower cost contractors was to provide fraudulent bid packages to bidders on Gorman's contracts. The fraudulent bid packages understated the actual volume of deliveries and pickup shipments causing bidders to submit unrealistically low bids. DAMAGES OF GORMAN ENTERPRISES The loss of the Business of Gorman Enterprises. 70. As of October 1, 2000, Gorman Enterprises had a very successful business, Gorman Enterprises and its predecessor had done contract work for Airborne for over 25 years. The business had steadily grown, as its size and its operation management expertise allowed it to outperform others on service and its highly efficient system had enabled it to outbid other bidders for contracts. While Gorman Enterprises' predecessor occasionally would lose a contract after one was put out for bids, it would turn around and win a replacement so the management staff, drivers and vehicles had continuity and the ability to continue in business. As a business with continuity of Airborne contracts, a fleet of over 300 vehicles, over 500 employees and operations in three Midwest states, Gorman Enterprises had a high potential for developing non-Airborne business. Gorman Enterprises had developed some non-Airborne business and had a plan for aggressively expanding its non-Airborne business. If Airborne had informed Gorman Enterprises in November that it would not pay the going cost of deliveries in Minneapolis and Golden Valley, Gorman Enterprises could have given up these contracts and continued its business performing its other contracts, and bidding on new contracts and developing its non-Airborne business. As a direct result of the actions set forth above the business of plaintiff was destroyed. Gorman Enterprises' business had a value as of October 1, 2000 in excess of $2,000,000. Non-Payment of the Contract Receivable 71. Airborne's refusal to pay Gorman Enterprises for the last week's deliveries has caused a loss of at least $214,000 plus of interest of $12,840 for July 2001 to February 1, 2002 at 9% interest for a total of $226,840. Loss on Vehicles 72. Airborne's fraud forced Gorman Enterprises to make a "fire-sale" disposition of its fleet of vehicles and other equipment, to its loss in excess of $180,000. Net Loss on Subsidizing of Airborne Contracts 73. The losses Gorman Enterprises sustained in servicing Airborne customers was subsequently partially made up by the payments made in May 2001 and thereafter, but Gorman Enterprises still has a net loss of $221,000 on the handling of Airborne business. Non-payment of this $221,000 subsidy added that amount to Airborne's bottom line. Fraudulent Underpayment of Gorman Enterprises for Deliveries 74. Airborne's deliberate underpayment of contractors, including Gorman Enterprises since October 1, 2000 for deliveries made, has caused a loss in excess of $200,000. W&G Transport, Inc. Underpayments Claim Prior to October 1, 2000, David Gorman and George Wessin were equal owner of W&G Transport, Inc. That company has been an Airborne contractor for 25 years. Gorman and Wessin had previously submitted to the District Court of Hennepin County, Minnesota, a request to have the court make a division of the company into two separate equal parts that would thereafter be operated by each of them. The Court's division was effective on October 1, 2000 and came in two orders. The second Order included a provision that any assets or liabilities not expressly allocated to Wessin or Gorman were divided equally between Gorman and Wessin: 17. All assets and liabilities of W&G that were not allocated to either Wessin or Gorman in the Original Order or this Supplemental Order shall be considered "Original W&G Business" and shall be divided equally between Gorman and Wessin. The assets allocated to David Gorman were assigned by him to his corporation, plaintiff Gorman Enterprises, Inc. Those assets were transferred by W&G Transport directly into Gorman Enterprises, Inc. When it was subsequently discovered that a claim existed for underpayments to W&G Transport, under Section 17 of the Court's Order one half of the W&G claim had been allocated to David Gorman. David Gorman similarly assigned his half of the W&G underpayments claim to Gorman Enterprises when he became aware of the claim. Gorman Enterprises now owns one-half of the underpayments claim of W&G Transport, in excess of $870,000. Airborne @ Home 75. In July 1999, Airborne announced to contractors, including Gorman Enterprises' predecessor that it had contracted to institute a new service called Airborne @ Home, which involved sorting packages and delivering the packages to US Post Offices within the contract territory. Although this was a major change in volume for contractors, Airborne did not negotiate in good faith for adjustments in the contracts of its contractors. Gorman Enterprises' predecessor and other contractors were informed that they would do this new service for a pre-set non-negotiable rate which only compensated contractors for a fraction of the cost of the new service. As an example, in the period October 2000 to June 2001, Gorman Enterprises' handled in excess of 120,000 pieces but it was only paid $ 0.20 per piece while the cost to handle each piece was $0.83. If the contractors, including Gorman Enterprises' predecessor, refused their contracts would be taken away. As a result of this arbitrary and wrongful violation of the contract Gorman Enterprises and its predecessor have sustained damages in excess of $75,000. Notice of Dispute 76. On October 1, 2001, David Gorman sent a letter to Airborne giving notice that Gorman Enterprises would pursue claims for damages against Airborne. David Gorman had subsequent discussions with Airborne which indicated that the claims of Gorman Enterprise, Inc. would not be paid. Prior Attempted Arbitration 77. Airborne's standard contract which was required to be signed by all independent contractors like Gorman Enterprises and its predecessor, provided that all claims should be submitted to arbitration, according to the rules of the American Arbitration Association ("AAA"). 78. Accordingly, Gorman Enterprises initially prepared to file its claims in arbitration. Before filing its claim, Gorman contacted the AAA about the AAA fees. Gorman Enterprises was informed that the initial filing fee would be $8,500. Because of the actions of Airborne, Gorman Enterprises was insolvent. It had liabilities of approximately $500,000 and assets having a value of approximately $137,000. Gorman Enterprises did not have the funds to cover liquidation costs, pay creditors, pay the costs of a large arbitration case and pay large administrative fees. When Gorman Enterprises informed AAA that Gorman Enterprises was insolvent, had limited and uncertain resources that were subject to the actions of creditors and was not able to pay such fees, the AAA required Gorman Enterprises to submit financial information. The AAA then indicated to Gorman Enterprises that Gorman Enterprises would need to pay $5,500 and then could proceed. In reliance of the information from the AAA, Gorman Enterprises did file its claim with the AAA on May 25, 2002 and paid $5,500 to the AAA. Airborne filed a counterclaim and the arbitration proceeded. As anticipated, over time the remaining assets of Gorman Enterprises were expended in liquidation costs, payments to creditors and arbitration expenses for legal fees, expert witness fees and other costs. However, on August 20, 2003, Gorman Enterprises was notified by the AAA that fees of $36,600 in additional fees had to be paid to AAA by August 27, 2003 or the arbitration could be suspended or dismissed. 79. On August 21, 2003, Gorman Enterprises replied to AAA that Gorman Enterprises was insolvent and could not pay $36,600. AAA notified Airborne of Gorman Enterprises' statement and inquired whether Airborne would pay Gorman Enterprises' half of the fees to keep the arbitration moving. On August 22, 2003, Airborne replied to AAA that it would not pay Gorman's half of the arbitration costs and instead asked to have the arbitration dismissed. 80. On September 5, 2003, the arbitration panel filed its order terminating the arbitration because of non-payment of fees by Gorman Enterprises. As a result, Gorman Enterprises lost the $5,500 paid to AAA, lost other costs incurred in the arbitration and lost 15 months of time in resolving its claims. 81. Had Gorman Enterprises been informed in May 2002 that an arbitration would be dismissed if Gorman was unable to pay the large fees that would eventually be required by AAA, and that Airborne would not pay the fees, Gorman Enterprises would have filed the present action at that time. Gorman would not have spent 15 months pursuing an arbitration that in reality was never accessible to Gorman and which would eventually be dismissed. Gorman Enterprises having been denied a remedy in arbitration, is entitled to maintain this action to pursue its damages claims. 82. Airborne having refused to pay the arbitration fees that Gorman Enterprises could not pay, and having urged the arbitration panel to dismiss the arbitration claim of Gorman Enterprises for non-payment, is estopped to question Gorman Enterprises' right to pursue its remedies in this civil action. FIRST CLAIM. FRAUD OF AIRBORNE 83. The affirmative representations of Airborne that it would adjust the contracts of Gorman Enterprises and would provide retroactive back pay to correct the increased costs caused by the actions of Airborne were false and fraudulent and made by Airborne with no intention of making such arrangements. The statements were made with the intent to deceive Gorman Enterprises and to induce Gorman Enterprises to continue to deliver Airborne packages at a loss as long as possible. Airborne's representatives did deceive Gorman Enterprises and induce it to act in reliance on the representations of Airborne. As a direct result of the fraud of Airborne, Gorman Enterprises has been damaged by the losses from subsidizing Airborne's deliveries the loss of its contract receivable, the loss on the liquidation of its vehicles and the loss of the value of its business, as set forth above. 84. Airborne provided statements to Gorman Enterprises, to W&G Transport, Inc. and to other contractors from Airborne's companies representing that Airborne was making all payments owing to Gorman Enterprises, W&G Transport, Inc. and other contractors for deliveries made by them. These statements and representations were false and fraudulent and were made with the intention of deceiving Gorman Enterprises, W&G and other contractors into believing that they were being fully compensated for the deliveries made by them and supposedly properly recorded by Airborne computers. These reports and representations involved material facts and were false and fraudulent and were known by Airborne to be false. The representations were made to deceive Gorman Enterprises, W&G and other contractors to accept full payment amounts less than the full amounts owed by Airborne to its contractors, including Gorman Enterprises and W&G Transport, Inc. Airborne representatives did deceive Gorman Enterprises and W&G Transport and caused them to rely on the representations of Airborne and to accept as payment less than the amounts actually owed to them by Airborne. SECOND CLAIM. AIRBORNE NEGLIGENT MISREPRESENTATION. 85. Alternatively, the false representations described in the first claim were negligently made. THIRD CLAIM. PROMISSORY ESTOPPEL 86. As set forth above, Gorman Enterprises changed its position in reliance on the promises of Airborne that Airborne would adjust the contracts of Gorman Enterprises to cover changed conditions since the inception of the contracts. Airborne is now estopped to deny the contract increases to Gorman. FOURTH CLAIM. VIOLATIONS BY THE INDIVIDUAL DEFENDANTS OF RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT, 18 U.S.C. § 1962 (c) The Acts of Racketeering/Predicate Acts. 87. The acts of racketeering were committed by the individuals named as defendants, who are or were officers and managers of Airborne. For a period beginning as early as March, 1995, the individual defendants have wrongfully implemented a concerted scheme of increasing Airborne's income and their compensation by manipulating the records of Airborne so as to understate the payments owing to Airborne contractors. The result of this scheme has been to increase both the profitability of Airborne and the resulting bonus compensation of the individual defendants. The acts include multiple and related acts of mail fraud, 18 U.S.C. § 1341 and wire fraud, 18 U.S.C. § 1343, committed in furtherance of schemes and conspiracy involving the systematic and intentional underpayment of Airborne contractors for deliveries made by them, including Gorman Enterprises and W&G Transport, Inc. The fraudulent acts also include fraudulently inducing Gorman Enterprises to make deliveries at below its cost, by representing that Airborne would adjust Gorman's contracts to make up its losses, then putting Gorman out of business. a. Acts of the individual defendants and others which were in furtherance of their schemes to defraud which depended upon or were assisted by or were incidental to essential parts of their schemes, were carried out through the use of interstate private or commercial carrier and telecommunications. The Airborne officers and managers routinely communicate within the organization and with the Airborne contractors and with prospective contractors by interstate private or commercial carrier and by telephone and by e-mail. The actions of Airborne officers and managers described in this claim statement were conducted both by interstate private commercial carrier and by telephone and by e-mail. The fraudulent underpayment of Gorman was accomplished by the manipulation of the Airborne accounting system. The Airborne accounting system relies on intensive use of interstate private or commercial carrier and telephone lines to transmit reports of activity to the Airborne headquarters in Seattle, Washington from local stations and also from the contractors and customers regarding pickups and deliveries. Reports are similarly transmitted from the Airborne headquarters to Airborne contractors like Gorman. The Airborne computer system transfers data involving the underpayment scheme o underpay contractors between Airborne headquarters and the Airborne stations by means of wire communications. Each separate communication of a false accounting report or a false representation made through the use of the telephone or by interstate private or commercial carrier constitutes a separate predicate act. As such, the individuals involved committed thousands of predicate acts involving hundreds of Airborne contractors who were the victims. Examples of acts of mail fraud and wire fraud are: (1) Gorman Enterprises and W&G Transport received false reports from Airborne by private or commercial interstate carrier that purported to compensate Gorman Enterprises and W&G Transport in full for the services performed. The Airborne computer system for managing the millions of shipments handled daily, having different pricing to customers and to contractors, is extremely complex. The computer reports that were programmed into the computer system, only some of which were given to Gorman Enterprises and W&G Transport were an essential part of the underpayment scheme. The reports caused the contractors to believe that they were receiving a detailed accounting and were being fully compensated by Airborne and permitted the scheme to continue year after year. (2) David Gorman had 8 to 10 telephone conversations with Brian Bates and 5 to 7 telephone calls with Carl Clark between January and mid-April. During each call, David Gorman received assurances that a successful outcome would be worked out with Gorman Enterprises in regards to renewing the Minneapolis and Golden Valley contracts. (3) On March 20, 2001, on a conference call, Jim Pope represented that the Golden Valley increase would be done in 7 to 10 days and could be backdated to February 1, 2001. He also went on to say that the Minneapolis increase would be done in 30 days or less. (4) On April 5, 2001, on another call with Jim Pope, he said that an increase for GVM is in order. In addition, he said that Mr. Kotz said that Golden Valley is greatly underfunded. Airborne could not replace Gorman Enterprises for less. Pope stated he was moving forward on the requests and would set up a conference call for early the next week. He stated that Minneapolis and Golden Valley were two of Airborne's most profitable stations. (5) On April 9, 2001, David Gorman sent an email to Jim Pope discussing Pope's previous agreement to back date the increase for Golden Valley to February 1, 2001 and asked for a follow-up on the approval of an increase. Jim Pope responded by stating he was looking at Wednesday of that week as a time for a call. b. It was foreseeable by Airborne and by each of the individual defendants involved that the telephone, interstate private or commercial carrier and e-mail would be used to transmit its false and fraudulent representations and reports to Gorman Enterprises and W&G Transport, Inc. Pattern of Racketeering Activity. 88. The predicate acts of the individual defendants and others were directly related. The method used to defraud was the same in each predicate act. The purposes were the same, to defraud Airborne's contractors, including W&G Transport and Gorman Enterprises. All of the individual defendants were Airborne officers and employees who committed the predicate acts over the entire six year period. The victims were the same, the contractors of Airborne. 89. The predicate acts of the individual defendants demonstrate continuity in that they began as early as November 1995. 90. The repeated fraudulent acts of all individual defendants in this action and others have continued throughout their period of employment during the contract relationships between Airborne and Gorman Enterprises and its predecessor. The Enterprise 91. From as early as November 1995 through June 30, 2001 the RICO enterprise in this case was the defendant Airborne. The enterprise was engaged in, or the activities of which affected interstate commerce, within the meaning of 18 U.S.C. §1962 (C). The individual defendants and others conducted the affairs of the enterprise through a pattern of racketeering activity. The individuals involved were involved with Airborne in various capacities over the period involved in this claim. Throughout the period of the predicate acts the defendant Airborne had continuing business involving a common purpose and was operated with continuity of structure and personnel. 92. The enterprise and the individual defendants were engaged in legitimate business activities apart from the criminal acts of wire fraud. Airborne conducted a legitimate package delivery business. The individual defendants were involved with Airborne in the legitimate business activities of Airborne. These legitimate activities were distinct and apart from the predicate offenses of wire fraud. 93. The individual defendants each actively conducted or participated in the wrongful conduct of the affairs of the enterprise, as set forth above. Injury 94. The acts of the individual defendants in submitting the fraudulent reports and representations proximately and actually caused loss to Gorman Enterprises as set forth above. FIFTH CLAIM. CONSPIRACY BY VIOLATION OF 18 U.S.C. § 1962 (d) 95. At a time in the past presently unknown to Gorman, the officers and managers of Airborne developed a practice of increasing the profitability of Airborne and in turn their bonus compensation by fraudulently underpaying Airborne contractors. This conspiracy had as its major goal and common objective to defraud contractors like Gorman Enterprises by not paying them for all work done by them. This implementation of this scheme is initiated by the station managers, who designate on new accounts what the Airborne computer systems shows as the party to be credited for the revenue on that account, i.e., the contractor or Airborne. If the code for 'Airborne' is inserted into the computer, the contractor never ever gets credit for the work done on that account. Another way that Airborne underpaid Gorman Enterprises, Inc. is by having shipments that were picked up by Gorman drivers manifested to non-Gorman stations. 96. When the station manager wrongfully codes an account so that the contractor does not get the revenue on that amount, the station manager, not only benefits personally. The station manager also benefits the regional manager, because the region is now more profitable and the bonus of the region manager is increased. In turn, the same happens to the bonuses of the upper officers of the corporation. All members of the company benefit from the fraudulent designation of Airborne to receive the revenue that should have gone to Gorman and the other Airborne contractors. 97. From time to time, new persons joined the company and other persons retired or left the employment of Airborne for other reasons and dropped out of the conspiracy. In furtherance of the conspiracy, the members engaged in wire fraud and mail fraud in submitting fraudulent information to the Airborne computer system. 98. Each member of the conspiracy understood and intended to commit wire fraud and mail fraud. The acts of the individual defendants, as set forth above, caused actual loss to Gorman. SIXTH CLAIM. FRAUD OF CERTAIN INDIVIDUALS 99. The acts of the individual defendants, Carl Donaway, President; William Ashby, vice president; Carl Rodriguez, Senior vice president of Field Services Area III; James Pope, Midwest Regional Field Services Manager; and Betsy Bacon, Manager of Cartage Contracting, as described above in the First Claim, subparagraph a, were false and fraudulent and made with no intention of making retroactive adjustments in the contracts of Gorman Enterprises, were made with the intent to deceive Gorman Enterprises, did in fact deceive Gorman Enterprises and caused Gorman Enterprises to rely on the representations of the individual defendants. As a direct result of this fraud, Gorman Enterprises was damaged as set forth in subparagraph a. SEVENTH CLAIM. FRAUD OF ALL INDIVIDUALS 100. The false and fraudulent representations of all individual defendants which are described in the First Claim, subparagraph b, were known to be false, were made with the intention of deceiving Gorman Enterprises and W&G Transport, did deceive Gorman Enterprises and W&G, and caused them to rely on the false representations. As a direct result of this fraud, Gorman Enterprises and W&G were damaged as set forth above. EIGHTH CLAIM. NEGLIGENT MISREPRESENTATIONS OF INDIVIDUALS 101. Alternatively, the false representations described in the Fourth Claim and the Fifth Claim were negligently made. NINTH CLAIM. BREACH OF CONTRACT 102. The actions of Airborne in substantially adding to the work required to be done by W&G and Gorman Enterprises without fully compensating them for the cost of performing the new work constituted bad faith breach of the contracts with W&G and Gorman Enterprises. WHEREFORE, plaintiff prays judgment against the defendants as follows: 1. Awarding damages against the defendant Airborne Express, Inc. under the First Claim, Second Claim, Third Claim and Ninth Claim. 2. Awarding damages against the individual defendants, trebled, under the Fourth Claim and Fifth Claim. 3. Awarding damages against the individual defendants Donaway, Ashby, Rodriguez, Bacon and Pope under the Sixth Claim. 4. awarding damages against the individual defendants other than Bates and Clark on the Seventh and Eighth Claims. 5. Awarding the plaintiff its costs, disbursements and reasonable attorney fees. JURY TRIAL ELECTED Plaintiff elects a trial by jury of all issues triable. POPHAM LAW OFFICE Dated: November __, 2003 By Wayne G. Popham (#87579) 33 South Sixth Street, Suite 4100 Minneapolis, MN 55402 (612) 333-7680 Attorney for Gorman Enterprises, Inc. |
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