Report: #1067119

Complaint Review: Office Depot & Officemax

  • Submitted: Mon, July 15, 2013
  • Updated: Mon, July 15, 2013
  • Reported By: Fraud Watch — New York New York
  • Office Depot & Officemax

    Boca Raton, Florida

Office Depot & Officemax Office Depot Meger with Officemax Office Depot Misleads Shareholders on Whistleblower Lawsuit Liability in SEC 10Q Filing Boca Raton Florida

*Author of original report: Lawsuit Details-WHistleblower Case Vs Office Depot

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 Does Office Depot's SEC 10Q Filing Accurately Reflect the Status and Potential Liabilities of whistle-blower lawsuit?

 Stock Market Insider Report (SMIR NY)

July 14, 2013: Office Depot (ODP NYSE) Boca Raton, FL

Recent coverage in the office supply publication Proficiency Post touches on a little known whistle-blower lawsuit peculating through the federal court system (State of California ex. el David Sherwin vs Office Depot, CV 12-9952 FMO) against office supply giant Office Depot.

 News reports indicate that former senior account manager David Sherwin blew the whistle on the company for systematically overcharging thousands of local California government agencies for office products from 2001 through 2010. A federal whistle-blower lawsuit was unsealed in 2012, and in April of 2013 Office Depot received a significant legal setback when their motions to dismiss the case were summarily denied by a federal judge. An additional motion is set to be heard on July 18, 2013, in which Depot makes one last attempt to have the case limited in scope or dismissed. Of interest to SMIR is Office Depot reporting of the lawsuit on their SEC 10Q filings under legal proceedings. Specifically, Office Depot has down played the lawsuit as "not material" despite numerous reports in the press placing potential liability in excess of $500 million. Additionally, even after Office Depot lost it's motions to dismiss on April 9, 2013, they still included them in their end of April 10Q as if no ruling had yet been made on them.

 The questions raised by Proficiency Post are important issues concerning accurate SEC filings, and bring into question whether Office Depot is down playing the potential liability of the whistle-blower lawsuit in order to smooth the way for their "Merger of Equals" with OfficeMax.


On July 30, 2013 Office Depot will release it's second quarter 2013 10Q. By then their final motion to dismiss should have been ruled on, and Office Depot will face the prospect of having to unload a bomb shell in their disclosure statement that in fact the potential liabilities are material in fact and case. Should this happen it would be quite understandable for shareholders of both Office Max and Office Depot to believe they have been misled by Office Depot. Additionally, this would bolster Starboard Value Funds drive to unseat four directors and reconstitute the entire board at August's annual share holders meeting. In any case the whistle-blower's lawsuit is sure to provide plenty of fireworks in upcoming months.
May 3, 2013, 6:01am EDT

Motions to dismiss Office Depot lawsuits denied

Shaun BevanReporter- South Florida Business Journal 

Motions filed by Office Depot to dismiss lawsuits filed by whistleblowerDavid Sherwinand the state of California were denied, according to court documents.


The lawsuits allege that Office Depot used two price plans for a U.S. Communities contract and did not give the lowest price point for office supplies to government agencies.


A California judge has denied motions by Office Depot to dismiss a lawsuit filed by whistleblower and former Depot employee David Sherwin and the state of California.


The lawsuits, revealed to the public in October, pertains to allegations that Office Depot used two pricing plans on a US Communities contract with local government agencies and that the company did not give the agencies the lowest price point for office products.

Office Depot in its first quarter 10-Q filing with the Securities and Exchange Commission said that it had filed motions to dismiss the lawsuits, but court documents filed on April 9 said that the motions were denied without prejudice. According to the court documents, a scheduling conference and hearing on Office Depot's motion to dismiss Sherwin's lawsuit will remain on the calendar.

In the 10-Q filing, Office Depot that it intends to "vigorously" defend itself in the lawsuits, and also mentioned that adequate provisions have been made for probable losses on one of the claims.


Several local government agencies have accused Office Depot of overcharging it for office supplies. Late last year, the city of Houston alleged that Office Depot overcharged it by as much as $6.6 million.


Office Depot (NYSE: ODP) has denied these allegations in several cases even though it was required to refund $1.7 million to the city of Dallas and $4.5 million to Florida for overcharges.


Arizona's Maricopa County in October also demanded a refund of $5.3 million in overcharges.



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#1 Author of original report

Lawsuit Details-WHistleblower Case Vs Office Depot

AUTHOR: Fraud Watch - ()

(((link redacted))) State of California ex. rel David Sherwin v. Office Depot, Inc. 09 May '13 California State of California ex. rel David Sherwin v. Office Depot, Inc., Case No. BC 410135 (Los Angeles County Superior Court): In 2009, David Sherwin, a former Account Manager III at Office Depot’s Business Solutions Division, filed under seal a qui tam action on behalf of the State of California alleging that Office Depot violated the California False Claims Act, Government Code section 12650 et seq (CFCA), by overcharging for office and classroom supplies pursuant to a contract with the U.S. Communities Government Purchasing Alliance (U.S. Communities).

The court recently unsealed the action, and public entities on whose behalf Sherwin brought the action intervened and filed their own complaints in intervention largely adopting the relator’s original allegations and adding claims for breach of contract and fraud. The complaints in intervention allege that U.S. Communities selected Los Angeles County to negotiate and manage on its behalf a contract with Office Depot pursuant to which state and local public entities purchased office and classroom supplies from Office Depot (USC Contract) and Office Depot earned $122 million in annual revenue. Intervenors allege five different practices by which Office Depot overcharged the public entities pursuant to the USC Contract. First, the USC Contract guaranteed the public entities “most favored public entity” pricing, fixed price discounts and protections against price increases.

The public entities relied on these guarantees both in their marketing of the USC Contract and adoption of it without competitive bidding. However, Office Depot negotiated separate contracts with other public entities outside U.S. Communities at prices lower than those charged pursuant to the USC Contract. Office Depot did not incorporate these lower prices into the USC Contract. Second, Office Depot marketed an alternative pricing model under the USC Contract that it knew was more expensive than the USC Contract’s original pricing model, and sometimes switched the public entities to the more expensive model without their knowledge or consent.

Third, Office Depot overstated its costs for certain items, allowing it to charge the public entities its minimum “floor” price for those items, when it should have charged them its normal discount price. Specifically, Office Depot padded its invoiced cost from the manufacturer with other costs and failed to factor in manufacturer rebates that it received for the items. Fourth, Office Depot increased its list prices more than twice a year, as permitted by the USC Contract. Finally, Office Depot improperly discontinued heavily discounted items knowing that the public entities would order the same items at the more expensive discounted wholesale price.

According to the complaints in intervention, the above five practices rendered the claims that Office Depot presented to the public entities pursuant to the USC Contract false and fraudulent in violation of the CFCA. Further, the public entities allege that Office Depot knowingly failed to disclose material facts in order to obtain payment and approval from the public entities, and knowingly made and used false records and statements, which omitted material facts in order to induce the public entities to pay the false and fraudulent claims. The public entities seek three times the amount of damages that they sustained and a $10,000 penalty for each false claim.

On February 8, 2013, Office Depot moved to dismiss Sherwin’s and Intervenors’ CFCA and fraud claims on the grounds that they failed to allege false claims or comply with the particularity requirements of Federal Rule of Civil Procedure 9(b). Office Depot also moved to dismiss Intervenors’ breach of contract claims. The parties fully briefed the motion, and, on April 22, 2013, three days before the hearing date, the court denied the motion without prejudice. Complaint Filed in Los Angeles Superior Court Wednesday, 31 October 2012 05:00 Office Depot Whistleblower Lawsuit Alleges Millions of Dollars in Billing Fraud By Matt O'Donnell (LEGAFI) --

According to a 2009 whistleblower lawsuit unsealed last week, retailer Office Depot overcharged dozens of government agencies by millions of dollars for pens, ink, furniture and other goods under a series of office supply contracts. The claims in the Office Depot whistleblower lawsuit were made by David Sherwin, a former senior Office Depot salesman who handled government contracts. Sherwin claims Office Depot intentionally misapplied discounts and charged prices in violation of its agreements. He also alleges the company failed to fulfill its lowest-price guarantee and switched some customers to an alternate pricing plan without telling them it would cost them more money.

Several state governments and organizations have gone after Office Depot over the last two allegations. Attorney generals in Florida and Colorado reached a combined $6.3 million settlement with Office Depot over the plan-switching allegation. In 2011, Dallas County demanded $1.8 million from Office Depot for not offering its lowest prices through the contract, and earlier this year, Detroit Public Schools reached an undisclosed settlement with Office Depot after claiming it was overcharged at least $1 million more than the company’s lowest prices. Earlier this month, Maricopa County, Arizona, announced it is seeking $5.4 million after finding Office Depot changed prices without authorization and didn’t offer its lowest prices.

Office Depot has not admitted any wrongdoing in reaching these settlements. The retailer also disputes the claims raised in Sherwin’s whistleblower lawsuit, saying he is a disgruntled employee who was fired in April 2008 for sending a profane and threatening email to company executives. Sherwin says he repeatedly warned company officials about overcharging before being fired, and began emailing, faxing and calling hundreds of the company’s customers to tell them to audit their contracts after he was fired. Some of the companies he warned are now funding his whistleblower efforts, according to reports. Sherwin’s case is known as a qui tam lawsuit, or whistleblower lawsuit, which allow private citizens to sue on the governement's behalf if a company is overcharging the government. Qui tam lawsuits start in secret and remain sealed until the government investigates the claims and attempts to reach a settlement. Sherwin stands to receive nearly 30% of any money the government recovers from Office Depot’s alleged overcharges.

(((link redacted))) Multistate False Claims Act Suit Vs Office Depot for Defrauding States and Localities On November 1, 2012 · In State False Claims Acts In an ongoing, multi-state lawsuit stemming from a qui tam (whistleblower) complaint filed under the False Claims Act by a former employee of the company, Office Depot faces myriad allegations of overcharging various government agencies for provision of office supplies pursuant to government contracts. Office Depot has an arrangement whereby it contracts with governments in numerous jurisdictions, as well as non-profit agencies. The complaint of the whistleblower, David Sherwin, focuses on a contract that was in place between Office Depot and roughly 10,000 government and non-profit entities nationwide between 2006 and 2010.

Purchases under the contracts totaled $3.6 billion. Government auditors and investigators in several states are reviewing the allegations in the whistleblower complaint. Office Depot’s contract is negotiated via a Bay Area co-op called the U.S. Communities Government Purchasing Alliance; the largest governments that participate in the co-op conduct a competitive bid process, and other entities may then exercise the option of purchasing supplies under the pre-negotiated agreement. Sherwin’s complaint, in addition to the allegations of fraud, also alleges that he was fired by Office Depot in retaliation for raising concerns about the conduct. If Sherwin prevails, Office Depot will be liable for treble damages under the False Claims Act and a hefty civil penalty of up to $11,000 for each alleged violation.

Sherwin stands to recover an award of perhaps as high as 30% of any final judgment or settlement in the case. The lawsuit claims Office Depot intentionally misapplied discounts and changed prices in violation of its agreements. Moreover, the company is alleged to have failed to fulfill lowest-price guarantees and switched some buyers to alternate pricing options without disclosing that the change would likely end up costing more money. In 2009, Congress passed the Fraud Enforcement and Recovery Act (“FERA”), a statute that has turned the False Claims Act into a more capacious vehicle for whistleblowers to bring claims of fraud. Amendments to the law brought about by passage of the Patient Protection and Affordable Care Act (“PPACA”) further expanded the scope of the law’s reach. Since fraud is often perpetrated in a way that makes the conduct difficult to detect, suits brought by private whistleblowers under the False Claims Act have been the primary means of recovery for the federal government in cases of fraud and abuse. Thirty states have enacted their own false claims acts, and the governments of New York City, Chicago, Philadelphia, and Allegheny County, Pennsylvania have as well. (((link redacted)))

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