Office Depot Starboard Value Fund, Officemax Office Depot Hides Whistleblower Lawsuit Liabilities from Starboard Value Fund and Office Max Boca Raton Florida

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.