19910320a Federal Express First Amended Complaint

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Jr. PATRICIA CULLISON RICHARD P. WALKER BRONSON, BRONSON & McKINNON 505 Montgomery street San Francisco, California 94111-2514 Telephone: (415) 986-4200 GILMORE F. DIEhMANN,

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Fax:

(41S) 982-1394

Attorneys for Plaintiff FEDERAL EXPRESS CORPORATION

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UNITED STATES DISTRICT COURT

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NORTHERN :DISTRICT OF CALIFORNIA

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FEDERAL EXPRESS CO

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NO.

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HAMILTON T CONNIE C. REMINGTON

T AMENDED COMPLAINT R: 1. Breach of contract . J2. Breach of Fiduciary Duty ·)3. Breach of Agency Duties 4. Breach of Implied

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v.

FOWLES I S GRAMBLING I

& COMP TRONG I

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S. INC., RICHARD

N LAU, CHRISTINE) BARRY MORGAN, AL MAY,)

ED HARGIS, VICKY DIMALANTA, DRESDNER ENTERPRISES, INC., DRESDNER PETROLEUM, H.I. INTERNATIONAL, C.R. ACQUISITIONS, INC., and KNIGHTSBRIDGE, 20

)

FI

Covenant 5. Negligence 6. Negligent MisrepreJ sentation ~ 7. Fraud 8. Conversion ) 9. Violation of Racketeer )~c' Influenced and Corrupt Defendants. ________________________________ ) organizations Act

21

) ) ) ) ) )

(18 U.S.C. §§1961 et 2mL..)

22

10. Unfair Business Practices . 11. False and Misleading Advertising 12. Constructive Trust 13. Accounting 14. Money Had and Received 15. Declaratory Relief 16. Injunction

23 24 25 26

27

DEMAND FOR JURy TRIAL

28

1ST AMENDED COMPLAINT

1 2

Plaintiff Federal Express Corporation ("Federal Express II)

alleges as follows:

3

THE PARTIES

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1.

organized and existing under the laws of the state of Delaware with its principal place of business in Memphis, Tennessee.

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Plaintiff Federal Express is a corporation duly

2.

Plaintiff is informed and believes and thereon alleges

that defendant Hamilton Taft

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Company (nHamilton Taft") is a

California corporation with its principal place of business in

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San Francisco, California.

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interstate commerce.

Hamilton Taft is engaged in

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that defendant Connie C. Armstrong, Jr. (IIAnnstrong")

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chairman and majority shareholder of Hamilton Taft, and is a

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resident of Dallas and a citizen of the state of Texas.

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Plaintiff is informed and believes and thereon alleges is the

Plaintiff is informed and believes and thereon alleges

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~hat

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corporation with its principal place of business in Dallas,

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Texas, and is a holdinq... company for Armstrong I s interests.

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defendant Remington Cos. Inc. (I'Remington ft ) is a Texas

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5.

Plaintiff. is informed and believes and thereon alleges

21

that defendant Richard Fowles (IiFowles") was president of

22

Hamilton Taft from March 1989 through September 1990, executive

23

vice president of Remington from October 1990 until January 1991,

24

and chief financial officer of Hamilton Taft thereafter.

25 26

27

28

Plaintiff is informed and believes and thereon alleges that Fowles resides in California. 6.

Plaintiff is informed and believes and thereon alleges

that defendant steven Lau ("Lau") was a'vice president and 1ST AMENDED COMPLAINT 2

1

director of Hamilton Taft at times relevant herein, and resides

2

in the state of California.

3 .4

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Plaintiff is informed and believes and thereon alleges

that defendant Christine Grambling ("Gramblingll) was president of

5

Hamilton Taft from September 1990 until January 1991, and is and

6

was a resident and citizen of "the state of Texas.

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Plaintiff is informed and believes that defendant Barry

8

Morgan ("Morgan") was chief accountant for Remington and

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performed accounting functions for Hamilton Taft.

Plaintiff is

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informed and believes and thereon alleges that Morgan is and was

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a resident and citizen of the state of Texas.

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that defendant Al May was at all relevant times vice president of

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operations for Hamilton Taft, and is and was a citizen and

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resident of the state of California.

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Plaintiff is informed and believes and thereon alleges

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Plaintiff is informed and believes and thereon alleges

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that defendant vicky Dimalanta was at all relevant times an

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officer of Hamilton Taft and resides in California.

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Plaintiff is informed and believes and thereon alleges

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that defendants H.I. International and C.R. Acquisitions, Inc.

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are entities owned or controlled by, and affiliated with,

22

Armstrong and his affiliated entities.

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12.

Plaintiff is informed and believes and thereon alleges

24

that defendant Ed Hargis' (I'Hargislf) was at all relevant times

25

president of Dresdner Petroleum, and is and was a resident and

26

citizen of the state of Texas.

27

28

13.

Plaintiff is informe,d and believes and thereon alleges

that defendants Dresdner Enterprises, Inc. and Dresdner Petroleum 1ST AMENDED COMPLAINT 3

1

(collectively "Dresdner") are Texas entities with their principal

2

place of business in Dallas, Texas, and are owned or controlled

3

by, and affiliated with, Armstrong and his affiliated entities. 14.

Plaintiff is informed and believes and thereon alleges

5

that defendant Knightsbridge (l'Knightsbridge") is a Texas entity

6

with its principal place of business in Dallas, Texas, and is

7

owned or controlled by, and affiliated with, Armstrong and his

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affiliated entities.

9

15.

Plaintiff is

inf~rmed

and believes and thereon alleges

10

that at all times herein mentioned, each of the defendants was

11

the agent of each of the other defendants and in doing the things

12

hereinafter mentioned was acting within the scope of such agency

13

and with the permission, authority and consent of the other

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defendants.

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16.

There exists, and at all times herein mentioned there

16

existed, a unity of control, interest and ownership among

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defendants Armstrong, Hamilton Taft, Remington, Dresdner, H.I.

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International, C.R. Acquisitions and Knightsbridge (collectively

19

the tlAnnstrong Defendants ll ) , such that any individuality and

20

separateness of the Armstrong Defendants has ceased and each of

21

these defendants is the alter ego of each other.

22

the fiction of the separate existence of the

23

would permit an abuse of the corporate privilege and would

2.4

sanction injustice.

25

Armstr~ng

Defendants

Each may be held responsible for the acts of

the others.

26

JURISDICTION AND VENUE

27 28

Adherence to

17. 2B

u.s.c.

This Court has

subj~ct

matter jurisdiction pursuant to

§§1331 and 1332, 18 U.S.C. §§1964 (a) et ~, and the'

1ST AMENDED COMPLAINT 4

1

doctrine of

2

exceeds the sum or value of Fifty Thousand Dollars ($50,000.00),

3

exclusive of interest and costs •

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penQ~nt

Ven~e

jurisdiction.

is proper in this judicial district pursuant to

5

28 U.s.c. §§1391(b) and (c) and 18 U.S.C. § 1965, because

6

defendants do business and transact their affairs and the claims

7

herein arose in this judicial district.

8 9

Pursuant to this contract, Federal Express agreed to periodically

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transfer its employee payroll taxes to Hamilton Taft, and

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Hamilton Taft agreed to prepare and file all of Federal Express's

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payroll tax reports with appropriate tax authorities (including

15

the Internal Revenue Service and state and

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agencies), and to disburse Federal Express's payroll taxes to

17

taxing authorities when due.

18

these services, Hamilton Taft was permitted to earn interest on

19

the money advanced to it by Federal Express between the date

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advanced and the date the funds were due.

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to timely pay Federal Express's taxes, as well as any penalties

22

which resulted from Hamilton Taft's acts or omissions.

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In January of 1990, Federal Express entered into a

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written payroll tax service contract with Hamilton Taft.

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GENERAL ALLEGATIONS

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The amount in controversy

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taxing

As consideration for performing

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On or about March

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Hamilton Taft promised

1991, Federal Express was informed

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by former Hamilton Taft controller Steve Soledoff that defendants

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were engaged in a massive scam involving tax fraud and other

26

misconduct.

27

defendants were not disbursing Federal Express's taxes to taxing

28

authorities when due.

Plaintiff was informed that, among other things,

1ST AMENDED COMPLAINT 5

1

21.

2

that rather than pay Federal Express's payroll taxes when due

3

"with the money transferred for that purpose, defendants held such

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money for an additional period of time.

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and believes and thereon alleges that defendants, at times, used

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funds belonging to other Hamilton Taft clients to pay Federal

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Express's taxes and any penalties for late payments; at other

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~times,

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Plaintiff is informed

defendants used funds belonging to Federal Express to pay

the taxes and penalties of' Hamilton Taft's other clients. I

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Plaintiff is informed and believes and thereon alleges

Plaintiff is further informed and believes that some of Federal

Express's taxes were never paid, and penalties may

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accruing.

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that some of Federal Express's funds were misappropriated "and

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diverted by defendants to their own use and that some of

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plaintiff's fupds were invested in high-risk, non-liquid loans.

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Plaintiff is informed and believes and thereon alleges

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FIRST CAUSE OF ACTION

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(Breach of contract Against the Armstrong Defendants Only)

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Plaintiff real leges and incorporates by reference

paragraphs 1 through 22, inclusive. 24.

Defendants· conduct constitutes a breach of the payroll

tax service contract. 25.

Federal Express has performed all conditions and

24

covenants on its part to be performed under the payroll tax

25

service contract, except those conditions or covenants excused or

26

prevented by defendants' breach and the wrongful acts and

27

omissions described herein.

28

1ST AMENDED COMPLAINT 6

1

26.

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Defendants have further breached the contract by not

providing plaintiff full access to plaintiff's tax records in

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defendants' possession, custody or control •

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As a direct and proximate result of defendants' breach

of contract, plaintiff has suffered damages in an amount to be

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proved at trial.

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SECOND CAUSE OF ACTION

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(Breach of Fiduciary Duty Against the Armstronq Defendants Only)

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Plaintiff realleges and incorporates by reference

paragraphs 1 through 27, inclusive.

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of their relationship, defendants owe plaintiff a fiduciary duty

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of good faith, integrity and fair dealing.

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Federal Express placed extreme trust and confidence in

defendants that they would perform their obligations.

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Plaintiff is informed and believes and thereon alleges

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that defendants breached their fiduciary obligations by failing

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to make tax payments, representing that taxes had been timely

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paid when in fact they were not, misapplying or misappropriating

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Federal Express I s funds:; and failing to invest funds as a

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reasonably prudent investor would invest his or her own money.

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Defendants further breached thefr f.iduciary obligations by

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refusing to provide Federal ExPress immediate and full access to

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all documents and information in defendants' possession, custody

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or control relating to Federal Express's payroll taxes and funds_

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31.

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As a direct and proximate result of defendants I breach

of fiduciary duty, plaintiff has suffered damages in an amount to I

be proved at trial. 1ST AMENDED COMPLAINT 7

1

THIRD CAUSE OF ACTION

2

(Breach of Agency Duties Against the Armstrong Defendants Only)

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32.

Plaintiff realleges and incorporates by reference

paragraphs 1 through 31, inclusive. 33.

Pursuant to the written payroll tax service contract,

defendants became plaintiff's agent. 34.

Pursuant to its agency relationship, defendants owed a

duty of loyalty to Federal·Express.

This duty of loyalty

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required defendants to disburse Federal Expressls payroll taxes

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to taxing authorities, to do so in a timely manner, and to

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refrain from administering Federal Express l s funds in a manner

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harmful to Federal Express's interests.

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defendants owed plaintiff a duty to refrain from making

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investments with Federal Express's funds, or investments which

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might expose Federal Express to tax penalties.

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owe a duty to Federal Express to provide immediate and full

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access to any and all documents and information in defendants'

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possession, custody or control relating to Federal Express's

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payroll taxes and funds.

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Among other things, imprud~nt

Defendants also

Defendants' conduct constitutes a breach of their

agency duties. 36.

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a direct and proximate cause of defendants' breach -.

of their agency duties, plaintiff has suffered damages in an

amount to be proved at trial.

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1ST AMENDED COMPLAINT 8

FOURTH CAUSE OF ACTION 2

(Breach of the Covenant of Good Faith and Fair Dealing Against

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Plaintiff realleges and incorporates by reference

paragraphs 1 through 36, inclusive .. 38.

Implied in the tax service agreement is a covenant of

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good faith and fair dealing whereby defendants were obligated not

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to take any actions which would deprive plaintiff of the benefits

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of the contract and to do everythihq which the contract

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presupposed defendants would do to accomplish the contract's

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purpose.

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timely disburse

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taxing authorities, and in misapplying, misappropriating, or

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otherwise misusing plaintiff's funds as herein alleged.

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Defendants breached this implied covenant by failing to p~aintiff's

payroll taxes to the appropriate

As a proximate result of defendants· breach of the

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implied covenant of good faith and fair dealing, plaintiff has

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been damaged in an amount to be proved at trial.

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FIFTH CAUSE OF ACTION

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(Negligence Against'All Defendants)

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40.

Plaintiff realleges and incorporates by reference

paragraphs 1 through 39, inclusive. 41.

By agreeing to pay Federal Express's payroll taxes, and

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to do so in a timely manner, defendants assumed a duty to Use

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such skill, prudence and' dil~gence as other members of

25

defendants. profession and business commonly possess and

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exercise. 42.

By failing to make ~imely payments to the appropriate

tax authorities and by imprudently using plaintiff's funds, 1ST AMENDED COMPLAINT 9

1

2 3 .4

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defendants have breached that duty.

have known, that Federal Express would be injured by defendants' acts and omissions .

43.

As a direct and proximate result of defendants'

negligence, Federal Express has suffered damages in an amount to be proved at trial.

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Defendants knew, or should

SIXTH CAUSE OF ACTION (Negligent Misrepresentation Against All Defendants) 44.

Plaintiff realleqes and incorporates by reference

paragraphs 1 through 43, inclusive. 45.

Defendants, at the time they entered into the tax

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service agreement and thereafter, represented to Federal Express

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that they would pay Federal Expressls payroll taxes in a manner

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that did not and would not harm or injure plaintiff's interests

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or subject these interests to undue risk.

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reasonable grounds for believing that these representations were

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true when made.

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Defendants had no

Defendants' representations that they would pay Federal

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Express's payroll taxes in an appropriate manner were made with

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the intent that Federal Express rely on the

representatio~s.

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Federal Express was unaware that the representations were false

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and, believing them to be true, was induced to enter into the tax

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service contract and to advance and continue" advancing its

2.4

payroll taxes to defendants.

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47 •. As a direct and proximate result of defendants· negligent misrepresentations, Federal Express has suffered

damages in an amount to be proved at trial.

28

1ST AMENDED COMPLAINT 10

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oppressive, and done with the intent to injure plaintiff or with

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reckless disregard of its consequences to plaintiff, and

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justifies an award of exemplary damages.

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Federal Express's payroll taxes, and in an appropriate and timely

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manner and in a manner that did not and would not expose

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plaintiff to undue risk.

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Defendants, at the time they entered into the tax

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Plaintiff realleqes and incorporates by reference

paragraphs 1 through 48, inclusive.

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CAUSE OF hCTION

(Fraud Against All Defendants)

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Defellu.ants· conduct was willful, malicious and

Plaintiff is informed and believes and thereon alleges

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that when defendants made the above representations, they knew

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them to be false, made "them with the intent to defraud and

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deceive plaintiff, and made them without intending to perform

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them.

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52.

Plaintiff was ignorant

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the falsity of defendants'

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representations and reasonably believed them to be true.

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justifiable reliance upon those representations, plaintiff was

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induced to enter into the tax service contract and to advance

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funds and continue advancing'funds to defendants.

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53.

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As a direct and proximate result of defendants' fraud,

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plaintiff has suffered damages in an amount to be proved at

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trial.

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54.

Defendants' conduct was fraudulent, willful and

oppressive, and plaintiff is entitled to exemplary damages. 1ST AMENDED COMPLAINT

11

1

EIGHTH CAUSE OF ACTION

2

3 .d

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(Conversion Against All Defendants). 55.

Plaintiff realleges and ·incorporates by reference

paragraphs 1 through 54, inclusive. 56.

At all times herein mentioned, plaintiff had, and

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continues to have, the right to possession and ownership of the

7

funds conveyed to defendants for payment of Federal Express's

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payroll taxes.

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57.

Plaintiff is informed and believes and thereon alleges

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that defendants wrongfully converted plaintiff's funds for their

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own purposes.

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it has conveyed to defendants, as well as the immediate return of

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all such funds still in defendants' possession or control or the

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payment of those funds to the appropriate tax authorities.

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Defendants have refused to comply with these requests.

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As a proximate result of defendants' conversion,

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plaintiff has been damaged in an amount to be ascertained at

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trial.

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60.

Defendants' c:onduct was willful, malicious and

oppressive and justifies an award of

exemp~ary

damages.

22

NINTH CAUSE OF ACTION.

23

(Violation of RICO, IS U.S.C. §1961 et seq. Aga~nst All Defendants)

24 25 26

27 28

61.

Plaintiff realleges and incorporates by reference

paragraphs 1 through 60, inclusive. 62.

Plaintiff is informed and believes and thereon alleges

that defendants misappropriated and converted plaintiff's funds 1ST AMENDED COMPLAINT 12

1

to their own use, failed to pay amounts due to taxing

2

authorities, and misrepresented to plaintiff that its tax

3

payments were

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§134~,

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own personal benefit and carried out their scheme by means of the

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united states mails.

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Such conduct was in violation of

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in that defendants used Federal Express's funds for their

63.

Plaintiff is informed and believes and thereon alleges

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that, as a part of defendants· fraudulent scheme, defendants

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mailed checks across interstate lines and communicated with

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Federal Express that payments were made, when in fact such

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payments had not been made and defendants had converted or

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misappropriated federal Express's funds.

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and believes and thereon alleges that defendant engaged in

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similar conduct and predicate acts with respect to other

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customers of Hamilton Taft.

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Plaintiff is informed and believes and thereon alleges

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that the foregoing activities are continuous and related, and

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constitute a pattern of racketeering activity within the meaning

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of 18 U.S.C. §1962(c).

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believes that this pattern caused injury to plaintiff and others.

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65.

As

Plaintiff is further informed and

a proximate result of defendants· pattern of

22

racketeering activity, plaintiff is informed and believes that it

23

has incurred damages consisting of, among other things, exposure

2.4

to penalties for failure" to pay taxes when due, and liability for

25

taxes that defendants failed to pay.

26

66.

As a direct and proximate result of defendants'

27

conduct, plaintiff is entitled to recover treble damages from

28

defendants in an amount to be determined at trial. 1ST AMENDED COMPLAINT 13

1

TENTH CAUSE OF ACTION

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(Unfair Business Practices Against All Defendants)

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Defendants' acts, omissions and representations

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the California Business and Professions Code.

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paragraphs 1 through 66, inclusive.

constitute unfair business

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practic~s

in violation of §17200 of

As a direct and proximate result of defendants' unfair

business practices, plaintiff has suffered damages in an amount to be proved at trial.

11

ELEVENTH CAUSE OF ACTION

12

(False and Misleadinq Advertising Against All Defendants)

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70.

Plaintiff realleges and incorporates by reference each

alleqation in paragraphs 1 through 69, inclusive.

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71.

Defendants' conduct and representations constitute

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false and misleading advertising in violation of §17500 of the

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California Business and Professions Code.

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72.

As a direct and proximate result of defendants' false

20

and misleading advertising, plaintiff has suffered damages in an

21

amount to be ascertained at trial.

22

TWELFTH CAUSE OF ACTION

23

(constructive Trust, Against the Armstrong Defendants Only)

2.4

25 26 27 28

73.

Plaintiff real leges and incorporates by reference

paragraphs 1 through 72, inclusive. 74.

By virtue of the wrongful acts described above,

defendants have been unjustly enriched and hold plaintiffs 1ST AMENDED COMPLAINT 14

1

2

THIRTEENTH CAUSE OF ACTION

.4

(Accounting, Against the Armstrong Defendants Only)

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75.

Plaintiff realleges and incorporates by reference

paragraphs 1 through 74, inclusive. 76.

Plaintiff has demanded, and is entitled to, a full

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accounting of all monies paid by defendants to tax authorities on

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plaintiffts behalf, and immediate and full access to all records

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in defendants' possession, custody, or control relating to

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plaintiff's monies and payroll taxes.

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provide such an accounting or full access to the records •

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trustees for plaintiff.

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funds, as well as any proceeds of those funds, as constructive

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FOURTEENTH CAUSE OF ACTION

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(Money Had And Received, Against the Armstrong Defendants only)

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Defendants have refused to

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Plaintiff realleges and incorporates by reference ~

through 76, inclusive.

Plaintiff is informed and believes and thereon alleges

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that defendants are indebted to plaintiff "in the amount of

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plaintiff's unpaid tax liabilities and penalties, if any, in an

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amount which is presently unknown but which will be ascertained

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at trial.

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79.

Neither the whole nor any part of this sum has been

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paid despite demand therefor.

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taxes and penalties is now due and owing to plaintiff.

The amount of any such unpaid

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1ST AMENDED COMPLAINT 15

1

FIFTEENTH CAUSE OF ACTION

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(Declaratory Relief Against the Armstrong Defendants Only)

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paragraphs 1 through 79, inclusive.

81.

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injuries caused by defendants' conduct. jUdicial declaration that

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tax liabilities, including penalties.

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express indemnity is enforceable

and that defendants must indemnify Federal Express for any unpaid

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Plaintiff seeks a

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(Injun~tion

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Against All Defendants)

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Plaintiff is entitled to injunctive relief restraining

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defendants from destroying or otherwise disposing or altering

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plaintiff's tax records and other documents and information in

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defendants' possession, custody or. control concerning the use and

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transfer of plaintiff's tax funds.

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injunctive relief restraining defendants from continuing their

22

wrongful course of conduct described above, and ordering

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defendants to immediately provide plaintiff full access to all

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documents and information in defendants' possession, custody or

25

control concerning Federal Express1s payroll taxes and funds.

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Plaintiff is also entitled to

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WHEREFORE, plaintiff prays for relief as follows:

27

1.

28

For an injunction r 7straining defendants from

destroying, removing or altering all documents and information 1ST AMENDED COMPLAINT 16

1

concerning Federal Express's payroll taxes and funds in

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defendants' possession, custody or control and affording Federal

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Express immediate and full access to such documents and

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information:

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2.

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i~ediately

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account of Federal Express;

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For an injunction requiring defendants to return to Federal Express any and all sums held for or on

For an injunction ordering defendants to cease using

plaintiff's payroll tax funds as part of defendants· scheme, or for any wrongful purpose, pending trial;

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4.

For compensatory damages according to proof;

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5.

For treble damages pursuant to 18 U.S.C. §1964(c);

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For exemplary damages in a sum sufficient to deter

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defendants from similar conduct in the future; 7.

For attorneys' fees and costs of suit incurred herein

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pursuant to contract and 18 U.S.C. §1964(c); 8.

For an accounting of all monies paid by defendants to

tax authorities on behalf of Federal Express;

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9.

For such other and further relief as this court deems "

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appropriate.

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Dated:

March 20, 1991

BRONSON, BRONSON & McKINNON

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BY:it:!.{~~

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Attorneys for Plaintiff FEDERAL EXPRESS CORPORATION

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1ST AMENDED COMPLAINT 17

1

JURy DEMAND

2

Plaintiff Federal Express hereby demands trial by jury.

3

Dated:

March 20, 1991

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BRONSON, BRONSON & McKINNON

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By:

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Attorneys for Plaintiff FEDERAL EXPRESS CORPORATION

RI~WALKER

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1ST AMENDED COMPLAINT 18