Free Motion for Reconsideration - District Court of Federal Claims - federal

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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN MONTANA FOOD DISTRIBUTORS ASSOCIATION, on behalf of themselves and all others similarly situated, Plaintiff, v. INTERNATIONAL OUTSOURCING SERVICES, LLC; INMAR, INC.; CAROLINA MANUFACTURER'S SERVICES; and CAROLINA SERVICES, Defendants.

Case No.:

08-C-0457

IOS' BRIEF IN SUPPORT OF MOTIONS TO STAY PROCEEDINGS PENDING OUTCOME OF THE PARALLEL CRIMINAL PROCEEDING AND TO ENLARGE TIME TO ANSWER OR OTHERWISE PLEAD

INTRODUCTION Plaintiff Montana Food Distributors Association ("Montana Foods"), brought this putative class action alleging several claims against International Outsourcing Services, LLC ("IOS") and other defendants. The principal claims and underlying facts at issue in this case are intertwined with the claims and facts of a parallel criminal case pending against former officers and employees of IOS. Because this case closely parallels the criminal case, and IOS cannot effectively defend itself without input from the indicted former officers and employees, IOS would be unfairly burdened if this case proceeds now. Therefore, this lawsuit should be stayed pending resolution of the parallel criminal proceeding.

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FACTS On May 22, 2008, plaintiffs filed this civil class action complaint ("Complaint") alleging breach of fiduciary duty, conspiracy to breach fiduciary duty, violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"), violations of the Sherman Act, as well as common law fraud, conspiracy to defraud, and unjust enrichment. (Complaint, ¶ 1.) The defendants named in the complaint consist of four corporate parties, including IOS. (Complaint, ¶¶ 3-4.) Before Montana Foods brought this suit, on March 6, 2007, the Grand Jury in the United States District Court for the Eastern District of Wisconsin indicted IOS and eleven individual defendants who are former officers and employees of IOS with several allegations, including wire fraud, conspiracy to commit wire fraud, violations of RICO and conspiracy to obstruct justice based on an alleged coupon fraud scheme. The Grand Jury later issued a superseding indictment

dismissing IOS from the indictment but maintaining the allegations against the individual defendants. A true and correct copy of the December 5, 2007 Superseding Indictment is attached hereto as Exhibit A. ("Superseding Indictment.") The allegations in the Montana Foods Complaint assert facts that significantly overlap with the pending criminal proceeding and relate to subject matter significantly intertwined with the criminal case. All of the pertinent

witnesses from IOS with knowledge of the facts concerning these allegations are premised on, and who would have to testify as to these facts in order for IOS to

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appropriately answer and mount a defense, are currently indicted.

These key

witnesses will not be able to testify in this civil suit without waiving their constitutionally guaranteed Fifth Amendment privilege, subjecting them to the substantial risk that their testimony could be used to aid in the criminal prosecution against them. If they choose to exercise their Fifth Amendment rights, as they are likely to, then IOS will have not have an adequate opportunity to mount a meaningful defense. of the criminal action. ARGUMENT I. THE UNDERLYING FACTS AND SUBJECT MATTER OF THESE TWO ACTIONS ARE SUFFICIENTLY INTERTWINED SO AS TO JUSTIFY GRANTING A STAY OF THE CIVIL PROCEEDINGS. District courts have broad discretion to stay a civil action pending the outcome of a criminal proceeding. United States v. 6250 Ledge Road, 943 F.2d 721, 729, n. 9 (7th Cir. 1991). The United States Supreme Court established long ago that a court has inherent power to stay its own proceedings when the interests of justice so require. Landis v. North American Company, 299 U.S. 248, 254, 57 S.Ct. 163, 165, 81 L.Ed. 153 (1936); SEC v. Dresser Industries, Inc., 628 F.2d 1368, 1375 (D.C. Cir. 1980) (quoting United States v. Kordel, 397 U.S. 1, 12 n. 27, 90 S.Ct. 763, 770 n. 27, 25 L.Ed.2d 1 (1970) (citations omitted) ("Nevertheless, a court may decide in its discretion to stay civil proceedings, postpone civil discovery, or impose protective orders and conditions `when the interests of justice seem [ ] to require such action . . .'".) The Eastern District of Wisconsin, consistent with Seventh Circuit precedent, expressly held that a civil proceeding may be stayed on grounds that a concurrent
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As a result, this matter should be stayed pending the outcome

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criminal prosecution is ongoing or pending, causing potential conflicts relating to the rights of witnesses to invoke the Fifth Amendment privilege. Bruner Corp. v. Balogh, 819 F.Supp. 811 (E.D. Wis. 1993). Parallel civil and criminal proceedings create an untenable conflict for the individuals who are indicted and will be involved in this case. On one hand, in order for IOS to adequately defend itself in this lawsuit, it will need the testimony of its former members who were in charge of the company during the relevant time periods. However, all of these individuals are currently indicted in the criminal case, including Thomas "Chris" Balsiger, Lance Furr, David Howard, Bruce Furr, James Currey, and Ovidio Enriquez. (Superseding Indictment, 1.) If these individuals

testify, they are likely to be held to have waived their Fifth Amendment privileges against self-incrimination and their testimony from the civil suit may be used to aid in the prosecution against them in the criminal proceeding. On the other hand, if they assert their Fifth Amendment privileges in the civil suit, their silence could be used against IOS, allowing the jury to draw an adverse inference against it, thus preventing IOS from adequately defending itself. See National Acceptance Co. v. Bathalter, 705 F.2d 924, 929-30 (7th Cir. 1983); LaSalle Bank Lake View v. Seguban, 54 F.3d 387, 389 (7th Cir. 1995) (recognizing this situation as a Constitutional dilemma for defendants.) Courts cut this Gordian knot by holding that the civil suit should be stayed pending the outcome of the criminal proceedings where overlapping facts and subject matter exist between cases. Bruner, 819 F.Supp. at 814; citing SEC v. First

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Financial Group of Texas, Inc., 659 F.2d 660, 668 (5th Cir. 1981); Wehling v. Columbia Broadcasting System, 608 F.2d 1084 (5th Cir. 1979). Additionally, courts have held that where only individuals are indicted, but a corporation will be unable to mount a defense in a related civil case because the key witnesses will invoke the Fifth Amendment, the better course is to grant a stay. U.S. v. All Meat and Poultry

Products, 2003 WL 22284318, *4 (N.D. Ill. 2003) ("In such instances as here, where the indicted individual defendants appear to be the central figures in both the civil and criminal proceedings, courts have determined that the better course is to enter a stay as to all defendants") citing American Express Business Finance Corp. v. RW Professional Leasing Services Corp., 225 F.Supp.2d 263, 265 (E.D. N.Y. 2002). The significant overlap of facts and subject matter between these cases is readily apparent. The mere fact that IOS itself is no longer specifically named in the

Superseding Indictment does not change this. The individuals who ran IOS at all relevant times, and who are the central figures to both proceedings, are indicted. Therefore, the Court should stay this civil suit pending the outcome of the criminal case. In Bruner, this court stayed a civil suit in a similar situation. Ruling that a district court may stay a civil proceeding during the pendency of a parallel criminal proceeding when "special circumstances" exist and the stay is needed to avoid "substantial and irreparable prejudice." Id. at 815. Such "special

circumstances" exist when the subject matter of the two cases is "sufficiently intertwined" for the Court to conclude that there is more than a mere "possibility"

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that a witness' testimony could be used to help prosecute him, thus justifying the granting of a stay. Id. at 814. Other district courts in this Circuit inquire whether there is an "overlap" in the subject matter of the two actions. See In re Anicom Inc. Securities Litigation, 2002 WL 31496212 (N.D. Ill. 2002) citing Cruz v. County of DuPage, 1997 WL 370194 (N.D. Ill. 1997). This overlap or intertwinement may exist even where a civil action is broader in scope than a concurrent criminal complaint. Bruner, 819 F.Supp. at 814; In re Anicom, 2002 WL 31496212, at *1 (holding that where the criminal investigation pertains to the same time period and general set of facts as the allegations in the civil suit, the same subject matter is involved, which weighs in favor of granting the stay.)1 On its face, Montana Foods' Complaint alleges facts that significantly overlap those of the indictment. In fact, within the section of the Complaint titled "IOS's and Inmar's Anticompetitive and Fraudulent Scheme," 18 paragraphs specifically reference the Superseding Indictment or one of the indicted individual defendants. (Complaint, ¶¶ 34-71.) Additionally, plaintiffs cite 17 paragraphs of the Superseding Indictment, and they even attached it as an exhibit to the Complaint. (Complaint, ¶¶ 34-71 and Exhibit A.) The Complaint further makes specific

allegations involving indicted parties Thomas "Chris" Balsiger, Lance Furr, David Howard, Bruce Furr, James Currey and Ovidio Enriquez. (Complaint, ¶¶ 47, 50, 51, 52, 53, 60, 62, 63, 65, 66, 67, 68, 69, 70, 93, 96.) These passages from the Complaint
Courts have found that the key inquiry is that the two actions involve the same subject matter, regardless of whether or not the indicted defendants are identical to the defendants named in the civil complaint. Cruz, 1997 WL 370194, at *2. (rejecting an argument by plaintiffs that the stay should be denied because there was only "some overlap" between the two actions and the grand jury didn't indict all of the defendants named in the civil suit.) 6
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demonstrate conclusively that the same underlying facts and subject matter are involved in both cases: · "Also, as part of its fraudulent scheme, IOS submitted to manufacturers fraudulently obtained coupons (e.g., coupons that had never been properly redeemed in connection with the purchase of a product) with the volume of coupons redeemed at larger stores, which ultimately increased the chargeback rates for deducting retailers. Superseding Indictment, U.S. v. Balsiger et al., ¶ 16(a), attached as Exhibit A." (Complaint, ¶ 47.) "Further, the fraudulently submitted coupons included "[coupons that IOS already had `charged back' to retailers as having been denied by manufacturers." Superseding Indictment ¶ 16(d). Submitting coupons that had already been charged back to retailers further increased the chargeback rates for deducting retailers." (Complaint, ¶ 48.) "IOS's scheme to defraud retailers depended on the elimination of competitive alternatives available to small, non-deducting retailers, as vigorous competition would have lowered chargeback rates for (and fees imposed on) small retailers. Small retailers would simply have chosen processing programs with lower chargeback rates over processing programs with higher chargeback rates, which ­ of course ­ would have defeated IOS's fraudulent scheme." (Complaint, ¶ 49.) "For example, after the FBI executed search warrants at IOS facilities in February 2003, IOS executive Lance Furr directed IOS employees to take computer files and other information home each night to avoid seizure and possible detection of their fraudulent and anticompetitive actions. Superseding Indictment ¶ 53(a). Similarly, after February 2003, IOS executive Chris Balsiger ordered that certain documents be destroyed and attempted to have others destroy documents. Id. ¶ 53(b)." (Complaint, ¶ 60.) "IOS provided false and misleading information to retailers regarding the volume of coupons billed in retailer's names as well as false information regarding IOS's coupon-processing and invoicing practices. Id. ¶¶ 24; 53(c)." (Complaint, ¶ 61.) "In approximately October 2004, IOS executives Chris Balsiger,
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Bruce Furr, and Lance Furr provided false and misleading information to Food Lion about the volume of coupons billed to manufacturers under Food Lion's name. Id. ¶ 53(c)." (Complaint, ¶ 62.) · "To further conceal their scheme, IOS and its officers and agents took steps to keep IOS's employees and others with knowledge of the scheme from cooperating with law enforcement officials and to retaliate against those who provided information to federal authorities, including attempting to condition severance benefits for departing employees on the employee's agreement not to speak to law enforcement officials and taking legal action or threatening legal action and/or financial harm to employees who cooperated with law enforcement efforts." (Complaint, ¶ 63.) "For example, on or about February 15, 2005, IOS reached a separation agreement with the company's controller, Christine Peak, which called for payment of an additional year of salary in exchange for agreeing not to speak with anyone ­ including law enforcement ­ about IOS without IOS's written consent. Id. ¶ 53(d)." (Complaint, ¶ 64.) "In approximately mid-August 2005, Lance Furr directed IOS to remove documents from his office and to hide them in an employee's personal residence. Id. ¶ 53(h)." (Complaint, ¶ 66.) "On or about August 18, 2005, IOS executive Chris Balsiger presented false information regarding IOS's coupon-invoicing practices to one of IOS's attorneys, knowing and intending that the same false information would be presented to law enforcement. Id. ¶ 53(j)." (Complaint, ¶ 67.) "Between January and August 2006, IOS executive Chris Balsiger and others prepared and revised a memorandum in which they described, documented, and revised a false "store tag" defense. Id. ¶ 53(l). The memorandum, which described IOS's historical invoicing practices, falsely indicated that although coupons from independent stores were included on invoices that listed only a large, funded retailer, all of the coupons had accurate "store tags." The document, entitled "IOS Should Not Be Indicted for Mail/Wire Fraud" was intended to be disclosed and later was disclosed to law enforcement. In March 2006, IOS executives and employees Chris Balsiger, James Currey, Ovidio Enriquez, David Howard, and others attempted to create false
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invoices that could be used to support the "store tag" defense. Id. ¶ 53(n)." (Complaint ¶ 68.) · "IOS executives and employees Chris Balsiger, Ovidio Enriquez, and James Currey persuaded two IOS employees ­ Nereo Castillo and Carlos Zapata ­ to provide materially false information regarding IOS's coupon-processing practices to law enforcement in April 2006. Id. ¶ 53(s)." (Complaint, ¶ 69.) "IOS Executives James Currey and Chris Balsiger developed computer programs to conceal the accounting of various aspects of the scheme, including programs to shift manufacturer chargebacks from non-paying small retailers to stores that were submitting legitimate coupons to IOS. Id. ¶ 28(d); 53(o)." (Complaint, ¶ 70.) "On information and belief, on April 11, 2001, CMS Executive Vice-President and CFO Cynthia Tessien and IOS CEO Chris Balsiger exchanged signed copies of the Proprietary Data Transfer Agreement sent to and/or from Inmar's offices in Winston-Salem, North Carolina via a fax machine connected to (336) 770-1923, in violation of 18 U.S.C. § 1343." (Complaint, ¶ 93.) "As part of the fraudulent scheme, and in violation of 18 U.S.C. § 1343, Defendant IOS used interstate wire communications to submit invoices to manufacturers for coupons that IOS falsely claimed had been redeemed at retail stores owned by Plaintiff and class members, including but not limited to the invoices detailed with specificity in the Superseding Indictment, U.S. v. Balsiger et al., attached as Exhibit A, pp. 11-16 (alleging wire fraud.)" (Complaint, ¶ 96.)

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These allegations directly implicate the key IOS personnel who are also defendants in the criminal case. It is safe to assume that they are likely to invoke the Fifth Amendment, severely hindering IOS' ability to mount a defense and adequately answer or otherwise plead in response to the Complaint. Based on nothing more than a simple reading of the Complaint, there is more than a mere "possibility" that these witnesses' testimony, which is central to the civil proceeding, could be used
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against them in the criminal case.

Bruner, 819 F.Supp. at 814.

Based on the

intertwinement of the subject matter and facts underlying these two actions, this Court should stay this lawsuit pending resolution of the criminal case. Id. II. THE POSTURE OF THE CRIMINAL PROCEEDING AND OTHER RELEVANT FACTORS SUPPORT GRANTING A STAY OF THE CIVIL PROCEEDINGS. Courts also consider the posture of the criminal proceeding in determining whether to grant a stay. Cruz, 1997 WL 370194 at *2; See Benevolence Intern. Foundation, Inc. v. Ashcroft, 200 F.Supp.2d 935, 938 (N.D. Ill. 2002). This factor further supports the granting of a stay here. The Bruner court emphasized the fact that both the Fifth and Second Circuits have gone so far as to hold a preindictment assertion of privilege is proper, making the case that much stronger where, such as here, a criminal complaint has already been filed. Id. at 815; See Wehling, 608 F.2d 1084 (granting a stay until all threat of criminal liability had ended); Andover Data Services v. Statistical Tabulating Corporation, 876 F.2d 1080 (2d Cir. 1989) (upholding the assertion of the privilege of a protective order foreclosing prosecutorial access to testimony while it was unknown whether the criminal investigation was still ongoing.) Here, we need not speculate whether a criminal complaint will be filed. The prosecution has been started and is proceeding apace. Denial of a stay would further prejudice IOS, because without the key testimony of these indicted individuals, it will be unable to adequately defend itself against Montana Foods' allegations. Because the criminal proceeding is pending and has been ongoing for over a year now, the validity of the assertion of this privilege is not hypothetical or

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speculative. This makes IOS' case for a stay much stronger, because the parties involved are already indicted for serious related offenses. Other factors some courts have considered in determining whether or not a stay is appropriate in these circumstances include: whether the actions are brought by the government; the public interests at stake; the plaintiff's interests and possible prejudice to the plaintiff; the burden that any particular aspect of the proceedings may impose on the defendant; and interests of judicial efficiency. Cruz, 1997 WL 379194 at *2; Benevolence, 200 F.Supp.2d at 938.2 These factors all further support granting a stay of the civil proceedings in this case. Although the government did not bring the civil action at issue here, this Courtt has specifically held that it is appropriate to stay a case even where no governmental entity is represented in the civil proceeding. Bruner, 819 F.Supp. at 814. In fact, as a matter of law, there need not even be a criminal proceeding for a witness to invoke this privilege. Id. citing McCarthy v. Arndstein, 266 U.S. 34, 40, 45 S.Ct. 16, 17, 69 L.Ed. 158 (1924). Thus, the fact that the government is not a party to the civil action does not justify denial of a stay. The interests of and possible prejudice to the plaintiffs in this case also do not warrant denial of the stay. First, there will be no real prejudice to the

plaintiffs if the case is stayed. This is a class action complaint, where the actual extent of who constitutes the members of the class of plaintiffs is unknown at this
Notably, in Bruner, this court specifically rejected applying any specific "multi-factor test" for this type of analysis in light of the Seventh Circuit's "dislike for multi-factor tests." Bruner, 819 F.Supp. at 813n.2; citing Farmer v. Hass et al., 990 F.2d 319 (7th Cir. 1993). Therefore, these factors should only be considered by the Court as further support of the argument that a stay is justified, rather than as parts of any specific multi-factor test for the Court to apply. 11
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time. Parties who are not even aware of the fact that they may be members of a class of plaintiffs cannot be substantially prejudiced by simply having to await the outcome of a pending criminal case. They will still get their day in court. In addition, the interests of the plaintiffs in this case are not better served if the stay is denied. As described throughout this brief, all of the key witnesses from IOS in this case are currently subject to the Superseding Indictment and as such, will invoke their Fifth Amendment privileges when called to testify in this matter. This will severely limit the discovery process for both parties. Once the outcome of the criminal proceeding is determined, then both plaintiffs and defendants will be able to fully investigate the facts underlying these civil allegations, and fully litigate the corresponding claims. The burden on IOS of proceeding with the civil action right now is extreme. Without the testimony of all of the relevant witnesses who are under

indictment, IOS will not only be unable to defend itself adequately on the merits, but it will not even be able to talk to its former personnel in order to prepare an answer to the Complaint. Thus, the burden on the defendants in this case weighs heavily in favor of granting the stay. Convenience of the Court, judicial efficiency and the public interest also support granting a stay. If the stay is denied, the civil and criminal matters will proceed simultaneously presenting the high potential for duplication of judicial efforts and resources. On the other hand, if the stay is granted, then the outcome of the criminal proceeding may resolve many issues involved in the civil matter, simplifying the overall issues in the case, and possibly facilitating settlement.

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Finally, the public interest does not support the denial of a stay because the combination of the ongoing criminal proceeding and a subsequent civil proceeding pending the outcome of the criminal matter will adequately protect the public's interest. After balancing all of these factors, the court should find that they weigh heavily in favor of granting a stay in this case. This Court specifically held in Bruner that a stay was justified in a situation factually similar to this one. Here, the most important issue for the Court to consider is the intertwinement of the subject matter and underlying facts of the two actions. These two proceedings are based on many of the same factual allegations and cover much of the same subject matter with respect to fraud involved in the coupon industry. All of the relevant witnesses from IOS who will have to testify as to key issues in the civil matter are subject to the Superseding Indictment. This leaves the individual indicted defendants and IOS

with a "Hobson's choice" ­ they can either choose to testify and risk that their testimony be used to aid the prosecution against them in the criminal matter, or invoke the Fifth Amendment privilege, subjecting themselves and IOS to an adverse inference, and severely hindering the ability of IOS to mount a meaningful defense to these allegations. The substantial risk of unnecessary prejudice to these indicted individuals and to IOS can be remedied through simply staying the civil proceedings pending the outcome of the criminal case. The Court is justified in granting this stay due to the risk of this substantial prejudice and because of the significant intertwinement of the facts and subject matter of these two actions.

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CONCLUSION For the reasons stated in this brief, IOS' motion should be granted, this action should be stayed pending the outcome of the criminal proceeding, and the court should enlarge IOS' time to answer or otherwise plead until resolution of the criminal proceeding. Respectfully submitted, KRAVIT, HOVEL & KRAWCZYK S.C.

s/ Mark M. Leitner Stephen E. Kravit Mark M. Leitner Michael Fischer Sarah J. Friday Melissa S. Blair Aaron H. Aizenberg Attorneys for Defendant IOS Kravit, Hovel & Krawczyk s.c. 825 North Jefferson - Fifth Floor Milwaukee, WI 53202 (414) 271-7100 - Telephone (414) 271-8135 - Facsimile Dated: July 30, 2008

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DISTzuCT COURT UNITEDSTATES EASTERN DISTRICT MSCONSIN OF DIVISION MILWAUKEE
INC.; BRISTOL-MYERS BEIERSDORF, SQUIBBCOMPANY; COMMONWEALTH BRANDS,INC.;DEL MONTE ENERGIZERBATTERY, CORPORATION; INC.; HOLDINGS, INC.; ENERGIZER GENERALMILLS, INC.; GEORGIALP; PRODUCTS PACIFICCONSUMER LLC; PRODUCTS DIXIE CONSUMER COMPANY; H.J. GERBERPRODUCTS HEINZ COMPANY,L.P.;HORMELFOODS THE J.M. SMUCKER CORPORATION; & COMPANY;JOHNSON JOHNSON; KELLOGG COMPANY; KIMBERLYCLARK GLOBAL SALES,LLC; KRAFT FOODSGLOBAL,INC.; LAND O'LAKES, INC.; MoCORMICK& COMPANY, NESTLEUSA, INC.; INCORPORATED; NESTLÉPURINA PETCARECOMPANY; & THE PEPSICO,INC.; PROCTER LLC; S.C. GAMBLE DISTRIBUTING & SON,INC.; andCONOPCO, JOHNSON INC. DBA UNILEVER. Plaintiffs, v. OURCING INTERNATIONAL OUTS THOMAS C. BALSIGER; SERVICES,LLC: BRUCEA. FURR; STEVENA. FURR; LANCE A. FURR;WILLIAM L. BABLER; OVIDIO H. ENRIQUEZ;DAVID J. HOV/ARD;JAMES C. CURREY; HOWARD R. MCKAY, PROLOGIC INC. and REDEMPTIONSOLUTIONS, LLC, MARLIN EQUITY PARTNERS,
Defendants.

Civil ActionNo. 07-C-0888

SECONDAMENDED COMPLAINT

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UNITED STATESDISTRICTCOURT EASTERN DISTRICTOF WISCONSIN MILWAUKEE DIVISION BEIERSDORF, INC.; BRISTOL-MYERS SQUIBBCOMPANY;COMMONWEALTH BRANDS,INC.; DEL MONTE CORPORATION; ENERGIZERBATTERY, INC.; ENERGIZER HOLDINGS, INC.; GENERALMILLS, INC.; GEORGIAPACIFICCONSUMER PRODUCTS LP; DIXIE CONSUMERPRODUCTS LLC; GERBER PRODUCTS COMPANY;H.J. HEINZ COMPANY,L.P.;HORMELFOODS CORPORATION; THE J.M. SMUCKER COMPANY;JOHNSON JOHNSON; & KELLOGG COMPANY; ICMBERLY. CLARK GLOBAL SALES,LLC; I(RAFT FOODSGLOBAL,INC.; LAND O'LAKES, INC.; McCORMICK& COMPANY, INCORPORATED; NESTLÉUSA,INC.; NESTLÉPURINA PETCARECOMPANY: PEPSICO, INC.; THE PROCTER & GAMBLE DISTRIBUTING LLC; S.C. JOHNSON SON,INC.; andCONOPCO, & INC. DBA UNILEVER. Plaintiffs, v. INTERNATIONAL OUTSOURCING SERVICES,LLC; THOMASC. BALSIGER; BRUCEA. FURR; STEVENA. FURR; LANCE A. FURR;WILLIAM L. BABLER; OVIDIO H. ENRIQUEZ;DAVID J. HOWARD; JAMESC. CURREY; HOWARD R. MCKAY, PROLOGIC REDEMPTION SOLUTIONS, INC. and MARLIN EQUITY PARTNERS, LLC,
Defendants.

Civil ActionNo. 07-C-0888

SECONDAMENDED COMPLAINT

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l.

This is an action for violations of the RacketeerInfluenced and Comrpt

Organizations 18 U.S.C.$ 1961et seq.("RICO"),as well ascommonlaw fraud,failwe to Act, disclose, unjust enrichment.Defendants and International Outsourcing Services, LLC ("IOS"), Thomas Balsiger, C. BruceA. Furr, Steven Furr, LanceA. Furr,William L. Babler,Ovidio H. A. Enriquez, David J. Howard, James C. Currey, and Howard R. McKay (collectively "Defendants") engaged an enterprise in wherebythey conspired defraud-- and did defraud-to productmanufacturers hundreds millions of dollars. Pursuant their scheme, consumer of of to Defendants knowinglyinducedPlaintiffsto pay IOS for manufacturers' "centsoff'coupons that Defendants knew had not beenredeemed connection purchase otherwise in with a consumer or hadnot beenredeemed represented IOS. IOS submitted as by fraudulent invoicesto Plaintiffsor payments pursuant thosefraudulent their authonzed agents received and to invoices. Defendants concealed their scheme over a numberof years. On March 6,2007, a grandjury in this District indictedIOS and the other Defendants namedabove,chargingthat they stole more than $250 million pursuant their scheme.l In late May or early June2008, Defendants to Marlin Equity Partners, LLC and Prologic Redemption Solutions, Inc., with knowledge the claimsasserted of by Plaintiffs,acquired IOS's coupon processing business became and liableassuccessors. THE PARTIES 2. Beiersdorf, Inc. ("Beiersdorf') is a Delaware corporation with its principalplace

of business Wilton, Connecticut.Beiersdorf in issues "cents-off' coupons redemption the for by public in conjunction consuming with thepurchase products manufactures. of it 3. Bristol-Myers Squibb Company ("Bristol-Myers Squibb") is a Delaware

corporation with its principalplaceof business New York, New York. Bristol-MyersSquibb, in
Since that time, pursuantto a cooperation agreement negotiated with the prosecutors, IOS has been dismissedfrom the indicünent,but criminal chargesagainstall of the individual Defendants remain pending. Regardless IOS's dismissal of from the criminalproceeding, Superseding a IndicÍnent filed on December 5,2007 makes clea¡that IOS wascentralto the fraudscheme. t

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including its wholly-ownedsubsidiary Mead Johnson Company, & issues"cents-off' coupons for redemptionby the consumingpublic in conjunctionwith the purchaseof productsit manufactures. 4. Commonwealth Brands, Inc. ("Commonwealth Brands") is a Kentucky

corporation with its principal placeof business Bowling Green,Kentucky. Commonwealth in issues"cents-off' couponsfor redemption the consumingpublic in conjunctionwith the by purchase products manufactures. of it 5. Del Monte Corporation("Del Monte") is a Delaware corporationwith its

principalplaceof business SanFrancisco, in California. Del Monte issues "cents-off' coupons for redemptionby the consumingpublic in conjunctionwith the purchaseof productsit manufactures. 6. EnergizerBattery, Inc. is a Delawarecorporationwith its principal place of

business St. Louis, Missouri and Energizer in Holdings,Inc. is a Missouri corporation with its principalplaceof business St. Louis,Missouri. Energizer in BatteryandEnergizer Holdingsare referred to herein collectively as "Energizer." Energizer issues "cents-off' coupons for redemption by the consuming public in conjunction with the purchaseof products it manufactures. addition,in 2003 Energizeracquiredthe Schickshavingbusiness.Also, on In October1,2007, PlaytexProducts, wasmergedinto a subsidiary Energizer Inc. of Holdingsand became wholly-owned a Holdings. Finally,Eveready subsidiary Energizer of BatteryCompany, Inc. is a subsidiaryof Energizer Holdings that was financially responsiblefor coupon prior to 2003. Accordingly,Energizerasserts rights and claims of Schick, redemptions the PlaytexandEveready well. as 7. Mills, Inc. ("GeneralMills") is a Delaware General corporation with its principal

place of business Minneapolis,Minnesota. GeneralMills issues"cents-off' couponsfor in

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redemption by the consuming public in conjunction with the purchaseof products it manufactures. In addition, in 2001, General Mills acquired The Pillsbury Company; accordingly, General Mills asserts rightsandclaimsof The PillsburyCompany well. the as 8. Georgia-Pacific Consumer ProductsLP is a Delawarelimited partnership and

Dixie Consumer Products LLC is a Delaware limited liability company, both with their principal place of businessin Atlant¿, Georgia(collectively "Georgia-Pacific")and both collectively asserting rights on behalf of the following former entities: Georgia-Pacific Corporation, Fort James Operating Company, Fort James Corporation, Fort HowardCorporation James and River Corporation. Georgia-Pacific issues"cents-off' couponsfor redemptionby the consuming public in conjunction with the purchase products manufactures. of it 9. ("Gerber")is a Michigancorporation GerberProducts Company with its principal

place of businessin Florham Park, New Jersey. Gerber issues"cents-off' couponsfor redemption by the consuming public in conjunction with the purchaseof products it manufactures. 10. H.J. Heinz Company,L.P. ("Heinz") is a Delawarelimited parbrership with its

principal placeof business Pittsburgh, in Pennsylvania.Heinz issues"cents-off' couponsfor redemption by the consuming public in conjunction with the purchaseof products it manufactures. ll. Hormel Foods Corporation("Hormel") is a Delaware corporation with its

principal place of businessin Austin, Minnesota. Hormel issues"cents-off' couponsfor redemption by the consuming public in conjunction with the purchaseof products it manufactures. 12. The J. M. SmuckerCompany ("J. M. Smucker")is an Ohio corporation with its

principal place of businessin Orrville, Ohio. J.M. Smuckerissues"cents-off' couponsfor -4-

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redemption by the consuming public in conjunction with the purchaseof products it manufactures. addition,J.M. Smucker In acquired Intemational MultifoodsCorporation Jtme in 2004 and acquiredEagle Family Foods Holdings, Inc. and related entities in May 2007; accordingly, J.M. Smucker asserts rightsandclaimsof thoseentitiesaswell. the 13. ("J&J") is a New Jerseycorporation Johnson Johnson & with its principalplace

of business New Brunswick,New Jersey.J&J issues in "cents-off' coupons redemption for by public in conjunction the consuming with thepurchase products manufactures. of it 14. Kellogg Company("Kellogg") is a Delaware corporation with its principalplace

of business BattleCreek,Michigan. Kelloggissues in "cents-off'coupons redemption the for by public in conjunctionwith the purchase productsit manufacturers. addition, consuming of In Kellogg acquired KeeblerFoodsCompany 2001; accordingly, in Kellogg asserts rights and the claimsof Keebler well. as 15. Kimberly-ClarkGlobal Sales,LLC ("Kimberly-Clark") is a Delawarelimited

liability companywith a principal place of business Dallas,Texas. Kimberly-Clarkissues in public in conjunction "cents-off' coupons redemption the consuming for by with the purchase of products manufacfures. it 16. Kraft Foods Global, Inc. ("Kraft Foods") is a Delawarecorporationwith its

principal placeof business Northfield, Illinois. Kraft Foodsissues"cents-off' couponsfor in redemption by the consuming public in conjunction with the purchaseof products it manufactures. 17. Land O'Lakes, Inc. ("Land O'Lakes") is a Minnesotacooperative corporation

with its principalplaceof business Arden Hills, Minnesota.Land O'Lakesissues in "cents-off' coupons redemption the consuming for public in conjunction by with the purchase products of it manufacfures. -5-

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18.

("McCormick")is a Marylandcorporation McCormick& Company, Incorporated

with its principalplaceof business Sparks, in Maryland. McCormickissues "cents-off'coupons for redemptionby the consumingpublic in conjunctionwith the purchaseof products it manufactures. addition,Zatanin's Brands,Inc. is a wholly ownedsubsidiary McCormick; In of accordingly, McCormickasserts rightsandclaimsof Zatarun'saswell. the 19. NestléUSA, Inc. ('Î.{estlé")is a Delaware corporation with its principalplaceof

businessin Glendale,California. Nestlé issues"cents-off' couponsfor redemptionby the public in conjunction consuming with the purchase products manufactures. of it 20. ('Nestlé Purina")is a Missouricorporation NestléPurinaPetCare Company with

its principalplaceof business St. Louis, Missouri. NestléPurinaissues in "cents-off' coupons for redemptionby the consumingpublic in conjunctionwith the purchaseof productsit manufactures. 21. PepsiCo, ("PepsiCo")is a North Ca¡olinacorporation Inc. with its principalplace

of business Purchase, in New York. PepsiCo, throughits subsidiaries includingbut not limited to The Quaker Oats Compmy, Frito-Lay, Inc., Pepsi Cola North America and Tropicana Products, Inc., issues "cents-off' coupons for redemption by the consumingpublic in conjunction with the purchase products manufactures. of it 22. The Procter & Gamble Distributing LLC (formerly The Procter & Gamble

DistributingCompany beforea namechange Octoberl, 2006)("P&G") is a Delaware on limited liability companywith its principal placeof business Cincinnati,Ohio. P&G issues in "centsoff' couponsfor redemptionby the consumingpublic in conjunctionwith the purchase of products it manufacturers. In addition, P&G acquired The Gillette Company in 2005; accordingly, P&G asserts rightsandclaimsof Gilletteaswell. the

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23.

S.C.Johnson Son,Inc. ("S.C.Johnson") a Wisconsin & is corporation with its

principal placeof business Racine,Wisconsin. S.C.Johnson in issues "cents-off' coupons for redemption by the consuming public in conjunction with the purchaseof products it manufactures. 24. Conopco, dba Unileveris a New York corporation Inc. with its principalplaceof

business Englewood in Cliffs, New Jersey.Unileverand its divisions,includingbut not limited to its ice cream division operatingin GreenBay, V/isconsin,issue "cents-off' couponsfor redemptionby the consumingpublic in conjunctionwith the purchaseof products they manufacture. 25. Defendant Intemational Outsourcing Services, LLC is an Indianalimited liability

companywith principal offices in El Paso,Texasand Bloomington,Indiana. IOS acts as a clearinghouse the coupon redemptionprocess,receiving couponsfrom numerousretailer in clients, processing couponsand then forwardingthem to the pertinentmanufacturer the (or manufacturer's redemption agent)for reimbursement. 26. During the period pertinentto this Complaint,Defendant ThomasC. ("Chris")

Balsiger was IOS's Chief OperatingOfücer, Presidentand, later, Chief Executive Offrcer. Balsigeris a resident Texas. of 27. During the periodpertinentto this Complaint,Defendant BruceA. Fur was the

Chairman IOS's Board. BruceFurr alsohadbeenIOS'sChief Executive of Offrcer. BruceFurr is a resident Indiana. of 28. During the period pertinentto this Complaint,Defendant LanceA. Furr was an

IOS ExecutiveVice President Board member. LanceFurr also was IOS'sChief Financial and Officer until2004. LanceFun is a resident Indiana. of

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29.

During the periodpertinentto this Complaint,Defendant Steven Furr was an A.

IOS ExecutiveVice President, Boa¡d memberand, later, President IOS's North American of Operations. Steven Fun is a resident Texas. of 30. During the periodpertinentto this Complaint,Defendant William L. Bablerwas

IOS's Chief Financial Officer. Bableris a resident Indiana. of 31. Dwing the periodpertinent this Complaint, to Defendant HowardR. McKay was

an IOS consultant sales and manager served IOS'sAdvisory Board. McKay is a resident and on ofTennessee. 32. Duringthe periodpertinent this Complaint, to Defendant Ovidio H. Enriquez was

an IOS plant manager, workingin El Paso, Texas, Juarez, and Mexico. Enriquez wasalsoa Vice President General and Manager IOS. Enriquez a resident Texas. for is of 33. Duringthe periodpertinent this Complaint, to Defendant David J. Howa¡dwasan

IOS plant manager, working in Del Rio, Texasand Acuna,Mexico. Howardwas also a Vice President General and Manager IOS. Howardis a resident Texas. for of 34. Duringthe periodpertinent this Complaint, to Defendant James Cuney wasthe C.

President Currey,Adkins, a firm that handledinformationtechnologyfor IOS, and was on of IOS's AdvisoryBoard. Curreyis a resident Texas. of 35. Defendant Ma¡lin Equity Partners, LLC ("Marlin") is a Delaware limited liability

company with its principalplaceof business El Segundo, in California. 36. DefendantPrologic RedemptionSolutions,Inc. ("Prologic") is a Delaware

corporation with its principalplaceof business El Segundo, in California. 37. Marlin purchased coupon processing the businessof IOS in late May 2008,

leaving IOS with only a limited data processing business, and assets insufficientto satisfua judgmentin this action. Marlin formeda new company, Prologic, to operate business.On the -8-

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information and beliet Prologic and Marlin were not involved in operatingIOS's coupon processing prior to 2008. Accordingly, references "Defendants"in the factual business to background below refer to the entities that were in existenceand operatingin the coupon processing business the time of the events at described. JURISDICTION AND VENUE 38. Jurisdiction properin this Courtpursuant 18 U.S.C.$ l96a(a)and (c), and is to

28 U.S.C. $ 1331. With respectto Plaintiffs' common law claims, this Court also has jurisdiction pursuant 28 U.S.C.$ 1367. to 39. Venuein this Court is properpursuant 28 U.S.C. $ 1391(b) to and 18 U.S.C.

pan giving rise to the claimsoccurred because substantial of the events omissions a or $ 1965(a) in thisjudicial district. FACTS The CounonIndustry 40. Plaintiffs are manufacturers a vast array of consumer products, of rangingfrom

food andbeverages, healthandbeauty products, paperproducts, cleansers detergents. to to to and Thesecompanies issue"centsoff' coupons that consumers redeemin connection can with the purchase the companies' products groceryandotherretail stores. of at 41. The centsoff coupons issued Plaintiffsandothermanufacturers distributed by are

on a regularbasis. Theprincipalmeans distribution via "inserts"in localnewspapers (i.e., of are pamphlets the advertising inserted newspapers, in usuallyon Sunday, that includecoupons) and via advertising circulars; thereareothermethods distributionaswell, includingdirectmail, on of or in product packages, the point of sale when particular products are purchased, at etc. Consumers exchangethe couponsfor a discount when they purchasethe manufacturers' products.In orderto usea coupon, consumer presents couponto the grocerystoreor retail a the - 9-

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cashierat the time the product identified on the coupon is purchased. Pursuantto the offer stated on the coupon, there may be volume (e.g., $1.00 offthree packages)or other requirementsthat must be satisfied. The cashier then deducts the coupon's stated face value from the product's purchaseprice. The retail merchantretains the coupon following the transaction. 42. Following the retail sale, the next steps in the redemption process involve the

reimbursementof the retailer by the manufacturerissuing the coupon. After a coupon is received from a consumer, the retailer must submit the coupon to the appropriate manufacturer or its agent,which then pays the face value of the coupon plus a handling fee to the retailer. 43. Typically, ret¿ilers do not submit coupons directly to manufacturers or the

manufacturers'agents,but insteadrely on intermediary companiesto act as the retailer's agent in this process. The companies that perform this service are usually referred to as coupon (both referred to hereafteras "clearinghouses"). processorsor coupon clearinghouses 44. Retailers normally ship their coupons to a clearinghouse,which then sorts the

couponsaccording to the issuing manufacturerand countsthem. The clearinghouse then submits invoices for the value of the coupons and the handling fee, usually along with the coupons themselves,to the various manufacturersor their designatedagents for payment in accordance with the terms and conditions of the individual manufacturers' respective coupon redemption policies. The clearinghousethen receivesthe payments,often in the name of the retailer client, from the manufacturers. The clearinghouse forwards the payment to the retailer, less a charge for the clearinghouse's seryices. While the foregoing is a general description of the overall redemption process,there may be a number of variations on this process. For purposeshere, the most significant variation is that in some instances a retailer so completely "outsources" the redemption function to the clearinghouse that the clearinghouse has the ability not only to submit couponsand receive paymentsin the retailer's name, but also to negotiate adjustmentsand issue

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payments ostensibly behalf of the retailer,without any oversightby or transparency the on to ret¿iler. Also, in someinstances, retailerwill accept payment a a from a clearinghouse uponthe submission coupons the clearinghouse return for divestingany further interestin the of to in coupons, therebygiving the clearinghouse controloverthosecoupons their disposition. total and The Defendants' Scheme 45. IOS is the largestcouponclearinghouse retailers. IOS and its predecessors for

havebeenin business since1961. Over the years, IOS hasprocessed hundreds millionsof of coupons annuallyon behalfof majorretailers suchasKroger,FoodLion, Pathmark, Winn-Dixie, HEB, Hannaford Brothers, Kash 'n Karry, CVS, Rite Aid, BJ's Wholesale and Fresh rWiggly. IOS receivescouponsfrom all over the United Statesand Canada, Brands/Piggly arrivingvia the U.S.PostalService, courierservices, freightandcommercial air truck lines. 46. Although the Defendants'schemewas multi-faceted, its most fundamental at

level it involvedsimply augmenting substantial the volumesof properly-redeemed coupons that IOS received from certainof its major retailerclientswith othercoupons that IOS acquired, and then fraudulentlysubmittingthe entire batch as if all of the couponshad been redeemed legitimatelyby consumers the designated at retailer. Thus, for example,if IOS received100 couponsfrom RetailerX that had beenissuedby Manufacturer IOS would add additional A, coupons from Manufacturer to this batchwithout the knowledge RetailerX (for illustrative A of pu{poses, say, 20) and then submit all 120 couponsto Manufacturer IOS would invoice A; Manufacturer for all 120coupons if all 120hadbeenredeemed RetailerX. In this way, A as at Defendants used IOS's legitimatecouponbusiness a cover for their scheme. Defendants as knowingly devised andparticipated this scheme defraudandto obtainmoneyby means in to of falsepretenses representations did so with the intentto defraud and and Plaintiffs.

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47.

includingPlaintiffs,to Throughthis scheme, Defendants inducedmanufacturers,

pay hundreds millions of dollarspursuant invoicesthat Defendants knew to be fraudulent. of to to their scheme includedcoupons that neverhad The coupons utilized by Defendants effectuate in with any retail purchase coupons and that IOS beenredeemed any consumer connection by at falselyinvoicedto manufacturers having beenredeemed a particularretail storewhen,in as through fact,thosecoupons beensubmitted IOS from a differentstore,in manyinstances had to by "couponbrokers";in the latter case,the couponslikely had not beenredeemed a consumer and, in any event, as Defendants knew, the identificationof the store at which they were nominally redeemed would prompt far greaterscrutiny of the coupons(for example,due to questions of involving purportedcouponvolume ris a percentage total sales,couponvolume comparedto product volume, past redemptionpractices,etc.). These couponsutilized to referredto hereinafter "illegitimate coupons." IOS's as effectuate scheme sometimes the are and submission couponsto Plaintiffs or their agentsfor reimbursement the accompanying of had in invoicesexplicitly and implicitly represented the coupons beenredeemed connection that knew. with a retailpurchase the identifiedretailer,which wasfalse,asDefendants at 48. V/ithin IOS, Defendants referredto the scheme defraudusing terms suchas to

to invoicing,""alternative manufacturing invoicing,""8's and9's" (referring invoice "alternative "trickling," and"arbitrage." sequences), "deuces," "error trays,""indirectrevenue," 49. In order to carry out the scheme,Defendantsacted through an enterprise

including "coupon brokers" and other third comprisedof Defendants and variousassociates, parties. 50. Defendants solicitedthe couponbrokers(including,amongothers,Abdel Rahim

Jebara DaxeshV. Pateland Bharatkumar Patelof Riya CouponServices, and K. LLC, eachof whom hasnow beenindictedfor couponfraud)to acquire manycoupons they could(either as as

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directly or through other third parties)for IOS to include in submissions manufacturers, to knowing that many of the coupons acquired so had neverbeenredeemed connection in with a retail purchase. Defendants, themselves throughthe coupon and brokers, directed third parties to procurecoupon inserts masscuttingandotherwise procure for to coupons usein the scheme. for 51. In someinstances, Defendants obtained masscut andothercoupons directlyfrom

thosecoordinating procurement cutting. In other cases, couponbrokerssignedup the and the small ret¿ilersas direct or indirect IOS clients and submitted masscut and other illegitimate coupons to IOS as coupons supposedlyredeemedat these small retail establishments. Defendants, directly and throughdirectionof IOS employees, workedwith the brokersto setup and acceptlargecouponsubmissions from theseretail accourtsÍrsa coverfor their infusionof process.Indeed, volumeof coupons illegitimatecoupons into the couponredemption the being submitted theseretail accounts by was well in excess the amountthat theseaccounts of could have submittedlegitimately. Defendants then co-mingledthese illegitimate couponswith legitimatecouponsubmissions madeby certainof IOS's largerretail accounts beforesubmitting themto Plaintiffsor their agents reimbursement. for 52. Defendant Balsigersetperiodicgoalsfor the volumeof illegitimatecoupons be to

includedby IOS with shipments from largeretailersand directedothers,includingDefendants Enriquez Howard,to ensure thesegoalsweremet by thebrokersandothers. and that 53. According to a criminal indictmentby the United Statesconcemingthis same

scheme, "[a]s a resultof their scheme, defendants the wrongfullyobtained . . over $250million . from manufacturers nationwide"for the period "þ]eginning by 1997and continuingthrough December2006." Indictment, ï111-2, Case No. 07-CR-057(E.D. Wisc. Mar. 6, 2007). Assuminga normal distributionof brandsand productsamongthe fraudulentsubmissions, the vastmajorityof this $250million waswrongfullyobtained from Plaintiffs.

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54.

Retailerswhose legitimatecoupon submissions were augmented and used by

Defendants fraudulent for invoicesandsubmissions manufacturers to includedFoodLion, WinnKashn' Karry, Hannaford Dixie, Pathmark, Brothers, HEB, Rite Aid, CVS, BJ's Wholesale and Wiggly. Defendants fraudulent FreshBrandsÆiggly madefraudulent submissions presented and pursuant this scheme invoicesto manufacturers to beginningby 1997and continuingthrough 2006. 55. Pursuant Defendants' to IOS fraudulent invoicesto scheme, repeatedly submitted

redeemed consumers Food at eachof the Plaintiffs (or their agents) coupons for supposedly by Lion storeswhen, in fact, as Defendants knew, some or all of the couponshad not been redeemed any consumerand/or had not been submittedto IOS by Food Lion. Without by knowingthe true status the coupons the fraudulent of or natureof the submissions invoices, and had andrelying on the invoicesto be truthful representations the coupons beenredeemed that by Plaintiffspaid these consumers Food Lion stores at and of the amounts owedfor suchcoupons, invoices. For the purpose executing carryingout this scheme defraud, of and to Defendants used private or coûrmercialinterstatecariers and usedinterstatewire the United Søtes mails and./or communications Defendants or causedthe use of the United Statesmails and/or private or interstate wire communications. Because they werepart and commercial carriersand interstate parcelof this overallscheme defraud, to eachuseof the mails and/orinterstate carriers andeach wire communications, includingeachsubmission eachfraudulentinvoiceto useof interstate of any Plaintiff, constituted separate of mail fraud and wire fraud in violation of l8 U.S.C. a act $$ 1341and1343,respectively. 56. Pursuant Defendants' to IOS scheme, repeatedly submitted fraudulent invoicesto

eachof the Plaintiffs(or their agents) coupons for supposedly redeemed consumers Winnby at Dixie storeswhen, in fact, as Defendants knew, some or all of the couponshad not been -14-

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redeemed by any consumer and/or had not been submitted to IOS by Winn-Dixie.

Without

knowing the true statusof the couponsor the fraudulent nature of the submissionsand invoices, and relying on the invoices to be truthful representations that the couponshad been redeemedby consumersat Winn-Dixie storesand of the amountsowed for such coupons,Plaintiffs paid these invoices. For the purposeof executing and carrying out this schemeto defraud, Defendantsused the United Statesmails and/or private or commercial interstate cariers and used interstatewire communications or Defendants caused the use of the United States mails and./orprivate or commercial interstatecarriers and interstatewire communications. Becausethey were part and parcel of this overall schemeto defraud, each use of the mails and./orinterstatecarriers and each use of interstatewire communications,including each submissionof each fraudulent invoice to any Plaintiff, constituted a separateact of mail fraud and wire fraud in violation of 18 U.S.C. $$ l34l and 1343,respectively. 57. Pursuantto Defendants' scheme,IOS repeatedly submitted fraudulent invoices to

each of the Plaintiffs (or their agents) for coupons supposedlyredeemedby consumersat HEB storeswhen, in fact, as Defendantsknew, some or all of the couponshad not been redeemedby any consumerand./or had not been submittedto IOS by HEB. Without knowing the true statusof the couponsor the fraudulent nature of the submissionsand invoices, and relying on the invoices to be truthfill representations that the coupons had been redeemedby consumersat HEB stores and of the amotmts owed for such coupons, Plaintiffs paid these invoices. For the purpose of executing and carrying out this scheme to defraud, Defendants used the United States mails and/or private or coÍrmercial interstate carriers and used interstate wire communications or Defendants caused the use of the United States mails and/or private or conìmercial interstate carriers and interstatewire communications. Becausethey were part and parcel of this overall scheme to defraud, each use of the mails and/or interstate carriers and each use of interstate wire

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communications, including each submissionof each fraudulent invoice to any Plaintiff, constituted separate of mail fraud and wire fraud in violation of 18 U.S.C. $$ l3al and a act 1343, respectively. 58. Pursuant Defendants' to scheme, repeatedly IOS submitted fraudulent invoicesto

each of the Plaintiffs (or their agents)for couponssupposedly redeemed consumers by at Pathmarkstoreswhen, in fact, as Defendants knew, someor all of the couponshad not been redeemed any consumerand/or had not been submittedto IOS by Pathmark. Without by knowingthe true status the coupons the fraudulent of or natureof the submissions invoices, and andrelying on the invoicesto be truthful representations the coupons beenredeemed that had by consumers Pathmark at storesand of the amounts owed for suchcoupons, Plaintiffs paid these invoices. For the purpose executing carryingout this scheme defraud, of and to Defendants used the United States mails and/orprivateor commercial interstate carriersand usedinterstate wire communications Defendants or causedthe use of the United Statesmails and/or private or commercial interstate carriersand interstate wire communications. Because they were part and parcelof this overallscheme defraud, to eachuseof the mails and/orinterstate carriersandeach useof interstate wire communications, includingeachsubmission eachfraudulentinvoiceto of any Plaintiff, constituted separate of mail fraud and wire fraud in violation of 18 U.S.C. a act and1343, respectively. $$ 1341 59. Pursuant Defendants' to scheme, repeatedly IOS submitted fraudulent invoicesto

each of the Plaintiffs (or their agents)for couponssupposedly redeemed consumers by at Hannaford Brothers when,in fact,asDefendants stores knew,someor all of the coupons not had beenredeemed any consumer by and/orhad not beensubmiued IOS by Hannaford to Brothers. Without knowingthe true statusof the coupons the fraudulent or natureof the submissions and invoices,and relying on the invoicesto be truthful representations the couponshad been that - 16-

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redeemed consumers HannafordBrothers storesand of the amountsowed for such by at coupons,Plaintiffs paid theseinvoices. For the purposeof executingand carrying out this used the United Statesmails and/or private or commercial schemeto defraud,Defendants cariers and usedinterstate wire communications Defendants interstate or caused useof the the United States mails and/or private or commercial interstateca¡riers and interstatewire Because communications. they werepart andparcelof this overallscheme defraud, to eachuse of the mails and/orinterstate carriersand eachuseof interstate wire communications, including eachsubmission eachfraudulentinvoiceto any Plaintiff, constituted separate of mail of a act fraudandwire fraudin violationof 18U.S.C.$$ 1341 respectively. and 1343, 60. Pursuant Defendants' to IOS fraudulent invoicesto scheme, repeatedly submitted

for eachof thePlaintiffs(or their agents) coupons supposedly redeemed consumers Kash'n by at Karry storeswhen, in fact, as Defendants knew, some or all of the couponshad not been redeemed any consumer by and/orhad not beensubmitted IOS by Kash 'n Karry. Without to knowingthe true status the coupons the fraudulent of or natureof the submissions invoices, and andrelying on the invoicesto be truthful representations the coupons beenredeemed that had by consumers Kash 'n Karry storesand of the amounts at Plaintiffspaid owed for suchcoupons, these invoices. For the purpose of executingand carrying out this schemeto defraud, interstate Defendants usedthe United States mailsand/orprivateor commercial carriers used and interstate wire communications Defendants or caused useof the United Søtesmails and/or the privateor commercial interstate cariers andinterstate wire communications. Because they were part andparcelof this overall scheme defraud, to eachuseof the mails and/orinterstate carriers and eachuse of interstate wire communications, includingeachsubmission eachfraudulent of invoiceto any Plaintiff, constituted separate of mail fraud andwire fraudin violationof 18 a act U.S.C. 1341 andl343,respectively. $$ - 1 7-

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61.

Pursuant Defendants' to IOS submitted fraudulent invoicesto scheme, repeatedly

eachof the Plaintiffs (or their agents) coupons for supposedly redeemed consumers CVS by at stores when,in fact, as Defendants knew, someor all of the coupons not beenredeemed had by anyconsumer and./or not beensubmitted IOS by CVS. Withoutknowingthe true status had to of the coupons the fraudulent or natureof the submissions invoices, relyingon the invoices and and to be truthful representations the coupons that had beenredeemed consumers CVS stores by at and of the amounts owed for suchcoupons, Plaintiffs paid theseinvoices. For the purpose of executingand carrying out this scheme defraud,Defendants to usedthe United Statesmails and/or private or coÍrmercial interstatecarriers and used interstatewire communicationsor Defendants caused use of the United States the mails and/orprivate or commercialinterstate carriersand interstate wire communications. Because they were part and parcelof this overall scheme defraud, to eachuseof the mails and/orinterstate carriers andeachuseof interstate wire communications, including each submissionof each fraudulent invoice to any Plaintiff, constituted separate of mail fraud and wire fraud in violationof 18 U.S.C.$$ 1341and a act 1343, respectively. 62. Pursuant Defendants' to scheme, repeatedly IOS submitted fraudulent invoicesto

each of the Plaintiffs (or their agents)(exceptfor Land O'Lakes) for couponssupposedly redeemed consumers Rite Aid stores by at when,in fact, as Defendants knew,someor all of the coupons not beenredeemed any consumer had and./or not beensubmitted IOS by Rite had to by Aid. V/ithoutknowingthe true status the coupons the fraudulent of or natureof the submissions andinvoices, relying on the invoicesto be truthfül representations the coupons been and that had redeemed consumers Rite Aid stores of the amounts by at and owedfor suchcoupons, Plaintiffs paid theseinvoices. For the purposeof executingand carrying out this scheme defraud, to Defendants usedthe UnitedStates mailsand/orprivateor commercial interstate carriers used and -18-

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interstate wire communications Defendants or caused useof the United States the mails and/or privateor commercial interstate carriers andinterstate wire communications. Because they were part andparcelof this overallscheme defraud, to eachuseof the mails and/orinterstate carriers and eachuse of interstate wire communications, includingeachsubmission eachfraudulent of invoiceto any Plaintiff, constituted separate of mail fraud andwire fraud in violationof 18 a act U.S.C. 1341 and1343, respectively. $$ 63. Pursuant Defendants' to scheme, IOS repeatedly submitted fraudulent invoicesto

eachof the Plaintiffs (or their agents) coupons for supposedly redeemed consumers BJ's by at Wholesale storeswhen, in fact, as Defendants knew, someor all of the coupons had not been redeemed any consr¡mer by and/orhad not beensubmitted IOS by BJ's Wholesale.Without to knowingthe true status the coupons the fraudulent of or natureof the submissions invoices, and andrelying on the invoicesto be truthful representations the coupons beenredeemed that had by consumers BJ's Wholesale at storesand of the amounts owedfor suchcoupons, Plaintiffspaid these invoices. For the purposeof executingand carrying out this schemeto defraud, Defendants usedthe UnitedStates mailsand/orprivateor commercial interstate ca¡riers used and interstatewire communications Defendants or caused use of the United Statesmails and/or the privateor coÍtmercialinterstate carriers andinterstate wire communications. Because they were part andparcelof this overall scheme defraud, to eachuseof the mails and/orinterstate carriers and eachuse of interstate wire communications, includingeachsubmission eachfraudulent of invoiceto any Plaintifl constituted separate of mail fraudandwire fraudin violationof l8 a act U.S.C. 1341 and1343, respectively. $$ 64. Pursuant Defendants' to scheme, repeatedly IOS submitted fraudulent invoicesto

eachof the Plaintiffs(or their agents) coupons for supposedly redeemed consumers Fresh by at BrandsÆiggly Wiggly stores when,in fact, as Defendants knew, someor all of the coupons had -19-

134

Case 1:08-cv-00070-ECH

Document 14-4

Filed 08/22/2008

Page 35 of 83

not been redeemedby any consumerand/or had not been submiued to IOS by Fresh BrandsÆiggly Wiggly. Withoutknowingthe true status the coupons the fraudulent of or nature of the submissions invoices,and relying on the invoicesto be truthful representations and that the coupons had beenredeemed consumers FreshBrands/Piggly by at Wiggly stores and of the amounts owedfor suchcoupon