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It's Not Over, Office Depot settles supply lawsuit With 1,200
California Goverment Agencies
Some 1,200 governments across California to get payments
By Ashly McGloneOffice Depot will pay $43 million to more than 1,200 government agencies across California to settle a whistleblower lawsuit alleging the company overcharged for its products.
The settlement approved this week by Superior Court Judge Kevin Brazile in Los Angeles marks the end of a five-year legal battle in which a former employee, David Sherwin of Florida, claimed the company systematically violated the terms of cooperative contracts used by the agencies to purchase pens, ink, furniture and other goods from 2001 to 2011.
Governments getting settlement funds include the San Diego, Sweetwater and Oceanside school districts, Palomar and Southwestern colleges and the cities of Poway and Coronado.
“The settlement is not an admission by Office Depot of any wrongdoing, and indeed Office Depot continues to believe that Sherwin’s allegations were factually and legally wrong,” said Karen Denning, vice president of communications for Office Depot, in a statement. “This resolution both avoids the costs and risks of protracted litigation and allows Office Depot to focus on its business priorities, including its integration with OfficeMax.”
Attorneys for Sherwin, who died of cancer in March, and the 19 government agencies who joined the case against the Boca Raton-based chain did not respond to requests for comment.
The largest recipient of settlement funds will be the City of Los Angeles, which will receive $11.66 million. Santa Clara County will receive $3 million, and the County of Los Angeles will receive nearly $1.95 million.
In addition to the 19 agencies that joined the lawsuit, hundreds of others will receive payments even though they chose not to participate. They get a smaller share of the settlement because they bore no risk, court documents say.
No San Diego County governments joined the lawsuit, although 31 will receive money. Top among them is the Sweetwater Union High School District, which will receive $189,000, or half of what the district would have received had it joined the litigation.
Sherwin, a former senior Office Depot salesman who handled government accounts, said company officials ignored his warnings about the overages. He was fired in April 2008 for sending a profane and threatening email to executives.
Sherwin filed the lawsuit in March 2009, claiming the company violated the California False Claims Act by fraudulently billing government agencies more than promised in the office supply contracts’ “Pricing Commitment” and “Most Favored Public Entity” provisions.
The contracts in question were negotiated by Los Angeles County and later marketed by the U.S. Communities Government Purchasing Alliance, a Bay Area nonprofit co-op overseen by a 29-person board of advisers that includes San Diego Unified’s strategic sourcing and contracts officer, Arthur Hanby.
San Diego Unified spent $17.3 million under the agreements used by the plaintiff agencies between 2007 and 2010.
The purchasing alliance has held an annual conference in La Jolla, at which vendors such as Office Depot host dinners, drinks, hotel stays, airline tickets and zoo passes. It’s typically at the Hilton La Jolla Torrey Pines.
Officials at the California Fair Political Practices Commission said investigators are reviewing whether attendees at the conference have disclosed the gifts as required by law.
The overarching settlement follows a string of individual cases across the country, including an undisclosed settlement paid in 2012 to Detroit public schools, which claimed overcharges of $5.2 million.
Also without admitting wrongdoing, the company agreed to pay $5.9 million to Florida agencies in 2010, $412,000 to Colorado agencies in 2011, $440,000 to Missouri agencies in 2010, and $475,000 to New York agencies in May.
Company officials said they are cooperating with attorneys general investigations still underway in other states.
The company will pay $77.5 million in all. On top of the payments to governments, Sherwin’s attorneys will get $9 million, and Sherwin’s estate will receive $25.5 million.
Sherwin’s share was calculated based on a formula that gave him half the money that would have gone to each of the agencies that chose not to participate. For instance, his estate will receive $189,000 that would have gone to Sweetwater schools had the district taken part in the lawsuit.
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