The CIT Group has a filed a major suit with the dollar amount to be proven in court (could be $200 million including equipment and lease contract) against Krones AG, of Germany, Krones U.S., provider of equipment to bankrupt Le-Nature as well as naming CEO Gregory Podlucky, Krones: Heinz Sommer and Volker Kronseder claiming they “ also failed to disclose and suppressed material facts about, among other things, the true purchase price of the leased equipment and the condition of Le-Nature’s, including its current and projected operating capabilities, its sales levels, and its management. (Krones and Messrs. Podlucky, Sommer and Kronseder are referred to collectively herein as the “Defendants”),” who allegedly received "kickbacks" in the transaction.
Krones AG is a major beverage and food industry product production and treatment company with 9,000 people working for Krones worldwide. More than 7,300 women and men are employed in their five German facilities. Production takes place mainly in Germany, but they travel to wherever their clients operate, also utilizing a network of more than 30 Krones subsidiaries throughout the world:http://www.kronesusa.com/en/2038.htm
Krones issued this statement:
“We have today learned that the US company of the Krones Group, Messrs. Krones Inc. in Franklin/WI (USA), and Krones AG, Neutraubling , Germany, including their executive bodies, are to be sued by the American leasing company CIT Group/Equipment Financing Inc., which is demanding compensation for loss or damage allegedly incurred.
“The Executive Board of Krones AG regards this lawsuit, already registered with a US court, as groundless, and sees no evidence for any responsibility on the part of Krones companies. Krones will fight this unjustified lawsuit with all the means at its disposal.
“The suit must be seen in the context of the major financial scandal concerning the American company Le-Nature's. During the period 2005/2006, Krones had produced, delivered and successfully commissioned bottling lines worth a total of approximately US$ 100 million for Le-Nature's facility in Phoenix/AZ (USA)."
“The Executive Board of Krones AG regards this lawsuit, already registered with a US court, as groundless, and sees no evidence for any responsibility on the part of Krones companies. Krones will fight this unjustified lawsuit with all the means at its disposal.
“The suit must be seen in the context of the major financial scandal concerning the American company Le-Nature's. During the period 2005/2006, Krones had produced, delivered and successfully commissioned bottling lines worth a total of approximately US$ 100 million for Le-Nature's facility in Phoenix/AZ (USA)."
There are several cases against officers of Le-Nature as well as investigations into actions. The equipment was sold at auction, reportedly netting $18 million, 12.5% of the original cost.
The 35 page documents CIT's case. Here are highlights:
"In fact, the true total purchase price negotiated between Le-Nature’s and Krones, which price was kept secret from CIT, the Participants and others, was approximately $90 million."
“In the four months following the April 15, 2005 closing, CIT paid to Krones by wire transfer approximately $100 million, representing the balance of the cost of purchasing and installing the Leased Equipment.43. By August 2005, all of the Leased Equipment had been delivered and installed by Krones at the Phoenix Facility. Under the Closing Documents, this event triggered Le- Nature’s’ obligation to commence making lease payments on the Leased Equipment.44. From August 2005 through approximately October 2006, Le-Nature’s paid CIT its monthly lease payments by checks mailed using the United States Postal Service.45. From August 2005 through October 2006, CIT distributed to Participants their pro rata share of the Le-Nature’s lease payments it received.
“In the four months following the April 15, 2005 closing, CIT paid to Krones by wire transfer approximately $100 million, representing the balance of the cost of purchasing and installing the Leased Equipment.43. By August 2005, all of the Leased Equipment had been delivered and installed by Krones at the Phoenix Facility. Under the Closing Documents, this event triggered Le- Nature’s’ obligation to commence making lease payments on the Leased Equipment.44. From August 2005 through approximately October 2006, Le-Nature’s paid CIT its monthly lease payments by checks mailed using the United States Postal Service.45. From August 2005 through October 2006, CIT distributed to Participants their pro rata share of the Le-Nature’s lease payments it received.
“On or about March 16, 2005, prior to the closing of the Le-Nature’s Transaction, CIT received a call from an individual who stated that CIT may have received false information regarding the purchase price of the Leased Equipment. Following Le- Nature’s’ collapse, CIT learned that the caller had an affiliation with Krones that enabled him to obtain extensive knowledge regarding Krones’ internal operations and the Le-Nature’s Transaction. Specifically, the caller had access to Krones’ internal documents and information regarding the Le-Nature’s Transaction, including pricing, deposits or lack thereof, and the amount and type of equipment being sold.48. As a result of having access to this information, the caller believed that Le- Nature’s was perpetrating a fraud by inflating the purchase price of the equipment, a belief the caller brought to the attention of Krones. When his concerns were ignored by Krones, the caller contacted CIT.49. The caller suggested to CIT that the true cost of the bottling equipment for all four lines was approximately $90 million, about one-half of the $180 million represented by Le-Nature’s and Krones. When asked for facts supporting his allegations, the caller faxed to CIT a two-page spreadsheet that identified the Krones’ equipment for one bottling line (the “Tip Spreadsheet”). For each piece of equipment, the spreadsheet identified the configured list price, discounts and selling price to Le-Nature’s.50. CIT compared the information on the Tip Spreadsheet with equipment pricing information given to CIT by Le-Nature’s and Krones. This analysis indicated that the amount CIT was being asked to pay for the Leased Equipment was significantly higher than the amount reflected on the Tip Spreadsheet.51. Based on its preliminary analysis, CIT was concerned that Le-Nature’s was attempting to over-finance the Leased Equipment by providing false information to CIT and the Participants regarding the true purchase price that had been negotiated with Krones. Over the course of the next several weeks, CIT attempted to determine the validity of the caller’s accusations.52. On or about March 17, 2005, Tom Magrath from CIT called Sommer, then President at Krones U.S., to investigate the caller’s allegations. Magrath told Sommer that CIT was performing an interim funding audit and needed his help reconciling the purchase price for the Leased Equipment. After the call, Magrath faxed a copy of a funding request for $25 million for the Leased Equipment to Sommer and solicited his comments.
Sommer did not dispute the accuracy of the initial funding request and concealed the true cost of the equipment, causing CIT to believe that the amount beingcharged for the Leased Equipment was accurate.”
In the 35 page filing with other supportive documents, CIT attorneys David A. Weatherwax Dewain D. Fox of BLANK ROME LLP signed the documents. James T. Smith,Steven L. Caponi,Leonard D. Steinman, One Logan Square,130 North 18th Street,Philadelphia, PA 19103 were also noted as Attorneys for Plaintiff.
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