On July 19th, Mary Anderson, the owner of Pleasanton, California-based CornerStone Staffing Solutions, will walk into a San Francisco courtroom with her legal representation. Walking in at the same time, but certainly not beside her, will be Larry Thaxter James. He is her former general manager, who, according to his lawyer, took the company from losing $30,000/month, to a nationwide staffing concern with $100 million in revenue and millions in profits. The reason for their court date? An "initial case management conference." You see, Mary Anderson is suing Larry James. And James responded with a counterclaim. Oh yeah, one more thing. Larry James is Mary Anderson's nephew.
This legal saga began last spring when Anderson and CornerStone Staffing Solutions Inc. filed a lawsuit in federal court citing the Racketeer Influenced and Corrupt Organizations (RICO) Act against her nephew and former manager.
The lawsuit claims breach of fiduciary duty, fraud, misappropriation of trade secrets, intentional interference with contractual relations and other allegations.
“Larry James initially worked hard to establish our brand and our reputation for excellent service,” said Anderson. “However...we discovered that he used his position at CornerStone to implement several schemes designed to siphon off CornerStone’s business for himself.”
"We discovered that he used his position at CornerStone to implement several schemes designed to siphon off CornerStone’s business for himself."
Specifically, the suit says James formed "parasite shell companies" in his own name at a CornerStone branch. The shell companies had the same address as the CornerStone branch with CornerStone paying the rent.
Over time, CornerStone’s customers were transferred over to the shell company, states the lawsuit. Then James would reportedly contact CornerStone’s ownership to tell them he needed to close the branch office because it was no longer profitable or otherwise had lost its clients.
In actuality the suit claims, James closed the office because his own parasite shell company had killed CornerStone’s business by taking all of its customers and leaving James to collect the profits for himself.
On May 30th James responded to the RICO lawsuit with a 55-page counterclaim, saying the issue is largely a family squabble over money, and that it could have been settled as a family matter.
“As the managing director and chief architect of CornerStone Staffing Solutions Inc. throughout these last nine years, I continue to take pride in growing a profitable company from inception to over $100 million in revenue," said James in a statement. "The journey, accompanied by the wonderful employees I worked along side to make CornerStone the success it is today, remains a great source of pride for myself and many others. It is for this reason, accompanied by the fact that this is largely a dispute about money among family members, that makes this situation all the more distasteful and disappointing."
"This is largely a dispute about money among family members."
In the counterclaim, James said he traveled to California from his home in Missouri to look for business opportunities. While staying at his aunt's house, he says she offered to buy a staffing company that he would then operate. James said he would be interested, as long as "after he developed the company into a profitable enterprise they would sell the company, divide the proceeds, and he could then use those proceeds to start his own company, independent of his aunt."
Anderson did have prior staffing industry experience prior to staking her nephew in the business. She also owns Associated Health Professionals, a successful staffing services company serving the medical industry since 1977.
The counterclaim says that throughout the time James worked building CornerStone, he repeatedly asked his aunt about the profit sharing calculation and distribution. He says she always told him "that CornerStone's accountant and lawyer were calculating his share of the profits."
James believes the profits exceeded $8 million, and that his share should have been half that, less a $1 million distribution he did receive in 2008.
He also says he found potential buyers for CornerStone, including an offer of $27 million for the company back in 2006, that the counterclaim states would have resulted in a net share of proceeds to James of over $10 million. Instead, he says, his aunt refused to even consider the offer(s).
A year later though, James did receive a bump in salary from his previous $125,000 to a base of $300,000/year. However, the counterclaim says James is due $69,000 in unpaid wages, as well as $216,000 in unused vacation time, $96,000 he spent on overpayment of rent and home improvements while his aunt was his landlord, and $11,000 he personally spent on a GMC Denali that the company should have paid for.
All in all, the counterclaim states that for James' share of the net profits, for 50% of the proceeds from the sale of CornerStone, or the equivalent value since it wasn't sold, and unpaid wages and reimbursement, the damages "are believed to exceed $13 million."
The counterclaim states that for James' share of the net profits, for 50% of the proceeds from the sale of CornerStone, or the equivalent value since it wasn't sold, and unpaid wages and reimbursement, the damages "are believed to exceed $13 million."
James' lawyers say their client also hasn't been allowed back into his office to pick up his personal stuff since he was terminated at the end of March. "Exhibit H" in the counterclaim lists 44 items he wants returned, including children's snowboard gear, a MacBook laptop computer, documents and papers, as well as "assorted teas" and "gluten-free soy sauce."
Mark J. Polland, Esq., of Marron Lawyers, the firm representing James, told me there is no trial date set yet, but that could happen on July 19th. "It will be a jury trial. The parties can waive a jury and have the judge try the case, but that is unlikely here."
"The parties can waive a jury and have the judge try the case, but that is unlikely here."
I also asked Clayton Hix, an associate at Hill, Farrer & Burrill LLP, the legal representation for Mary Anderson and CornerStone, for comment. His email reply..."I decline to comment. The TRO filings are available on PACER (www.pacer.gov) for a minimal fee. There is plenty of information there."
There is plenty of information out there, huh?! Too much information I would opine, as far as Mary Anderson and Larry James are concerned.
What do you think of this case? It's a whole bunch of dirty laundry, that's for sure. It's also the kind of behind-the-scenes stuff that rarely sees the light of day, namely because both sides have vested interests not to make all of this public.
We'll give you an update on the case following the case management conference on the 19th.