Conn's alleges former manager committed fraud

Marilyn Tennissen Nov. 28, 2007, 9:30am

Conn's Appliances is alleging that a former store manager made fraudulent transfers to his personal credit card.

CAI LP, the Beaumont-based electronics and appliance retailer doing business as Conn's, filed a suit against Needham E. Shotwell of Houston for breach of fiduciary duty, breach of contract, promissory estoppels and negligence. The suit was filed Nov. 20 in Jefferson County District Court.

According to the plaintiff's original petition, Shotwell was hired to serve as manager of a Conn's retail store, a relationship of "great trust" that "required exceptional loyalty." Managers' duties include safeguarding millions of dollars of store inventory, keeping detailed and accurate business records and maintaining strict control over sales and transactions.

"Conn's managers, including defendant, are compensated in proportion to the diligent exercise of their duties," the petition states.

The petition says that in 2006, Shotwell "began to fraudulently transfer funds from previous product sales in Conn's accounts to his personal credit card(s)."

The plaintiff alleges the fraudulent transfers continued throughout 2006 and 2007, and to prevent discovery, "defendant altered Conn's internal records."

Additionally, the suit claims, periodic audits of inventory at Shotwell's store "revealed that defendant had permitted or caused the loss of tens of thousands of dollars of Conn's inventory."

Plaintiffs allege that Shotwell undertook numerous deceptive transactions to disguise the inventory shortfalls and used his knowledge of Conn's computer systems to modify records.

"Consequently, the full scope of defendant's acts are not fully ascertainable," the petition states.

Conn's claims that Shotwell's self-dealing and fraudulent activities were a breach of fiduciary duties he owed to Conn's as an employee.

"Defendant's benefit and Conn's financial and property loss was a natural, probable and forseeable consequence of defendant's breach," the suit states.

The defendant also breached his contract with Conn's by failing to follow numerous company policies that he had previously agreed to, the plaintiff claims.

Conn's also pleads for recovery under the doctrine of promissory estoppel. "Defendant promised to safeguard Conn's funds and inventory."

Conn's alleges Shotwell committed acts of conversion, theft and negligence.

The suit names the following acts or omissions amounting to negligence:

Failing to properly oversee inventory control;

Failing to enact safeguards against inventory losses;

Failing to notify Conn's of financial and inventory losses; and

Committing various acts and/or omissions of negligence, both statutory and common law, to be specified in detail at time of trial.

As a result of the property loss, Conn's claims its damages are in excess of $50,000 and exceed the jurisdictional limits of the court.

Conn's is asking that the court place a constructive trust on the proceeds or property obtained as a result of Shotwell's fiduciary duties.

The appliance retailer is also seeking exemplary damages, alleging that Shotwell's acts of criminal theft and conversion were fraudulent, malicious or grossly negligent and that Shotwell intended to cause the store injury.

Conn's is represented by J. Thad Heartfield of Beaumont.

The case has been assigned to Donald Floyd, 172nd District Court.

Case No. E180-794

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