UPDATE: PMD ordered to pay $926K in fraud case

Company says it will appeal

Heath E. Combs -- Furniture Today, June 29, 2011

COLUMBUS, Ohio — A Franklin County jury here found furniture retail franchisor Power Marketing Direct Inc. gave fraudulent and misleading information to induce Carlton S. Andrew of Greenville, S.C., to enter into a license and dealer agreement.

According to court documents filed last week, now defunct PMD Inc. was ordered to pay Andrew, who signed a license and dealer agreement in 2006, compensatory damages of $770,000, punitive damages of $10,000, plus attorney fees of $146,052, for a total of $926,052.

The defendants included PMD Inc. founder and President Jeff Hosking; former chief marketing officer Joseph Armetta; current PMD Furniture Direct controller Robert Swan and Jerry Williams, current chief operating officer of PMD Furniture Direct

Hosking converted PMD Inc. from a licensed dealer network to a franchised operation called PMD Furniture Direct in 2009.

The court dismissed claims against Swan and Williams. Hosking and Armetta will personally be responsible for a total of $270,000 of the judgment.

According to Rex Elliott, a partner at Cooper & Elliott which represents PMD, the company intends to appeal the ruling.

"We don't regard this as much of a judgment at all because PMD no longer does business and PMD Furniture Direct is a separate business with franchisees and we don't think the $270,000 is going to hold up on appeal," Elliott said.

Andrew also prevailed in a breach of contract claim. He maintained that PMD failed to act in good faith when he suffered a serious medical problem in 2007 and also failed to provide business assistance.

PMD had filed a counter claim against Andrews, but the jury dismissed it.

The case was filed in civil court here in October 2008 and stemmed from a license and dealer agreement Andrews entered into in 2006.

Andrew's fraud claims were based on his belief that PMD purposely concealed high rates of dealer failure and used misleading recruiting tactics.

Court documents filed in the case reported that Andrew began PMD's recruiting process for a company position in 2006, but he was led to believe better financial prospects waited in ownership.

He was swayed to the ownership route, in part, by unaudited financial information given to him by PMD.

In the court documents, PMD said that Andrew personally operated the business for a total of about five months - from February to July 2007.

They also noted Andrew blamed his store's lack of sales on a stress-related physical injury - colon disruption - which resulted in an eventual surgery in July 2007, for which he was hospitalized five days that month and again in September.

After the surgery Andrew never returned to day-to-day operations and eventually ran out of capital to run the business during his recovery. The court records show his last payment to PMD Inc. was for $22.70 in October 2007.

In his suit, Andrews also charged that PMD had improperly terminated his access to the PMD website in November 2007.

PMD argued that all the information Andrew received was true or substantially true and that he failed to disclose critical information to the company in the recruiting process.

PMD also argued that Andrew's dealership failed because of poor performance; that PMD never terminated the dealer relationship and it didn't break license and dealer agreements.

PMD filed a counter claim in October 2009 in the case for the outstanding remainder of Andrew's license fee - a total of $14,000 - among other items.

The jury decided against PMD's counter claim.