Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-arwd-2_07-cv-02015/USCOURTS-arwd-2_07-cv-02015-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF ARKANSAS

FORT SMITH DIVISION

TEMPUR-PEDIC

INTERNATIONAL, INC. PLAINTIFF

v. Civil No. 07-2015

WASTE TO CHARITY, INC.; 

BROCO SUPPLY, INC.; JACK 

FITZGERALD; ERIC VOLOVIC; 

HOWARD HIRSCH; THOMAS SCARELLO; 

NELSON SILVA; CLOSE OUT 

SURPLUS AND SAVINGS, INC.; 

and ERNEST PEIA DEFENDANTS

MEMORANDUM OPINION & ORDER

Plaintiff filed its Complaint (Doc. 1) on February 13,

2007, an Amended Complaint (Doc. 5) on February 21, 2007, and

its Second Amended Complaint (Doc. 57) on April 13, 2007.

Plaintiff seeks either recovery, or money damages for 8,000

mattresses, 7,000 slippers, and other related items

(“products”) valued at over $15 million. The products were

donated by Plaintiff to Separate Defendant Waste to Charity,

Inc. (“WTC”) for distribution to charitable organizations, but

allegedly misappropriated by Defendants. 

Plaintiff’s Second Amended Complaint is for replevin,

breach of contract, fraud, conversion, civil conspiracy to

commit fraud, and civil conspiracy to commit conversion.

Currently before the Court are: (A) Motion to Dismiss (Doc.

67) by Separate Defendants Eric Volovic and Howard Hirsch; (B)

Motion to Dismiss (Doc. 71) by Separate Defendants WTC and

Jack Fitzgerald; (C) Motion to Dismiss Count Six (Doc. 73) by

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Separate Defendant Close Out Surplus and Savings, Inc.

(“CSS”); (D) Motion to Dismiss (Doc. 76) by Separate

Defendants Nelson Silva and Ernest Peia; (E) Motion to Dismiss

(Doc. 96) by Separate Defendant Thomas Scarcello; along with

supporting documents and the responses to the motions. For

the reasons set forth herein, all motions to dismiss are

DENIED. 

BACKGROUND.

Plaintiff, Tempur-Pedic International, Inc., is in the

business of manufacturing, marketing, licensing, and

distribution of mattresses, slippers and other comfort

products. Plaintiff distributes its products only through

direct sales and through specialized, trained, and authorized

distributors. From November 2005, through October 2006,

Plaintiff alleges it donated mattresses, slippers and pillows

for distribution to the needy, including Hurricane Katrina

Relief charities. Plaintiff contracted with WTC to distribute

the products to various charitable organizations. (Doc. 1,

Ex. 1). 

The Charitable Donation Agreement provided, “[A]ll

products donated by Tempur-Pedic are not to be resold,

distributed for sale, or otherwise sold for profit in any

venue.” Plaintiff contends the mattresses sent to WTC were

contained in packaging distinguishable from the packaging used

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in the ordinary course of business. According to Plaintiff,

the donated mattresses were individually wrapped in clear

plastic and stacked on wooden pallets which is different than

its usual manner of packaging. Plaintiff contends this method

of packaging was used exclusively for the mattresses sent to

WTC for distribution to the Katrina-relief charities, making

the mattresses identifiable to Plaintiff. Plaintiff contends

the donated pillows and slippers were distinctly packaged as

well. 

Plaintiff contends that beginning in March 2006, the

products were sold by unauthorized dealers and sold in

violation of the contract agreement. Plaintiff contends WTC

sold some of the products to US Warehousing (“USW”), a

warehouse operator in Bowling Green, Kentucky, and that

unauthorized sales were made in Bowling Green, Kentucky;

Nashville, Tennessee; and Highlands Ranch, Colorado. Separate

Defendant Action Distributers, Inc., (“ADI”) was also sold a

portion of the products. 

In February 2007, after being solicited by Separate

Defendant Eric Volovic, an individual, identified as an

unnamed Informant, met with Separate Defendants Volovic,

Howard Hirsch, Thomas Scarcello, and Nelson Silva, at a

warehouse in Booneville, Arkansas. Prior to the meeting, the

Informant approached the Federal Bureau of Investigation

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(“FBI”) at the Fort Smith, Arkansas, office to discuss the

upcoming warehouse meeting. The FBI arrived during the

meeting to conduct an investigation. During the interviews,

Hirsch admitted Tempur-Pedic donated the mattresses initially,

but later the mattresses were legally sold to the individual

from whom Hirsch purchased them. Hirsch told the Informant he

would provide a paper trail to demonstrate he had ownership of

the mattresses but he did not. Plaintiff was unsuccessful in

having the Goods returned and then instituted this suit. 

STANDARD OF REVIEW.

In ruling on a motion to dismiss, the district court must

accept the allegations contained in the complaint as true, and

all reasonable inferences from the complaint must be drawn in

favor of the non-moving party. Hafley v. Lohman, 90 F.3d 264,

266 (8th Cir. 1996). Complaints should be liberally construed

in the plaintiff’s favor and should not be dismissed for

failure to state a claim “unless it appears beyond doubt that

the plaintiff can prove no set of facts in support of [its]

claim which would entitle [it] to relief.” Rucci v. City of

Pacific, 327 F.3d 651, 652 (8th Cir. 2003) (quoting Conley v.

Gibson, 355 U.S. 41, 45-46 (1957)).

ANALYSIS.

Plaintiff has filed claims for replevin, breach of

contract, fraud, conversion, civil conspiracy to commit fraud,

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and civil conspiracy to commit conversion. To establish a

prima facie case for replevin in Arkansas a plaintiff must

“allege and prove that he is the owner of the property, or has

a special ownership or interest therein, and that he is

entitled to immediate possession of the property.” Garoogian

v. Medlock, 592 F.2d 997 (Ark. App. 1979). 

To establish fraud, a Plaintiff must prove five elements:

(1) a false representation of material fact; (2) knowledge or

belief by the defendant that the representation is false or

that there is insufficient evidence upon which to make the

representation; (3) intent to induce action or inaction in

reliance upon the representation; (4) justifiable reliance

upon the representation; and (5) damage suffered as a result

of that reliance. Templeton v. United Parcel Service, Inc.,

216 S.W.3d 563 (Ark. 2005). 

For a claim of conversion, the requirement is a

demonstration of exercise of dominion or control over property

in violation of the rights of the owner or person entitled to

possession. Conversion can only result from conduct intended

to affect property. The intent required is not conscious

wrongdoing but rather an intent to exercise dominion or

control over the goods that is in fact inconsistent with the

plaintiff’s rights. Grayson v. Bank of Little Rock, 971

S.W.2d 788 (Ark. 1998). 

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A civil conspiracy is a combination of two or more

persons to accomplish a purpose that is unlawful or

oppressive, or to accomplish some purpose, not in itself

unlawful, oppressive, or immoral by unlawful, oppressive or

immoral means, to the injury of another. Allen v. Allison,

155 S.W.3d 682, 689 (Ark. 2004). A civil conspiracy is not

actionable in and of itself, but a recovery may be had for

damages caused by acts committed pursuant to the conspiracy.

Id. A civil conspiracy is an intentional tort which requires

specific intent to accomplish the contemplated wrong. Id. A

conspiracy may be shown by direct evidence of an actual

agreement or understanding between conspirators, but it may

also be shown by circumstantial evidence. Mason v.

Funderburk, 446 S.W.2d 543, 548 (Ark. 1969). 

ERIC VOLOVIC and HOWARD HIRSCH 

Plaintiff filed this suit for replevin, conversion, and

civil conspiracy to convert the Goods against Separate

Defendants Volovic (“Volovic”) and Howard Hirsch (“Hirsch”).

Volovic and Hirsch filed a Motion to Dismiss for lack of

personal jurisdiction. Volovic and Hirsch contend they were

agents for Broco Supply, Inc. (“Broco”), and that any acts

committed as the subject of this lawsuit were committed within

the scope of their employment under actual authority. They

contend that Broco the principal is bound by the acts, not

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Volovic and Hirsch. 

Actual and apparent authority exist in an agency

relationship. Actual authority includes manifestations of

assent made from the principal to the agent authorizing the

agent to act on the principal’s behalf. Asa-Brandt, Inc. v.

ADM Investor Servs., 344 F.3d 738, 753 (8th Cir. 2003).

Apparent authority focuses on the principal’s representations

to third parties. Id. at 749. Plaintiff contends Volovic and

Hirsch are relying on the fiduciary or corporate shield

doctrine to avoid liability. 

The corporate shield doctrine provides that individuals

performing acts in their corporate capacity are not subject to

the personal jurisdiction of the court of that state for those

acts. Barnett v. Kohler, 2006 WL 616805 (W.D. Ark.

2006)(quoting Torchmark Corp. v. Rice, 945 F.Supp. 172, 176

(E.D. Ark. 1996)). In Barnett, that Court decided, in sum,

that “whether the ‘fiduciary shield doctrine’ ever was a part

of Arkansas law, either before or after Ripplemeyer, has been

rendered moot by the General Assembly’s adoption of the recent

amendment of the long-arm statute (Acts of Arkansas 1995, No.

486), which broadened its reach to the full extent permitted

by federal law.” 

Plaintiff contends Volovic solicited an Informant over

the phone and offered 3,300 allegedly new Tempur-Pedic

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Plaintiff contends new Tempur-Pedic mattresses can sell at retail for as much as

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$6,399 per mattress. 

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mattresses for sale at the price of $295 per mattress.1

Plaintiff contends these Separate Defendants were physically

present during a meeting to sell the mattresses at the

warehouse in Booneville, Arkansas, in February 2007. Under an

agency analysis, the Separate Defendants would still be liable

personally as the alleged agency relationship was never

disclosed to Plaintiff, and any undisclosed relationships will

not free the agent of his liability. Construing the facts in

favor of Plaintiff, the Court finds it has personal

jurisdiction over both Defendants. 

WTC and JACK FITZGERALD 

Separate Defendants WTC and Jack Fitzgerald

(“Fitzgerald”), filed a Motion to Dismiss for lack of personal

jurisdiction or for failure to state a claim upon which relief

may be granted. Plaintiff filed against these Separate

Defendants for replevin, fraud, conversion, civil conspiracy

to commit fraud, and civil conspiracy to convert the donated

goods. WTC and Fitzgerald contend they lack sufficient

minimum contacts with the State of Arkansas for personal

jurisdiction to attach. 

Fitzgerald contends he has been a resident of Florida

since March 2004, and prior to that was a resident of New

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Jersey. He claims he has never “stepped foot” in Arkansas,

unless he passed through Arkansas while on a road trip to

California over fifteen years ago. (Doc. 72, Ex. B). WTC and

Fitzgerald contend they never had any offices, facilities,

bank accounts, telephone listings, or mailing addressees in

the State of Arkansas. 

A federal court in a diversity action may exercise

jurisdiction over non-resident defendants only to the extent

permitted by the long-arm statute of the forum state and by

the Due Process Clause.” Dever v. Hentzen Coatings, Inc., 380

F.3d 1070, 1073 (8th Cir. 2004). Because the long-arm statute

of Arkansas confers jurisdiction to the fullest constitutional

extent, the inquiry is limited to whether the exercise of

personal jurisdiction comports with due process. Id. “Due

process requires ‘minimum contacts between [a] non-resident

defendant and the forum state such that ‘maintenance of the

suit does not offend traditional notions of fair play and

substantial justice.’” Id. The Supreme Court has set forth

two theories for evaluating minimum contacts, general and

specific jurisdiction. Under the theory of general

jurisdiction, a court may hear a lawsuit against a defendant

who has “continuous and systematic” contacts with the forum

state, even if the injuries at issue in the lawsuit did not

arise out of the defendant’s activities directed at the forum.

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Id.(quoting Helicopteros Nacionales de Colombia, S.A. v. Hall,

466 U.S. 408, 415 - 416 (1984)). Both theories of personal

jurisdiction require “some act by which the defendant

purposely avails himself of the privilege of conducting

activities within the forum State, thus invoking the benefits

and protections of its laws.” Id. 

If a court determines a defendant has minimum contacts

with the forum state, it may then consider “whether the

assertion of personal jurisdiction would comport with the

notion of ‘fair play and substantial justice.’” Burger King

Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985). These factors

are considered: (1) the nature and quality of a defendant’s

contacts with the forum state; (2) the quantity of such

contacts; (3) the relation of the cause of action to the

contacts; (4) the interest of the forum state in providing a

forum for its residents; and (5) the convenience of the

parties.” Dever, 380 F.3d at 1073-1074. 

Plaintiff contends there were transactions and deliveries

from WTC and Fitzgerald to Scarcello and ADI, to include the

3,300 mattresses now in Arkansas. Because a portion of the

products are located in the State of Arkansas, and because all

parties are equally inconvenienced, the Court finds WTC and

Fitzgerald are subject to the long-arm statute of the State of

Arkansas. The sale and delivery of thousands of mattresses in

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Arkansas could attach liability to the seller even without

having physical contact with the State of Arkansas.

Accordingly, the motion to dismiss for lack of personal

jurisdiction is denied. 

WTC and Fitzgerald move in the alternative to dismiss

Plaintiff’s Second Amended Complaint for failure to state a

claim upon which relief may be granted. The Second Amended

Complaint alleges that the Goods of which Plaintiff has a

property interest have been taken by the Separate Defendants,

that they may still be in their possession or control, that

they have been fraudulently bought and sold, that the Goods

may have been converted, and that Plaintiff has demonstrated

the value of the Goods. Plaintiff alleged WTC and Fitzgerald

fraudulently sold some of the Goods in violation of the

Agreement with Plaintiff. Construing the Complaint liberally

in Plaintiff’s favor, Plaintiff has met its pleading

requirement with all claims against WTC and Fitzgerald. The

Second Amended Complaint contains numerous claims and

allegations that include WTC and Fitzgerald in the conspiracy

claims. (¶¶ 17-43, 49-51). The motion to dismiss is denied

on this point as well. 

CSS 

Close Out Surplus and Savings, Inc. (“CSS”), filed a

Motion to Dismiss Count Six (6) of Plaintiff’s Second Amended

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Complaint for failure to state a claim upon which relief may

be granted. CSS contends Plaintiff failed to adequately plead

the civil conspiracy to commit conversion claim against CSS.

Plaintiff alleges in the Second Amended Complaint that

certain Defendants, including CSS, diverted thousands of

Tempur-Pedic’s mattresses and other products intended for

charity, for the purpose of selling those products for

economic benefit and attempted to sell those products without

permission or authority which resulted in damages. (Doc. 57,

¶¶ 15 - 71, 109 - 113). Construing the facts in Plaintiff’s

favor, the Court finds a properly supported claim for civil

conspiracy has been alleged, and the motion to dismiss is

denied. 

ERNEST PEIA and NELSON SILVA 

Plaintiff complained of replevin, conversion, and civil

conspiracy against Separate Defendants Ernest Peia (“Peia”)

and Nelson Silva (“Silva”). Peia and Silva filed a Motion to

Dismiss for lack of personal jurisdiction, or alternatively

for failure to state a claim upon which relief may be granted.

Both Separate Defendants are employees of CSS sued in their

individual capacities. Peia and Silva contend they are

residents of the State of New Jersey and officers of CSS, a

New Jersey corporation. Peia and Silva contend they engaged

in no relevant conduct outside their capacities as corporate

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representatives of CSS and are, therefore, not subject to any

personal jurisdiction in this matter. 

Plaintiff contends the Court has both specific and

general jurisdiction over Peia. Plaintiff contends that Peia

as the president and owner of CSS, has conducted business with

Scarcello and his company, ADI, which is located in Arkansas,

and negotiated directly with Scarcello’s boss, Tony Alamo, who

is in Arkansas. Plaintiff contends that on February 20, 2007,

after being served with notice of the temporary restraining

order in this case, Peia contacted representatives of TempurPedic in Arkansas regarding the mattresses in the Booneville

Warehouse, and represented that he purchased the mattresses

from Scarcello and ADI in Arkansas. Peia, in his Reply (Doc.

95), contends he has not conducted business in Arkansas,

rather CSS has. Peia contends that CSS did deal with ADI and

Scarcello, but this was while they were in New Jersey, not

Arkansas. 

Plaintiff has demonstrated that Peia may have personally

negotiated for the Goods currently located in the the

Booneville warehouse, and has alleged conspiratorial schemes

including Peia personally. It is not clear from the record

who currently has possession over the Goods, Peia or CSS, but

Plaintiff has alleged facts sufficient to connect Peia with

Arkansas for his specific involvement in the case sub judice.

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Accordingly, the Court has specific jurisdiction over Peia. 

Plaintiff contends Silva is vice president of CSS and

traveled from New Jersey to Arkansas to actively participate

in the product inspection. Plaintiff contends he attempted

sale of a portion of the Goods and played an active role in

the negotiations of the sale. Silva, in his Reply (Doc. 95),

contends one meeting and inspection in Arkansas is not enough

to establish jurisdiction over him. However, because the

mattress transaction in Booneville, Arkansas, is a specific

part of this case, the Court need not look any further.

Construing the Complaint liberally in Plaintiff’s favor, the

Court finds specific jurisdiction over Silva properly lies

within its jurisdiction. 

Peia and Silva also move the Court to dismiss the Second

Amended Complaint for failure to state a claim. Plaintiff

brought three causes of action against Peia and Silva:

replevin, conversion, and civil conspiracy. The Second

Amended Complaint sets out the fraudulent buying and selling

of mattresses against the express language of Plaintiff’s

Agreement with WTC, which consequently included Peia and

Silva’s possession and possible conversion of the Goods. As

to the civil conspiracy claims, the Second Amended Complaint

provides ample detail outlining Peia’s and Silva’s involvement

in the alleged schemes. Accordingly, Plaintiff has

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established its prima facie case on these causes of action,

and the motion to dismiss is denied on this point. 

THOMAS SCARCELLO 

Separate Defendant Thomas Scarcello (“Scarcello”) filed

a Motion to Dismiss Plaintiff’s claim for civil conspiracy to

commit fraud asserted in the fifth claim for relief of the

Second Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(6).

Plaintiff filed its Second Amended Complaint against Scarcello

for replevin, conversion, civil conspiracy to convert, and

civil conspiracy to commit fraud. Scarcello contends

Plaintiff failed to allege with requisite specificity that

Scarcello knew of WTC and Fitzgerald’s alleged fraud, that

Scarcello had the specific intent to further the alleged fraud

or that Scarcello had any knowledge of defendants WTC and

Fitzgerald prior to WTC’s alleged entering into the fraudulent

Agreement. 

Plaintiff has demonstrated facts sufficient to establish

its prima facie case. (See CSS discussion, supra). The

Second Amended Complaint describes how Scarcello, Fitzgerald,

ADI, and WTC conspired to divert thousands of mattresses for

the agreed upon purpose of selling those products for the

economic benefit of Scarcello, Fitzgerald, ADI, and WTC, who

sought to improperly sell those products without permission or

authority when such products were intended exclusively for

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charitable purposes resulting in damages to Plaintiff. (Doc.

57, ¶¶ 15-71, 103-108). The Court finds Plaintiff’s claim

against Scarcello survives the motion to dismiss. 

CONCLUSION.

Accordingly, for the reasons set forth herein, the

motions to dismiss set out in Docs. 67, 71, 73, 76, and 96 are

DENIED. 

Additionally, the Court finds the motions set out in

Docs. 30 and 32 MOOT because of the filing of the Second

Amended Complaint. 

IT IS SO ORDERED this 24th day of July, 2007. 

/s/ Robert T. Dawson 

HONORABLE ROBERT T. DAWSON

UNITED STATES DISTRICT JUDGE 

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