|Acquired Companies||WSG, SXP, and CRA-OCTG|
|Claimants||Precision Castparts and PCC Germany|
|CPHB||Claimants' Post-Hearing Opening Brief|
|CPHRB||Claimants' Reply to Respondents' Post-Hearing Brief|
|Commercial Rules||Commercial Arbitration Rules of the American Arbitration Association, including the Procedures for Large Complex Commercial Disputes.|
|CRA-OCTG||SXP CRA-OCTG, Inc.|
|DFB||Deutsche Factoring Bank|
|EKTRA||Management & Diligence Services Pte Ltd.|
|Fox||FCF Fox Corporate Finance GmbH|
|PCC||Precision Castparts Corp. and PCC Germany|
|PCC Germany||PCC Germany Holdings GmbH|
|Precision Castparts||Precision Castparts Corp|
|Reply||Claimants' Reply in Support of Statement of Claim|
|RPHB||Respondents' Post-Hearing Brief|
|RPHRB||Respondents' Reply to Claimants' Post-Hearing Opening Brief|
|Schulz||Schulz Holding GmbH & Co. KG, Schulz Extruded Products Beteiligungs GmbH & Co. KG, and Schulz Extruded Products Verwaltungs GmbH|
|Schulz Beteiligungs||Schulz Extruded Products Beteiligungs GmbH & Co. KG|
|Schulz Holding||Schulz Holding GmbH & Co. KG|
|Schulz Verwaltungs||Schulz Extruded Products Verwaltungs GmbH|
|SF Holding||Schulz SF Holding GmbH|
|SFE||Schulz (Far East), Pte., Ltd.|
|SOC||Claimants' Statement of Claim|
|SOD||Respondents' Statement of Defense|
|SPA||Securities Purchase Agreement dated December 28, 2016, among Claimants, Respondents, CRA-OCTG, SXP, Schulz Investment Corp., and Wilhelm Schulz GmbH|
|SXP||SXP Xtruded Products LP|
|WSG||Wilhelm Schulz GmbH|
10.9 Arbitration. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.1
This Agreement shall be governed by, and construed in accordance with, the Law of the State of Delaware, without regard to any conflict of laws principles thereof that would cause the application of the Law of any jurisdiction other than the State of Delaware.2
Ms. Jean E. Kalicki
142 West 57th Street, 11th Floor
New York, NY 10019
Dr. Wolfgang Peter
Peter & Kim Ltd.
Avenue de Champel 8C
P.O. Box 71
1211 Geneva 12
Mr. Elliot E. Polebaum
801 17th Street N.W., Suite 600 Washington, DC 20006
Kirk Pulley Scott Freeman Tudor Lupea Dennis Webb Melissa Mire Mihaela Fantaziu Teresa Scallorn Cindy Reagan Gail Adams
Mei Choo Chang
Claimants also submitted reports of the following expert witnesses:
In addition, Claimants submitted numerous Exhibits and Legal Authorities.
W. Gregory Hudspeth
Respondents also submitted the reports of the following expert witnesses:
Stephanie S. Anderson
Alexander T. Deligtisch
Mark E. Zmijewski
In addition, Respondents submitted numerous Exhibits and Legal Authorities.
Todd Mesick Ashraf Mohammad
Kirk Pulley (Second Statement)
Claimants also submitted a first Expert Report of Neil Beaton and second reports of the following expert witnesses:
In addition, Claimants submitted further Exhibits and Legal Authorities.
Mathias van Gemmern
With an utilization of the line of 21.3 million, there are about 1.8 million real Factoring invoices.
If you would like to have an analysis of the real orders and the associated cash receipts from Factoring, we will do that of course.
We planned it like this in the beginning, but then we wouldn't have reached until end of May.
The 14 million Sing Ghee Huat you just told me so.
Unfortunately, neither Daniel nor Stefan nor I can verify what the "real" amount is.
I have put KPMG off using a sound excuse until Tuesday.
Let's just sit together on Tuesday morning and then we'll do the fine tuning.
Schulz was meeting its cash needs by tendering receivables to DBF, which were not based on actual customer orders.
Here we urgently need one or more orders for SXP so that we can invoice. We must urgently create the order next week; for the invoicing we will manage from Germany (I hope at least). We will try to enter the orders so that they are not visible in the item account and in the lists (but in the system of course).42
Dear Mr. Koertge,
we have not met in person so far, I'm working for With. Schulz GmbH in Krefeld and I heard you are the one responsible for the integration of WS into the PCC.
Since I was loyal with my company over the last years and I want this integration work for both sides on a fair base I have to get rid of something I witnessed during the past months.
There is a falsification of finance data going on.
Since October a small team enters fake customer orders into our Infor system and into Sun to manipulate the total order value and by that make our company look much better than we really are.
I regard this as a criminal act and don't want to work for a company which uses such methods any longer so I hope you will investigate and end this criminal nonsense.
Currently they try to wipe their traces by deleting everything and getting new computers but there still should be evidences of their acting in our records.
The team was led by Thomas Fuchtjohann. Marcel Sontrop created the fake customer orders as documents and Peter Heimbach (external employee) manipulated the Infor database. Stefan Heinrich was responsible for Sun.
PCC investigated the charges leveled in the anonymous email, but was unable itself to substantiate the allegations and on July 4, 2017 so informed the anonymous author of the email.62
1. Do we have purchase orders for these sales? While the "Our order" box on the form has an identifier (e.g., CRA000329) the "Your PO" line is empty.
2. Who created these invoices, and why were they created differently than invoices for product shipped from Hernando to Krefeld or Marubeni, for example?
3. Was this product manufactured in Tunica? Shipped from Hernando? Shipped directly to the customer or via an intermediary?
4. Why were the payments from the customers not made directly to Tunica?84
Partially it was made directly to SXP. Some Payments were made to Germany based on the financing arrangement with Commerzbank. Background here is that Commerzbank financed the whole Schulz-Group but factually didn't want to grant credit facilities direct in the U.S. that's why SXP was only a Guarantor to the facility and not a borrower. Commerzbank always stressed the fact to collect as much of the receivables through Germany as possible. Commerzbank was in possession of a Global Receivable Assignment of Schulz Group and they believed that from a legal standpoint it would be easier to enforce the Assignment within German jurisdiction/bank account.87
We can't trace who created the invoice, the invoice shows the person which put the order into the system, which means if a person enters an order in 2015 and the job would only be invoiced in 2017, without any manual change, the name of the person which entered the order would still appear on the invoice. The reason behind that is that when we established the system, we wanted a dedicated person responsible per project, this person should be contacted by the customer in case of any question even if another person creates an invoice for a partial shipment, say because the responsible person is on leave that day, or sick leave. The customer should always contact the same person, that's why the system logic works like that.89
In the following weeks, PCC continued to request documents that would reflect the transaction,90 but the documents that Flöth provided in response to Beyer's queries proved to be inauthentic. Flöth had represented that the pipe in question was purchased from PrimeSourcing International, a Malaysian subsidiary of Petronas. However, the contract he furnished to PCC had a discrepancy in dating on the face of the contract when compared with an original PrimeSourcing contract from 2013. Flöth took the 2013 PrimeSourcing signature pages and stamps and changed the date of three signatures to 2015, but neglected to change the date of the fourth signature to 2015.91
a. On PCC's claim for fraudulent inducement by Respondents, an award in PCC's favor of €800 million, with Precision Castparts to recover €500 million and PCC Germany to recover €300 million;
b. In the alternative, on PCC's claim for fraudulent inducement by Respondents, an award in PCC's favor of €643 million, with Precision Castparts to recover €401,875,000 and PCC Germany to recover €241,125,000;
c. Prejudgment interest on the foregoing amounts at the rate of 6.25% per annum, with interest to run from February 16, 2017;
d. Punitive damages in the amount of PCC's attorneys' fees incurred through the date of this award, with 62.5% of such amount to be paid to Precision Castparts and 37.5% to be paid to PCC Germany;
e. A declaratory ruling that Respondents are jointly and severally liable for the foregoing amounts;
f. In the event the Tribunal determines that PCC has not carried its burden to prove its fraudulent inducement claim, an award in favor of PCC for breach by Respondents of representations and warranties made in the SPA in the amount of €100 million with:
i. Precision Castparts to recover €62.5 million;
ii. PCC Germany to recover €37.5 million;
iii. Schulz Holding to pay €37.5 million;
iv. Schulz Beteiligungs to pay €61.94 million; and
v. Schulz Verwaltungs to pay €560,000.
g. Prejudgment interest on the foregoing amounts at the rate of 6.25% per annum, with interest to run from February 16, 2017; and
h. The costs of these proceedings, with 62.5% of such amount to be paid to Precision Castparts and 37.5% to PCC Germany.
1. Respondents request that the Tribunal render a final award in this matter dismissing all of Claimants' claims and entering judgment in favor of Respondents, finding and concluding as follows:
(a) Claimants have not been damaged because the value of the Acquired Companies as of the Closing Date exceeds the purchase price Claimants paid Respondents.
(b) All of Claimants' claims fail as a matter of law because:
(i) Claimants have failed to prove damages, which is an essential element of each of Claimants' claims; and
(ii) even if Claimants could establish damages, they have not met their burden of proof because the evidence presented by Claimants on the other elements of their fraudulent inducement and breach of contract claims is legally insufficient, based on improper assumptions, impermissible inference stacking, lacks a proper foundation and is unreliable; and
(iii) Claimants are not entitled to punitive damages.
(c) Claimants shall take nothing from their claims in this matter.
(d) All of Claimants' claims against Respondents in this matter are dismissed, with prejudice in favor or Respondents.
(e) All costs incurred by all Parties in this matter are assessed against Claimants.101
• "How do we get a BS [Balance Sheet] & PL [Profit & Loss] without a TB [Trial Balance]? Get me the BS & PL you have and we can start constructing a TB."124
• "Need to get you and Stefan [Heinrich] SXP current YE detailed numbers so that you can get sales where you projected."125
• "Here we urgently need one or more orders for SXP so that we can invoice. We must urgently create the orders next week; for the invoicing we will manage it in a way or another from Germany.... We will try to enter the orders so that they are not visible in the item account and in the lists (but in the system of course.)"126
• Creation of a domain name and email address for a fictional accountant referred to as Raj and described as "a very strict guy... ha ha ha."127
(d) Nothing in this Section 4.5 or elsewhere in this Agreement will limit claims or remedies for fraud or willful misconduct or representations or warranties made in any other agreement.
In an email dated December 16, 2019, the Tribunal requested "the Parties to address with specificity the meaning of Section 4.5(d) of the SPA, with particular attention to the language 'made in any other agreement' and the specific prior words that this phrase modifies."
I cannot think of an excuse, but as soon as the [Commerzbank] money is available, we have to get rid of this invoice immediately.
Do you have any ideas for an excuse? Inspection, bad payment morale [sic] overall, we've already used everything. I'm afraid they will not purchase any more Hyundai receivables.255
Two days later, Koelling assured DFB that payment for Hyundai had been wrongfully delayed over questions concerning technical deficiencies in the products, but that payment was now "on its way."256 After DFB requested further information in December 2015, Koelling wrote to Flöth and Fuchtjohann as follows: "[DFB] is threatening to close the lines and no longer buy customers' receivables. Samsung over 3 million dunning level 4, Hyundai 1.5 million dunning level 5 and Technip 323' dunning level 6 (All invoices fake)."257
a. ALSA. WSG's reported revenue for 2015 included a sale to ALSA in the amount of €32 million. This sale was entered into the INFOR system out of sequence. The INFOR system shows a "create" date of October 14, 2014, but the order was in fact entered during the period of the INFOR outage in October 2016.321 There are no purchase orders or shipping records for the ALSA order. Joachim Wickenkamp, then WSG's Middle East sales lead, was not aware of the ALSA order.322 Payments made in respect of the invoice originated not from ALSA, but from an SF Holding account managed by Flöth and Luca Schulz.323 Schulz personnel also forged a bank statement that purported to show that ALSA, and not Schulz SF Holding GmbH, had paid €6,456,000 toward the order.324
b. Piping Equipment, Horizon and ASYN. SXP reported sales in its 2016 results that included purported sales to Piping Equipment Pte Ltd, Horizon Energy LLC and ASYN Atrau.325 However, SXP employees Fantaziu, Mire and Scallorn, who had among them responsibility for order entry and tracking, did not recognize the transactions. Ms. Fantaziu, whose name appears as the creator of invoices and order confirmations, testified that she did not create them.326 Ms. Scallorn testified that invoices in unprecedented amounts "suddenly appeared" in INFOR reports that she generated.327 When Flöth and Luca Schulz were questioned about these transactions by PCC's General Counsel, they produced forged documents to try to justify them.328
c. 2015 CRA-OCTG Sales. On June 15, 2016, SXP's Senior Accountant Dennis Webb submitted to Mr. Hudspeth a preliminary CRA-OCTG balance sheet for 2015 that showed sales of $3.4 million dollars through December 2015.329 The same day, Flöth emailed Hudspeth a spreadsheet showing a 2015 sales figure of $53.6 million.330 On December 8, 2016, Hudspeth sent Webb a statement "prepared in Germany" showing sales of $53.6 million and asking Webb to "prepare documents that would substantiate the balance sheet."331 On December 9, 2016, Flöth sent Hudspeth a sales breakdown for 2015.332 However, there are no purchase orders, order confirmations, invoices, shipping records, or other documentation of these sales.333 Nor is there any evidence that these are so-called "trade sales" that were funneled through CRA-OCTG.334
d. SFE. In the virtual data room, Schulz included a 2015 financial statement for SFE, that reported sales of approximately €18.8 million.335 The SFE financial statement was reviewed by EKTRA. However, Flöth working with the financial controller of SFE established EKTRA on June 22, 2016 to conduct the review of SFE's financial statements, which as noted showed sales of €18.8 million for 2015. SFE's usual accounting firm conducted an audit of SFE, which was not disclosed to PCC and which showed sales of €9.8 million.
e. Dubai Petroleum, Larsen & Toubro, and F. Linster & Co. Orders shown in the names of these three companies in the respective amounts of $2.3 million, $4.6 million and $4.5 million all purport to have been created by Ms. Fantaziu, but she testified that she did not create any of these orders.336 Ms. Mire testified that there is no record that would show that product was manufactured at SXP or CRA-OCTG to fill these orders.337 Ms. Reagan testified that no product shipped from SXP or CRA-OCTG in respect of these three orders.338 There are no third party purchase orders or other documentation associated with these orders, which were all created out of sequence and effectively backdated.339 By contrast, there are internal Schulz communications, in the case of the Dubai and Larsen & Toubro orders, requesting "letterhead," so that the orders could be created on the customers' letterhead, and Wördehoff's out of sequence analysis shows that Sontrop, who was not an SXP employee, created the orders.340 Upon being contacted, Dubai Petroleum and Larsen & Toubro both stated that they had not originated these orders.341
f. Technip. This order in the amount of €6,299,589 was created out of sequence during the October 2016 INFOR outage. There is no third party documentation such as purchase orders or shipping records and the invoices were never paid.342 A revealing email from Sontrop dated September 22, 2016 states as follows: "I am running into problems with the signatures on the next Technip. They all look the same. Any ideas? I have no idea how I am supposed to do this!"343
"In some instances, the tort claims are justified when facts and circumstances reveal that something more than failed performance was responsible for the breakdown of the contractual relationship. In other instances, the tort claims amount to nothing more than an effort to 'pile on' diaphanous claims of misbehavior on top of contractual breach claims that alone are adequate to redress the 'wrong' that allegedly has been committed. Much like the brawler who brings a big stick to a fist fight, these parties seek to escalate the controversy by injecting tort claims into straightforward breach of contract disputes."386
R-47. Scope of Award
(d) The award of the arbitrator(s) may include:
(ii) an award of attorneys' fees if all parties have requested such an award or it is authorized by law or their arbitration agreement.
Thus, the Parties' agreement allows for an award of attorneys' fees only if all Parties have requested it, if the Parties' arbitration agreement provides for it, or if an award of attorneys' fees is authorized by applicable law.
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