Dead Solid Pluperfect

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Arbortext Accounting Fraud #44: The Blohungusinebriatrocity Factor

Chapter Forty-Four

The Blohungusinebriatrocity Factor


Mary and I now had two weeks to write the most important document we had ever attempted to write – legally speaking.

We were aided somewhat by two events. One which occurred while we awaited Palizzi’s Motion To Dismiss, and one which occurred as we began to write our response.

The first event involved money. More precisely, the lack of it. What’s new?

While we were in the midst of ignoring thinking about not having enough of it to finish the Arbitration case, Mary looked up from her computer one morning and said, “I just got an email from somebody who wants to buy our Domain Name.”

“Which one?” I asked.

We had two., which we had purchased following Dwan’s theft of the name which was located at our Blueberry web site. You may recall from the Beigel vs Dwan trial, that a value of $20,000 was placed on the domain name and I had been ordered to pay Dwan $10,000 for his share of that value as the name then became owned entirely by me. Blueberry now had both domain names parked on each other at our one web site. They are offering $40,000. I did some research a while ago and a company that appraises the value of domain names said was worth between $79,500 and $94,000. Amazing, huh?”

“You’re kidding. Is it a serious offer?”

“Sure looks that way. It’s from an Ashley Saddul at”

“Jeez. We’ve had for a long, long time. It goes way back to the early nineties – maybe even the late eighties. That’s how people have been reaching us for years.”

“They reach us through our web site mostly. That’s all now. I don’t think losing the other one will hurt us.”

“I suppose it’s a moot point,” I said. “We sure need that money. Even if it’s worth twice that much down the road.”

“It’s an answered prayer. I’m going to call her and accept it.”

I knew what Mary’s prayers were like. They were direct to Jesus. Please help us, if that is Your will for us. Mine? I was never sure if it could be called praying when I wandered around inside my own skull screaming, “What are we gonna do? We’re dying here. Five years down the drain because we can’t pay the Arbitrator. Somewhere, somehow, something’s got to happen or we’re dead. Aaaarrrrggghhh!!!”

Mary whirl-winded into the phone and after a few days of haggling, posturing, doing the Jump Up/Jump Down tango, and running some careful bluffs, she got Ms. Saddul to bump the offer up to $44,000. Which covered her commission and left us with the original offer of $40,000. It seemed so much bigger than $36,000. And I guess an extra four grand to two broke bums was indeed a lot bigger.

Answered prayer, indeed. We’re alive!

Not only alive, but a bit beyond that. Enough so to look around at our meager and depressing dwelling accommodations in the RV and make a fairly quick decision to temporarily move ourselves and all our files and equipment to a far more spacious room at a nearby Best Western Heritage Inn, where we could concentrate on the task at hand of replying to Palizzi’s Motion.

The room was quite spacious – compared to our RV. About three times more so. It felt like we’d moved into a palace. It even had a full sized tub with Jacuzzi jets. Heavenly! There were two queen size beds and we used one of them to spread out all our papers and evidence. There was a Starbucks down the street, but the complimentary coffee was pretty good, too. And free. Along with the ample breakfast buffet and equally ample evening buffet. What a joint!

We signed up for the weekly rate and settled in for two weeks of some serious fake lawyering.

Our first action was to send Palizzi’s Motion to Claudia Rast for her opinion. Then we spent a couple of days freaking out. The only thing we knew regarding this one year liability limitation in the contract was what every lawyer we’d talked to had said: it’s an on going fraud, not a one time contract dispute. A crime. But how the heck do we write about this in a legal fashion? What was the appropriate mumbo jumbo needed for the pompous zoo of wherefores and prithees. On Going wasn’t mentioned much anywhere on the web as a legal term. It sounded too much like ordinary English. Not enough blohungusinebriatrocity.

Then came event number two. Claudia provided not only the proper legal terms, but some court cases to cite in support of them. The terms were Fraudulent Concealment and Fraudulent Misrepresentation. Talk about relief! These two terms perfectly described the entire history of the contract between Arbortext and Blueberry. To a TEE. Since Fraud was involved, and it had just now been provably discovered in Arbitration, the statute of limitations in the contract would be, as the lawyers say, tolled.

The first Fraudulent Concealment occurred during and after the contract signing itself when the product Intermarket/E-Catalog was being concurrently developed by Zoltan Gombosi and his team of eleven programmers. This product, which included our technology, was not listed on Appendix B of the Blueberry/Arbortext contract, though Arbortext knew full well that it was a qualifying Arbortext Covered Product. In addition, none of its sales (nearly $4,000,000 according to Gombosi’s Resume) were ever reported to Blueberry, or its existence even admitted – indeed its existence, despite overwhelming evidence to the contrary, was and is still denied. Concealed. During the history of the contract, Arbortext had made the concealment of qualifying royalty sales practically an evil art form. We had caught them at some of the concealed sales, but there were still many more occurring with each and every royalty report.

If you have any doubts about Intermarket’s existence, click here. Use the PgDn key to quickly go to Page 21. The remaining fourteen pages are all about Intermarket, including screenshots of a functioning software product – a fully developed product. Wherever you see the words Framemaker, MS Word, and Interleaf – that refers to Blueberry’s conversion technology. The question remains to this day: what happened to the $4,000,000 this product generated? During its never developed and never sold and never reported existence. Isn’t anyone but Blueberry concerned about this missing money? Is four million dollars some sort of slop error factor these days? Chump change. The financials are accurate plus or minus four million, give or take, around that much, sort of close. Is there a new CPA system in the country with elephantine elastic bottom line figures?

The first Fraudulent Misrepresentation occurred in September of 2000 – two months after the contract had been signed. This Misrepresentation was made by none other than Jim “Paddle Ball” Sterken. Who else? The Mastermind of the Fraud performing his duty of deception and thievery.

I have not devoted any previous verbiage to this event for fear of muddling up the narrative of an already seriously muddled story. This event, however, stalked the entire history of the Blueberry/Arbortext contract. And its time on the stage has now arrived.

Sterken attempted, via a phone call and subsequent email to Kevin Dwan, to rewrite the contract, more favorably to Arbortext than it already was, scarcely two months after the initial signing. Kevin Dwan, utterly asleep at the wheel, but also completely duped by Sterken’s statements, agreed via email to this new royalty accounting proposal. See our Exhibit R (the Plante Moran Audit), “Appendix C”. I’ll quote the relevant portions here:

 Rather than configure the Interchange capability (which makes use of your Blueberry technology) as a $10,000 optional module of E3 (Epic E-Content Engine), our new plan is to bundle it into E3 by default and allow customers to delete it if they don’t want the capability.

In the new configuration, E3 will sell for $50,000. If the customer chooses to delete the Interchange capability, then we will charge them $40,000.

So, for each E3 that the customer chooses not to delete the Interchange capability, we will credit you with a $10,000 Interchange sale and pay you a royalty against the $10,000 . . .

 This email achieved an 80% reduction in Blueberry royalties since Blueberry, per the original contract, was slated to be paid a percentage of the entire E3 product we were incorporated into ($50,000), as opposed to a percentage of one-fifth of the entire sale ($10,000). Essentially a percentage of our own technology, not a percentage of the Arbortext incorporated product.

There is a Fraudulent Misrepresentation problem with this email that helps explain why Dwan would agree to this ridiculous 80% lessening of royalties. Sterken lies to Kevin Dwan about the E3 product and its configuration vis a vis Interchange. He claims that Interchange is a $10,000 optional module of E3 that they will now “bundle it into E3 by default.  Yes, it’s listed as an option – but no price for it is ever listed. Yet up to the point of this phone call with Dwan, all E3 sales have Interchange already bundled into them. In fact, no line item on any Invoice has yet broken out the three components of E3 (Web, Print, Interchange). That comes later as Arbortext invents and evolves its Invoicing schemes in ways to limit Blueberry’s royalties, and all based on this email.

It is this email that they begin to use in lieu of the contract language as a percentage based system of Interchange value rather than Interchange incorporation to reduce Blueberry’s royalties. It is evident from Dwan’s acceptance of this email that he had been duped by Sterken into believing E3 customers had to request the Interchange module be included in their purchase and that most customers did not make this request, and it would be to Blueberry’s benefit that each customer have to request OUT and not IN, which would be taking advantage of the customer’s carelessness or ignorance or laziness. Not only was this false, in that all E3 sales contained this module, but this request was not possible either, since as we have seen earlier from Arbortext’s Internal Price Guide, Interchange was never to be mentioned as an option to either customers or resellers. Impossible to opt in or out when you are unaware of that an option exists.

My own view of why Sterken felt this slight of hand was necessary is that the Intermarket product’s great initial success in pre-sales, combined with the failure of Bob Brueck, at the contract signing, to get Dwan and me to agree to be purchased for $400,000 left Arbortext in a quandary.

I don’t believe Sterken ever thought the contract would be significant or that he would have to pay any royalties to Blueberry because he thought Dwan and I would accept being purchased. After all, Dwan already had accepted the offer before we even signed the contract. But when I did not go for the buy out offer, the contract suddenly had lucrative value to Blueberry. Not only would Arbortext be forced to pay large sums of royalties to Blueberry, but these sums would also provide all the funds needed for Blueberry to proceed to further develop its own product by adding XML and PDF import/export capability and in a very short time be capable of directly competing with Arbortext’s Interchange product, both products essentially consisting of Blueberry’s technology. Since Blueberry sold its product for $189 and Arbortext sold the more limited Epic Editor Interchange product for $1,200 (or the exact same capability on the E3 server edition for $50,000), Sterken’s concerns were real that we would end up snaring some of the very market he hoped to exploit. A healthy Blueberry was anathema to Sterken.

I was not privy to the phone conversation between Sterken and Dwan and merely cced on Dwan’s affirmative response. It wasn’t until Mary took over Dwan’s former duties and began unearthing Arbortext’s fraudulent activities that this email’s impact, and its misinformation, became apparent to me.

And this email vividly demonstrates yet again that Arbortext would not adhere to a contract whenever and however they choose to ignore it. Because they did not adhere to the email agreement either!

As can be seen in Exhibit B, Arbortext began by reporting zero royalty sales to Blueberry, then (after a Blueberry complaint from Dwan) changed that to a portion of royalty sales, and later, after a Blueberry complaint from Mary in 2002, changed the changed portion to report an even greater proportion of sales. The sales that were reported during this fraudulent behavior seemed to adhere to the email in that Blueberry was credited on some E3 sales with $10,000, as was promised in the email.

In the July 2002 report, however, when Arbortext decided to punish Blueberry for discovering that they were cheaters and forcing Sterken to admit it (see Exhibit D), the $10,000 guarantee from the email was mostly erased from their royalty reports – for the entire past and future. See Exhibit C. Replaced by an entirely new tortured concept of percentages, concocted from the email’s actual values, that now included applying discounts to Blueberry’s already 80% reduced royalties. For this new system of reporting, Arbortext didn’t even bother with the sham of contracts and email agreements – they simply imposed it.

There was a legal problem, however, with this email. The clear language in the original contract mandated that any amendments to the contract had to be made in writing, with signatures from both parties. No such signatures were ever obtained from Blueberry or provided by Arbortext. Thus, legally speaking, the email agreement was invalid. So was the new system set up unilaterally by Arbortext in July 2002. The only valid contract was the one Blueberry and Arbortext had jointly signed in July of 2000. Which had never once in seven years of royalty reports been adhered to.

So, from the very beginning of the contract, we have Arbortext employing Fraudulent Concealment and Fraudulent Misrepresentation. These two illegalities permeated the entire history of the Blueberry/Arbortext relationship. Indeed, Palizzi’s Response to our Response to his Motion To Dismiss would still repeat the denial that the Intermarket product had ever been developed or sold. A claim that was blatantly, criminally, false.

But the Fraudulent Concealment and Misrepresentation reached epic new heights during the Plante Moran audit, as Mary and I discovered while examining Mark Robinson’s Working Papers. Which we will discuss in my next installment The Smoking Gun.

It was now up to us to write our response to Parametric’s Motion To Dismiss, using these two legal concepts as a basis for denying the motion.

Before we started, we walked down the street to a Starbucks for a cup of coffee. All great and terrifying enterprises should begin with a reasonably good cup of coffee. As we sat by the window sipping and pumping each other up for the task at hand, Mary looked out the window and her mouth fell open.

“Look,” she said, pointing.

I looked. Outside in the parking lot of a Carl’s hamburger stand was a big rig semi. Printed on the back of this truck was one word: SAIA.

To be continued . . . Free Hit Counter website statistics


September 9, 2008 - Posted by | Business, Law, News, Stories, Writing | , , , ,

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