EPAC Technologies: HarperCollins Christian Found Liable for Fraud

SAN LEANDRO, Calif., Jan. 24, 2019 /PRNewswire/ -- On January 18, 2019, HarperCollins Christian Publishers was found to have committed fraud by a jury in the United States District Court for the Middle District of Tennessee. The jury awarded EPAC Technologies, Inc., a leading high-technology manufacturer and printer, $12 million in punitive damages on top of more than $3 million in compensatory damages for fraud and breach of contract. HarperCollins Christian Publishers ("HarperCollins"), formerly Thomas Nelson, Inc., produces religious-themed books and other literature, and is a subsidiary of HarperCollins Publishers and News Corp (NASDAQ: NWS). At the beginning of the fraud scheme, Thomas Nelson was controlled by the private equity firm Kohlberg & Company, and the sale to HarperCollins Publishers was announced six months after the pretextual termination of its requirements contract with EPAC.  

The unanimous jury, in reaching its verdict on the fraud claims, necessarily found that EPAC had proven each of the following elements by preponderance of the evidence: HarperCollins concealed or suppressed a material fact; it was under a duty to disclose the fact to EPAC; it intentionally concealed or suppressed the fact with the intent to deceive EPAC; and EPAC sustained damage as a result. The jury rejected each of the stories and defenses presented by HarperCollins' witnesses and its lawyers, including two high-level executives who testified live at trial and were repeatedly impeached during their testimony: Mark Schoenwald, HarperCollins's current President and Chief Executive Officer, who, at the time of the fraud's commencement, was Thomas Nelson's President and Chief Operating Officer, and Stuart Bitting, the company's Chief Financial Officer at the time of the fraud, who is now the Chief Financial Officer of another Kohlberg portfolio company, e+CancerCare.

At trial, EPAC Technologies showed that HarperCollins' claims of defects and late deliveries were pre-textual fabrications designed to give HarperCollins an excuse to terminate the contract. Thomas Nelson was not able to show any orders were late, that even a single book was returned, not a single credit was requested or issued, not a single customer complained about the quality of book produced by EPAC, and EPAC showed that HarperCollins wanted to terminate the contract after it improperly disclosed EPAC's business information to a competitor. The jury found that HarperCollins led by key executives -- specifically, Messrs. Schoenwald and Bitting -- defrauded EPAC.  

In awarding punitive damages, which requires a much higher level of proof (clear and convincing evidence), the jury also necessarily found that an award of punitive damages to EPAC was necessary. Punitive damages are reserved for egregious conduct and the jury was clearly instructed to only award punitive damages if it found egregious conduct by HarperCollins. The jury was also instructed that punitive damages could be considered if and only if EPAC had shown by clear and convincing evidence that HarperCollins acted either intentionally, recklessly, maliciously or fraudulently. In following the Court's instructions and reaching its unanimous verdict, the jury found that the evidence clearly showed that that there was no serious substantial doubt on the issue and that EPAC proved by clear and convincing evidence that Harper Collins's fraudulent conduct was egregious and, further, that a substantial award of punitive damages to EPAC in the amount of $12 million was necessary.

During the litigation a similar pattern of misconduct was revealed, with HarperCollins allowing evidence to be destroyed and not disclosing the loss until compelled to do so. The spoliation of emails that showed Thomas Nelson's fraud resulted in the court appointing a Special Master. The Court found that HarperCollins had a duty to preserve no later than April 18, 2011, but failed to meet minimum standards of diligence and competence; spoliated all the physical evidence of the product in question; negligently destroyed nearly 1.5 million messages; did not stop the purging of key business records until 2015 (three years after the lawsuit was filed, and four years after the duty to preserve was issued). The Court issued an adverse-inference charge against HarperCollins to the jury.

Sasha Dobrovolsky, Founder and Chief Executive Officer of EPAC, stated, "We are thankful for the jury's service, and this case reaffirms the value of our jury system for civil cases. We believe that the jurors were able to see HarperCollins' fabricated defenses for what they were. These same jurors also sent a loud and clear message that such egregious behavior by companies and their executives cannot be tolerated."

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SOURCE EPAC Technologies, Inc.