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GILMORE F. DIEhMANN, Jr.


2
PATRICIA CULLISON
RICHARD P. WALKER
3
BRONSON, BRONSON & McKINNON
vI 505 Montgomery street
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P .4
San Francisco, California 94111-2514
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Telephone: (415) 986-4200
Fax: (41S) 982-1394
5

6
Attorneys for Plaintiff
FEDERAL EXPRESS CORPORATION
7

8
UNITED STATES DISTRICT COURT
9
NORTHERN :DISTRICT OF CALIFORNIA
10

11 FEDERAL EXPRESS CO )
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)
)
NO. VRW'
~ ) FI T AMENDED COMPLAINT
13 v. )J R:
) 1. Breach of contract .
14 HAMILTON T & COMP ) J2. Breach of Fiduciary
CONNIE C. TRONG I Duty
15 REMINGTON S. INC., RICHARD ·)3. Breach of Agency
FOWLES I S N LAU, CHRISTINE) Duties
GRAMBLING I BARRY MORGAN, AL MAY,) 4. Breach of Implied
ED HARGIS, VICKY DIMALANTA, ) Covenant
DRESDNER ENTERPRISES, INC., ) 5. Negligence
DRESDNER PETROLEUM, H.I. ) 6. Negligent Misrepre-
INTERNATIONAL, C.R. J sentation
)
ACQUISITIONS, INC., and )
~ 7. Fraud
KNIGHTSBRIDGE, ) 8. Conversion
) 9. Violation of Racketeer
20 Defendants. )~c' Influenced and Corrupt
________________________________ ) organizations Act
21 (18 U.S.C. §§1961
et 2mL..)
22 10. Unfair Business
Practices .
23 11. False and Misleading
Advertising
24 12. Constructive Trust
13. Accounting
25 14. Money Had and
Received
26
15. Declaratory Relief
16. Injunction
27
DEMAND FOR JURy TRIAL
28

1ST AMENDED COMPLAINT


1
Plaintiff Federal Express Corporation ("Federal Express II)
2
alleges as follows:
3
THE PARTIES
A
1. Plaintiff Federal Express is a corporation duly
5
organized and existing under the laws of the state of Delaware
6
with its principal place of business in Memphis, Tennessee.
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2. Plaintiff is informed and believes and thereon alleges
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that defendant Hamilton Taft &: Company (nHamilton Taft") is a
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California corporation with its principal place of business in
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San Francisco, California. Hamilton Taft is engaged in
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0 interstate commerce.
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3. Plaintiff is informed and believes and thereon alleges
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a:~ that defendant Connie C. Armstrong, Jr. (IIAnnstrong") is the
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4. Plaintiff is informed and believes and thereon alleges
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0 < ~hat defendant Remington Cos. Inc. (I'Remington ft ) is a Texas
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~ corporation with its principal place of business in Dallas,
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19 Texas, and is a holdinq... company for Armstrong I s interests.
20 Plaintiff. is informed and believes and thereon alleges
5.
21 that defendant Richard Fowles (IiFowles") was president of
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Hamilton Taft from March 1989 through September 1990, executive
23
vice president of Remington from October 1990 until January 1991,
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and chief financial officer of Hamilton Taft thereafter.
25
Plaintiff is informed and believes and thereon alleges that
26
Fowles resides in California.
27
6. Plaintiff is informed and believes and thereon alleges
28 that defendant steven Lau ("Lau") was a'vice president and

1ST AMENDED COMPLAINT


2
1
director of Hamilton Taft at times relevant herein, and resides
2
in the state of California.
3
7. Plaintiff is informed and believes and thereon alleges
.4
that defendant Christine Grambling ("Gramblingll) was president of
5
Hamilton Taft from September 1990 until January 1991, and is and
6
was a resident and citizen of "the state of Texas.
7
8. Plaintiff is informed and believes that defendant Barry
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Morgan ("Morgan") was chief accountant for Remington and
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performed accounting functions for Hamilton Taft. Plaintiff is
10
informed and believes and thereon alleges that Morgan is and was
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operations for Hamilton Taft, and is and was a citizen and
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10. Plaintiff is informed and believes and thereon alleges
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that defendant vicky Dimalanta was at all relevant times an
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~ officer of Hamilton Taft and resides in California.
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19
11. Plaintiff is informed and believes and thereon alleges
20 that defendants H.I. International and C.R. Acquisitions, Inc.
21 are entities owned or controlled by, and affiliated with,
22
Armstrong and his affiliated entities.
23
12. Plaintiff is informed and believes and thereon alleges
24 that defendant Ed Hargis' (I'Hargislf) was at all relevant times
25 president of Dresdner Petroleum, and is and was a resident and
26
citizen of the state of Texas.
27
13. Plaintiff is informe,d and believes and thereon alleges
28
that defendants Dresdner Enterprises, Inc. and Dresdner Petroleum

1ST AMENDED COMPLAINT


3
1
(collectively "Dresdner") are Texas entities with their principal
2
place of business in Dallas, Texas, and are owned or controlled
3
by, and affiliated with, Armstrong and his affiliated entities.
14. Plaintiff is informed and believes and thereon alleges
5
that defendant Knightsbridge (l'Knightsbridge") is a Texas entity
6
with its principal place of business in Dallas, Texas, and is
7
owned or controlled by, and affiliated with, Armstrong and his
B affiliated entities.
9
15. Plaintiff is inf~rmed and believes and thereon alleges
10
that at all times herein mentioned, each of the defendants was
11 the agent of each of the other defendants and in doing the things
12 hereinafter mentioned was acting within the scope of such agency
13 and with the permission, authority and consent of the other
1.4 defendants.
15 16. There exists, and at all times herein mentioned there
16 existed, a unity of control, interest and ownership among
17 defendants Armstrong, Hamilton Taft, Remington, Dresdner, H.I.
18 International, C.R. Acquisitions and Knightsbridge (collectively
19 the tlAnnstrong Defendants ll ) , such that any individuality and
20 separateness of the Armstrong Defendants has ceased and each of
21 these defendants is the alter ego of each other. Adherence to
22 the fiction of the separate existence of the Armstr~ng Defendants
23 would permit an abuse of the corporate privilege and would
2.4
sanction injustice. Each may be held responsible for the acts of
25 the others.
26 JURISDICTION AND VENUE
27 17. This Court has subj~ct matter jurisdiction pursuant to
28 2B u.s.c. §§1331 and 1332, 18 U.S.C. §§1964 (a) et ~, and the'

1ST AMENDED COMPLAINT


4
1
doctrine of penQ~nt jurisdiction. The amount in controversy
2
exceeds the sum or value of Fifty Thousand Dollars ($50,000.00),
3
exclusive of interest and costs •
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~.8. Ven~e is proper in this judicial district pursuant to
5
28 U.s.c. §§1391(b) and (c) and 18 U.S.C. § 1965, because
6
defendants do business and transact their affairs and the claims
7
herein arose in this judicial district.
8
GENERAL ALLEGATIONS
9
19. In January of 1990, Federal Express entered into a
10 written payroll tax service contract with Hamilton Taft.
z 11 Pursuant to this contract, Federal Express agreed to periodically
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payroll tax reports with appropriate tax authorities (including
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17 taxing authorities when due. As consideration for performing
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ac:: 18 these services, Hamilton Taft was permitted to earn interest on
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19 the money advanced to it by Federal Express between the date
20 advanced and the date the funds were due. Hamilton Taft promised
21 to timely pay Federal Express's taxes, as well as any penalties
22 which resulted from Hamilton Taft's acts or omissions.
23 20. On or about March a, 1991, Federal Express was informed
24 by former Hamilton Taft controller Steve Soledoff that defendants
25 were engaged in a massive scam involving tax fraud and other
26
misconduct. Plaintiff was informed that, among other things,
27
defendants were not disbursing Federal Express's taxes to taxing
28
authorities when due.

1ST AMENDED COMPLAINT


5
1 21. Plaintiff is informed and believes and thereon alleges
2 that rather than pay Federal Express's payroll taxes when due
3 "with the money transferred for that purpose, defendants held such
A
money for an additional period of time. Plaintiff is informed
5 and believes and thereon alleges that defendants, at times, used
6 funds belonging to other Hamilton Taft clients to pay Federal
7 Express's taxes and any penalties for late payments; at other
8 ~times, defendants used funds belonging to Federal Express to pay
9 the taxes and penalties of' Hamilton Taft's other clients.
10 I
Plaintiff is further informed and believes that some of Federal
I

Z 11 Express's taxes were never paid, and penalties may b~ accruing.


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diverted by defendants to their own use and that some of
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16 FIRST CAUSE OF ACTION
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17 (Breach of contract Against the
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Armstrong Defendants Only)
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19 23. Plaintiff real leges and incorporates by reference
20 paragraphs 1 through 22, inclusive.
21 24. Defendants· conduct constitutes a breach of the payroll
22 tax service contract.
23 25. Federal Express has performed all conditions and
24 covenants on its part to be performed under the payroll tax
25 service contract, except those conditions or covenants excused or
26 prevented by defendants' breach and the wrongful acts and
27 omissions described herein.
28

1ST AMENDED COMPLAINT


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1
26. Defendants have further breached the contract by not
2
providing plaintiff full access to plaintiff's tax records in
3
defendants' possession, custody or control •
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27. As a direct and proximate result of defendants' breach
5
of contract, plaintiff has suffered damages in an amount to be
6
proved at trial.
7
SECOND CAUSE OF ACTION
8
(Breach of Fiduciary Duty
9
Against the Armstronq Defendants Only)

10
28. Plaintiff realleges and incorporates by reference
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paragraphs 1 through 27, inclusive.
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_ defendants that they would perform their obligations. By virtue
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30. Plaintiff is informed and believes and thereon alleges
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19
paid when in fact they were not, misapplying or misappropriating
20
Federal Express I s funds:; and failing to invest funds as a
21
reasonably prudent investor would invest his or her own money.
22 Defendants further breached thefr f.iduciary obligations by
23
refusing to provide Federal ExPress immediate and full access to
2A
all documents and information in defendants' possession, custody
25
or control relating to Federal Express's payroll taxes and funds_
26
31. As a direct and proximate result of defendants I breach
27
of fiduciary duty, plaintiff has suffered damages in an amount to
28 I

be proved at trial.

1ST AMENDED COMPLAINT


7
1
THIRD CAUSE OF ACTION
2
(Breach of Agency Duties
3
Against the Armstrong Defendants Only)

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32. Plaintiff realleges and incorporates by reference
5
paragraphs 1 through 31, inclusive.
6
33. Pursuant to the written payroll tax service contract,
7
defendants became plaintiff's agent.
B
34. Pursuant to its agency relationship, defendants owed a
9
duty of loyalty to Federal·Express. This duty of loyalty
10
required defendants to disburse Federal Expressls payroll taxes
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C to taxing authorities, to do so in a timely manner, and to

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harmful to Federal Express's interests. Among other things,
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investments with Federal Express's funds, or investments which
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might expose Federal Express to tax penalties. Defendants also
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possession, custody or control relating to Federal Express's
20
payroll taxes and funds.
21 35. Defendants' conduct constitutes a breach of their
22 agency duties.
23
36. A~ a direct and proximate cause of defendants' breach
24 -.
of their agency duties, plaintiff has suffered damages in an
25
amount to be proved at trial.
26

27

28

1ST AMENDED COMPLAINT


8
FOURTH CAUSE OF ACTION
2
(Breach of the Covenant of
3
Good Faith and Fair Dealing Against
the Armstrong Defendants Only)
.4
37. Plaintiff realleges and incorporates by reference
5
paragraphs 1 through 36, inclusive ..
6
38. Implied in the tax service agreement is a covenant of
7
good faith and fair dealing whereby defendants were obligated not
8
to take any actions which would deprive plaintiff of the benefits
9
of the contract and to do everythihq which the contract
10
presupposed defendants would do to accomplish the contract's
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timely disburse p~aintiff's payroll taxes to the appropriate
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c:: FIFTH CAUSE OF ACTION
~
19
(Negligence Against'All Defendants)
20
40. Plaintiff realleges and incorporates by reference
21
paragraphs 1 through 39, inclusive.
22
41. By agreeing to pay Federal Express's payroll taxes, and
23
to do so in a timely manner, defendants assumed a duty to Use
2,4
such skill, prudence and' dil~gence as other members of
25
defendants. profession and business commonly possess and
26
exercise.
27
42. By failing to make ~imely payments to the appropriate
28
tax authorities and by imprudently using plaintiff's funds,

1ST AMENDED COMPLAINT


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1
defendants have breached that duty. Defendants knew, or should
2
have known, that Federal Express would be injured by defendants'
3
acts and omissions .
.4
43. As a direct and proximate result of defendants'
5
negligence, Federal Express has suffered damages in an amount to
6
be proved at trial.
7
SIXTH CAUSE OF ACTION
8
(Negligent Misrepresentation Against All Defendants)
9
44. Plaintiff realleqes and incorporates by reference
10
paragraphs 1 through 43, inclusive.
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45. Defendants, at the time they entered into the tax
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service agreement and thereafter, represented to Federal Express
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t:r_'< that they would pay Federal Expressls payroll taxes in a manner
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that did not and would not harm or injure plaintiff's interests
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or subject these interests to undue risk. Defendants had no
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reasonable grounds for believing that these representations were
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46. Defendants' representations that they would pay Federal
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Express's payroll taxes in an appropriate manner were made with
20
the intent that Federal Express rely on the representatio~s. ·1
21
Federal Express was unaware that the representations were false
22
and, believing them to be true, was induced to enter into the tax
23
service contract and to advance and continue" advancing its
2.4
payroll taxes to defendants.
25
47 •. As a direct and proximate result of defendants·
26
negligent misrepresentations, Federal Express has suffered
27
damages in an amount to be proved at trial.
28

1ST AMENDED COMPLAINT


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J 48. Defellu.ants· conduct was willful, malicious and
2
oppressive, and done with the intent to injure plaintiff or with
3
reckless disregard of its consequences to plaintiff, and
.t
justifies an award of exemplary damages.
5
SEVENTH CAUSE OF hCTION
6
(Fraud Against All Defendants)
7
49. Plaintiff realleqes and incorporates by reference
8
paragraphs 1 through 48, inclusive.
9
50. Defendants, at the time they entered into the tax
10
service contract and thereafter, represented that they would pay
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plaintiff to undue risk.
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2: them to be false, made "them with the intent to defraud and
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19 52. Plaintiff was ignorant 0+ the falsity of defendants'
20 representations and reasonably believed them to be true. In
21 justifiable reliance upon those representations, plaintiff was
22 induced to enter into the tax service contract and to advance
23 funds and continue advancing'funds to defendants.
24 53. As a direct and proximate result of defendants' fraud,
25 plaintiff has suffered damages in an amount to be proved at
26
trial.
27-
54. Defendants' conduct was fraudulent, willful and
28
oppressive, and plaintiff is entitled to exemplary damages.

1ST AMENDED COMPLAINT


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1
EIGHTH CAUSE OF ACTION
2
(Conversion Against All Defendants).
3
55. Plaintiff realleges and ·incorporates by reference
.d
paragraphs 1 through 54, inclusive.
5
56. At all times herein mentioned, plaintiff had, and
6
continues to have, the right to possession and ownership of the
7
funds conveyed to defendants for payment of Federal Express's
8 payroll taxes.
9
57. Plaintiff is informed and believes and thereon alleges
10 that defendants wrongfully converted plaintiff's funds for their
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z . 12 58. Plaintiff has demanded a full accounting of all funds
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it has conveyed to defendants, as well as the immediate return of
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payment of those funds to the appropriate tax authorities.
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59. As a proximate result of defendants' conversion,
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18 plaintiff has been damaged in an amount to be ascertained at
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19 trial.
20 60. Defendants' c:onduct was willful, malicious and
21 oppressive and justifies an award of exemp~ary damages.
22 NINTH CAUSE OF ACTION.
23 (Violation of RICO, IS U.S.C. §1961 et seq.
Aga~nst All Defendants)
24

25 61. Plaintiff realleges and incorporates by reference


26 paragraphs 1 through 60, inclusive.
27 62. Plaintiff is informed and believes and thereon alleges
28
that defendants misappropriated and converted plaintiff's funds

1ST AMENDED COMPLAINT


12
1 to their own use, failed to pay amounts due to taxing
2
authorities, and misrepresented to plaintiff that its tax
3 payments were ~ade. Such conduct was in violation of ~a U.S.c .
.4
§134~, in that defendants used Federal Express's funds for their
5
own personal benefit and carried out their scheme by means of the
6 united states mails.
7
63. Plaintiff is informed and believes and thereon alleges
8
that, as a part of defendants· fraudulent scheme, defendants
9 mailed checks across interstate lines and communicated with
10 Federal Express that payments were made, when in fact such
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19 of 18 U.S.C. §1962(c). Plaintiff is further informed and
20 believes that this pattern caused injury to plaintiff and others.
21 65. As a proximate result of defendants· pattern of
22 racketeering activity, plaintiff is informed and believes that it
23 has incurred damages consisting of, among other things, exposure
2.4 to penalties for failure" to pay taxes when due, and liability for
25 taxes that defendants failed to pay.
26
66. As a direct and proximate result of defendants'
27
conduct, plaintiff is entitled to recover treble damages from
28 defendants in an amount to be determined at trial.

1ST AMENDED COMPLAINT


13
1
TENTH CAUSE OF ACTION
-2
(Unfair Business Practices Against All Defendants)
3
67. Plaintiff realleqes and incorporates by reference
A
paragraphs 1 through 66, inclusive.
5
68. Defendants' acts, omissions and representations
6
constitute unfair business practic~s in violation of §17200 of
7
the California Business and Professions Code.
B 69. As a direct and proximate result of defendants' unfair
9
business practices, plaintiff has suffered damages in an amount
10 to be proved at trial.
z 11 ELEVENTH CAUSE OF ACTION
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C... " cs~ alleqation in paragraphs 1 through 69, inclusive.
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0 false and misleading advertising in violation of §17500 of the
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19 72. As a direct and proximate result of defendants' false
20 and misleading advertising, plaintiff has suffered damages in an
21 amount to be ascertained at trial.
22 TWELFTH CAUSE OF ACTION
23 (constructive Trust, Against the
Armstrong Defendants Only)
2.4

25 73. Plaintiff real leges and incorporates by reference


26
paragraphs 1 through 72, inclusive.
27 74. By virtue of the wrongful acts described above,
28 defendants have been unjustly enriched and hold plaintiffs

1ST AMENDED COMPLAINT


14
1
funds, as well as any proceeds of those funds, as constructive
2
trustees for plaintiff.
J THIRTEENTH CAUSE OF ACTION
.4
(Accounting, Against the Armstrong Defendants Only)
5
75. Plaintiff realleges and incorporates by reference
6
paragraphs 1 through 74, inclusive.
7 76. Plaintiff has demanded, and is entitled to, a full
S
accounting of all monies paid by defendants to tax authorities on
9 plaintiffts behalf, and immediate and full access to all records
10 in defendants' possession, custody, or control relating to
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19 that defendants are indebted to plaintiff "in the amount of
20 plaintiff's unpaid tax liabilities and penalties, if any, in an
21 amount which is presently unknown but which will be ascertained
22 at trial.
23 79. Neither the whole nor any part of this sum has been
24 paid despite demand therefor. The amount of any such unpaid
25 taxes and penalties is now due and owing to plaintiff.
26

27

28

1ST AMENDED COMPLAINT


15
1
FIFTEENTH CAUSE OF ACTION
2
(Declaratory Relief Against the
3
Armstrong Defendants Only)

4
80. Plaintiff realleges and incorporates by reference
5
paragraphs 1 through 79, inclusive.
6
81. Pursuant to the terms of the payroll tax service
7
agreement, defendants agreed to indemnify plaintiff for all
8 injuries caused by defendants' conduct. Plaintiff seeks a
9
jUdicial declaration that ~his express indemnity is enforceable
10
and that defendants must indemnify Federal Express for any unpaid
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83. Plaintiff is entitled to injunctive relief restraining
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transfer of plaintiff's tax funds. Plaintiff is also entitled to
21· injunctive relief restraining defendants from continuing their
22 wrongful course of conduct described above, and ordering
23 defendants to immediately provide plaintiff full access to all
24 documents and information in defendants' possession, custody or
25
control concerning Federal Express1s payroll taxes and funds.
26
WHEREFORE, plaintiff prays for relief as follows:
27
1. For an injunction r 7straining defendants from
28
destroying, removing or altering all documents and information

1ST AMENDED COMPLAINT


16
1
concerning Federal Express's payroll taxes and funds in
2
defendants' possession, custody or control and affording Federal
J
Express immediate and full access to such documents and
.4
information:
5
2. For an injunction requiring defendants to return
6 i~ediately to Federal Express any and all sums held for or on
7
account of Federal Express;
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3. For an injunction ordering defendants to cease using
9
plaintiff's payroll tax funds as part of defendants· scheme, or
10 for any wrongful purpose, pending trial;
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11 4. For compensatory damages according to proof;
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lI]Z~f2~ defendants from similar conduct in the future;
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?- "g~ 7. For attorneys' fees and costs of suit incurred herein
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pursuant to contract and 18 U.S.C. §1964(c);
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17 8. For an accounting of all monies paid by defendants to
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19 9. For such other and further relief as this court deems
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20 appropriate.
21 Dated: March 20, 1991
BRONSON, BRONSON & McKINNON
22

BY:it:!.{~~
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24
Attorneys for Plaintiff
25 FEDERAL EXPRESS CORPORATION
26

27

28

1ST AMENDED COMPLAINT


17
1
JURy DEMAND
2
Plaintiff Federal Express hereby demands trial by jury.
3
Dated: March 20, 1991

" BRONSON, BRONSON & McKINNON


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6 By: /?dUI (j/~


RI~WALKER
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Attorneys for Plaintiff
FEDERAL EXPRESS CORPORATION
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1ST AMENDED COMPLAINT


18