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Suit claims ex-worker employed fraud scam
American Woodmark says employee, wife, son plotted to steal $1M from company
By Alex Bridges - abridges@nvdaily.com
HARRISONBURG -- A former American Woodmark worker plotted with his wife and son to defraud the firm of more than $1 million, a recently filed lawsuit claims.
St. Paul Fire and Marine Insurance Co. filed a complaint in U.S. District Court on Sept. 2 alleging Herbert H. Hoskins, of London, Ky., set up deals by which the Winchester-based plant would buy lumber at above-market prices from a company run by his wife. At the same time, his son's firm would take scrap from American Woodmark at no cost and then sell it to another company for a profit, according to the complaint.
Hoskins worked as a lumber manager in charge of purchasing materials from June 10, 2002 until his termination April 8, 2009, the complaint states.
The plaintiff names Hoskins' wife, Melanie Hoskins, and their son, J.R. Wesley Hoskins, as owners of Kentucky Lumber Sales and Bluegrass Wood Products -- firms the complaint states existed "solely to defraud funds from American Woodmark." Herbert Hoskins had signed a conflict of interest statement upon his hiring and never advised American Woodmark that his wife and son were principals of the Kentucky firms, the complaint states.
Kentucky Lumber began doing business with American Woodmark two months after articles of organization for the firm were filed in that state in August 2005, according to the complaint. Hoskins entered an oral agreement with his wife and bought wood from Kentucky Lumber at "an above-market price" between Oct. 27, 2005, and March 31, 2009, the complaint states. The prices also exceeded American Woodmark limits.
American Woodmark paid Kentucky Lumber more than $3 million for wood valued at $2.7 million, causing a loss of $302,437, according to the complaint.
"The overpayments to Kentucky Lumber, by and through employee Herbert Hoskins, were made in furtherance of a scheme to defraud American Woodmark," the complaint states.
On June 12, 2004, Herbert Hoskins persuaded plant manager Stan Redmon to give or sell scrap material at little or no cost to Bluegrass, a practice which lasted from 2005 through 2009. Hoskins told management the cost to transport the scrap left the material with little to no value, even though the information was false, according to the complaint.
Bluegrass sold the free scrap material to P.J. Murphy Forest Products Corp. at $20 per ton, for which it received an estimated $1,056,900, the complaint states.
Using the alias "Anne Burnett," Hoskins' wife signed all contracts between Bluegrass and American Woodmark. American Woodmark received an anonymous letter identifying "Melanie Ann Burnett" as Herbert Hoskins' wife.
American Woodmark discovered the loss "committed by Defendants" when P.J. Murphy sought to renew its contract, the complaint notes. Hoskins had allowed Redmon to believe Murphy's President Fred Faehner owned Bluegrass, according to the complaint.
J.R. Wesley Hoskins on May 7, 2009, demanded American Woodmark pay a balance allegedly owed to Kentucky Lumber, the complaint states. St. Paul paid American Woodmark's claim for the covered loss relating to Hoskins of $1,359,937, according to the complaint.
The plaintiff claims Herbert Hoskins breached his fiduciary duty by purchasing material from Kentucky Lumber at a price that violated American Woodmark's guidelines and "intentionally concealed from American Woodmark that Kentucky Lumber was owned and operated by Herbert Hoskins' wife and son." He breached that duty by misrepresenting to a plant manager that American Woodmark's scrap had no value and then gave it to Bluegrass, which it then sold.
A second count in the complaint alleges Hoskins' wife and son aided and abetted the breaches of fiduciary duty.
The third count claims all defendants conspired to commit fraud and conversion.
The complaint states the defendants' actions violate state code for which they are jointly and severally liable to the plaintiff "in the amount of three-fold the damages suffered by American Woodmark and Plaintiff as well as Plaintiff's costs and attorney's fees," or approximately $4.1 million.
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