Jury Finds Electrical Contractor Defrauded Square D in Negotiated Pricing Agreement

May 11, 2012
A recent jury verdict in favor of Schneider Electric shows how negotiated pricing agreements can be abused and how they can be enforced.

Electrical distributors and manufacturers are accustomed to negotiating special pricing for large-volume customers, but holding those customers to the terms of those deals can take some work. A recent jury verdict in favor of Schneider Electric shows how negotiated pricing agreements can be abused and how they can be enforced.

Schneider Electric, Palatine, Ill., won a jury trial in April against a Houston-based residential electrical contractor who, the court found, had purchased Square D load centers and circuit breakers at negotiated prices and then sold them to others online rather than installing them in homes.

In Square D Co. v House of Power Electric and Albert Chlouber, decided in U.S. District Court for the Southern District of Texas, Houston Division, on April 17, the jury found that the defendants were liable to Square D for fraud. The court assessed total damages of $1,087,500, plus interest dating back to Dec. 7, 2009.

Schneider Electric sued House of Power and Chlouber for breach of contract and fraud. The federal court found that House of Power was liable to Schneider Electric for breaching the contract. After hearing Schneider Electric’s evidence at trial about House of Power and Chlouber’s misrepresentations to Schneider Electric about what they were doing with Square D brand products, the jury concluded that both House of Power and Chlouber defrauded Schneider Electric. The jury’s verdict was entered against House of Power and against Chlouber personally.

“Schneider Electric has every intention of protecting its Square D brand recognition for reliability and safety by providing customers a strong supply chain from our factories to the point of use. Our authorized distribution channels invest in training and inventory to ensure customers receive the right product for their needs,” said Bill Snyder, vice president Channel Development North America, Schneider Electric, in a press release announcing the verdict. “We’ll stop at nothing to protect the integrity of our distributors and customers from the problems with unauthorized reselling, particularly by customers who have pricing agreements with us and then break those agreements.”

Steve Litchfield, assistant general counsel for Schneider, told Electrical Marketing that the case began years ago, with House of Power Electric negotiating a special pricing agreement through Crawford Electric, an authorized Square D distributor in the area, to buy circuit breakers and load centers for intallation in residential developments in the Houston area.

“What we noticed, over a period of time, was that House of Power was buying an exceptionally large number of breakers with respect to the number of load centers they were buying,” Litchfield said. “The number of spaces in the load centers should pretty much match the number circuit breakers they buy. This went on for a period of time. We would ask them about it, and they said they were picking up jobs started by other contractors and finishing them out, so they needed breakers to fill those existing load centers.”

The red flag rose from the quantity – House of Power was buying “thousands and thousands” of breakers, said Litchfield. “We found the owner had a website, Panel King, selling direct over the Internet and also on eBay. It was part of the negotiated pricing agreement that they would only use them in homes where they were acting as the electrical contractor.”

The damages sought by Square D/Schneider was based on the difference in pricing Square D would have received had the breakers been sold at normal values. The judge in the case had previously found that House of Power Electric and Chlouber were liable for breach of contract. The jury trial was held to determine whether they also had liability for fraud, and to determine the level of damages to be awarded.

“This is a significant case for us because there has been a history of people with negotiated pricing agreements for installations into homes then turning around and selling them,” Litchfield said. “This case establishes that if you do that, you can be found guilty of breaching contract and possibly of defrauding the company.”

Among the customers of House of Power Electric, Schneider found a familiar name: Breakers Unlimited.

Schneider had won a suit against that Indiana-based company in 2009, when a jury in the U.S. District Court for the Southern District of Indiana in Indianapolis found Breakers Unlimited guilty of purchasing and selling counterfeit Square D QO breakers. Litchfield said Schneider was looking at all its options with regard to further action against Breakers Unlimited.

Litchfield said this is the first case he’s aware of where the dispute has gone all the way to a judgment and verdict without being settled. “We’ve had issues in the past, but this one was so egregious that there was no choice but to pursue it,” Litchfield said. “We want to let the channel know there is recourse when someone violates a negotiated pricing agreement.”