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Tuesday, April 7, 2020

CAT equipment dealer Patten Industries demands former sales rep pay $9 million for alleged misconduct

By Jonathan Bilyk | Aug 30, 2016

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A DuPage County heavy equipment dealer hopes to extract nearly $9 million from a former employee for alleged misconduct, including allegedly using special sales promotions to improperly pad his pay at his employer’s expense. 

On Aug. 23, Patten Industries, an Elmhurst Caterpillar dealer, sued Michael Jaworski, who worked in sales at the dealership from 2001 through September 2015. In its filing, Patten accused Jaworski of offering a promotion to customers he knew were not entitled to the deal, as well as rushing a client into buying roughly $15 million in new equipment in order to increase his year-end bonus. 

According to Patten, in 2008 it offered a so-called “Special Snow Deal” to two of its largest clients, TCB Equipment Leasing and Deness Leasing. Under the deal, Patten bought equipment back from the customers, paid off the balance of the loans they owed to Caterpillar’s equipment financing arm, CAT Financial, and then paid each the equivalent of what they paid to CAT Financial over the life of the loan, noting “Ultimately, the customer would get reimbursed the entire original purchase price of the equipment.” 

Patten could only make this offer through a CAT Financial subsidy for so-called “Tier 1 customers,” a distinction the dealership said it repeatedly made clear to Jaworski. However, Patten alleged he offered a slightly modified version to 11 different “Tier 2 customers” from 2011 to 2015, giving them special pricing on new equipment and inflated trade-in values on used equipment. 

Patten accused Jaworski of using the subsidy from CAT Financial to reimburse Tier 2 customers, “resulting in a significant shortfall with respect to the Special Snow Deal offered to the Tier 1 customers.” It pegged the loss at nearly $1.1 million in 2014 and 2015. 

The complaint said Tier 2 customers bought 172 units under the promotion in 2013, 201 units in 2014 and 195 units in 2015. After Jaworski’s resignation, with those customers no longer having access to the offer, the number has dropped to 35 units in 2016. Patten said at least one Tier 2 customer reported “Jaworski persuaded the company to buy extra, unneeded equipment because it would not cost anything and presumably would allow Jaworski to increase his sales and get a higher bonus.” 

It further said that immediately after leaving Patten, Jaworski started working with a Tier 2 customer that since sued Patten over a $546,000 equity payment. Also, after Jaworski’s resignation, Patten canceled pending deals with Tier 2 customers. Because Patten would not buy back the used equipment, those customers lost their tentative CAT Financial loans. However, Patten already had $5.24 million worth of new equipment without a buyer. 

While it was able to move some equipment, as of June 1, Patten still had about $2.86 million in inventory on hand which Jaworski’s customers ordered, but can no longer buy. Patten also said it cannot account for $169,000 worth of snow equipment Jaworski supposedly managed. Accusing Jaworski of breaching his fiduciary duty, Patten asked the court to award compensatory damages of at least $3.9 million and to order the defendant to forfeit the $864,416 in salary and bonuses he earned from 2012 through his resignation. 

Patten also accused Jaworski of putting together a $15 million deal with a Chicago area contracting firm, also involving CAT Financial, under which Jaworski committed the dealership to purchase the contractor’s used equipment and then rent it back to them. Patten said Jaworski rushed the deal to inflate a year-end bonus and “failed to follow Patten’s credit approval procedures or get approval for the deal from Patten’s management.” 

Jaworski is accused of overvaluing the contractor’s used equipment. After Patten took delivery, CAT Financial decided the contractor had poor credit and required Patten to guarantee 25 percent of more than $12 million the contractor had planned to use to finance the new equipment purchase. In March, the contractor began liquidating its assets, allegedly leaving Patten to owe roughly $3.3 million to CAT Financial. The contractor purportedly failed to pay almost $2.8 million in rent, and Patten said it lost more $900,000 selling the used equipment. For those actions, Patten wants the court to also assess punitive damages against Jaworski of at least $4.2 million. 

Patten’s attorneys are from the firm of Schain, Banks, Kenny & Schwartz, of Chicago.

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