Firm: Scott threatened to use his elected position
Senator alleges he was run out of sales business
State Sen. Ray Scott is embroiled in a legal battle that pits allegations the lawmaker was run out of the fireplace sales business against claims he consistently was late in making payments, accepted money from customers but delayed placing their orders and threatened to use his elected position against the fireplace manufacturer.
In a lawsuit filed in U.S. District Court in Denver last year, the Grand Junction Republican alleges Montigo Del Ray Corp., the fireplace company for which his Grand Junction-based business, Gas Products Corp., was the sole manufacturer’s representative, unfairly ended its relationship with him and gave its exclusive distributorship to the second company named in the lawsuit, California-based BTU Marketing LLC.
Scott filed his lawsuit after Montigo made several attempts to collect payments it claims Scott’s company owed. Not long after those collection attempts, Scott sent an email threatening to use his position in the Legislature against the manufacturer.
“I would think that someone who could protect your interest in this market and who serves on the energy commission would be a huge benefit, or I guess could be a huge problem under the right circumstances,” Scott wrote to Montigo executive Scott Baron in September 2012, a month after his distributor contract was terminated. “Wow. Now politics enters the picture, didn’t expect that one.”
“I never expected politics to enter the picture either,” Baron responded. “If you believe that you are helping our business interests by serving on the energy commission, or conversely that you can effect us negatively under the right circumstances, I am guessing you will do what you believe to be morally correct and just.”
Among other issues in Scott’s lawsuit, he alleges Montigo stole Scott’s client list and gave it to BTU in violation of the Colorado Trade Secrets Act.
“GPC learned that Montigo and BTU had been contacting its customers directly to sell Montigo products to them, and in the process of doing so, were making incorrect and false representations about GPC, including but not limited to that GPC had poor credit with Montigo or that GPC could not pay its bills and that GPC could not purchase the Montigo products that GPC would ultimately resell to its customers,” the suit said.
Over time, numerous clients stopped purchasing products from Scott’s company and instead obtained their fireplaces through BTU, Scott’s lawsuit alleges.
In its counterclaim and other court filings, however, Montigo said since Scott’s election to the Colorado Legislature in 2010, his company was repeatedly and consistently in arrears when it came to paying required deposits for the high-end fireplaces he was selling, forcing Montigo to put his orders on hold until past-due payments were made. At times, the amount of money Scott owed reached into the tens of thousands of dollars.
As a result, Montigo said Scott’s firm, which operated in a five-state region that stretched from Colorado to Idaho, violated the terms of their manufacturer’s representative agreement. Montigo terminated Scott’s firm, awarding its exclusive contract to BTU instead.
Montigo claims that Scott still owes the manufacturer about $9,800.
No trial date has been set yet. Earlier this month, the judge presiding over the case granted a request from Scott’s attorney for more time to respond to a motion for summary judgment denying Scott’s claims while granting Montigo’s claim against Scott for payments owed.
The Ferndale, Washington-based manufacturer said Scott’s past-due accounts would get deeper into the red from January to May, when the Legislature was in session.
“For four months each year, Mr. Scott worked remotely, away from the business,” Montigo’s attorneys said in a July motion for summary judgment against Scott’s lawsuit. “During that time, he encountered issues and delays with receiving mail, and long periods where he would be unaware of communications. At the same time, GPC began ringing up large past-due balances.”
Montigo’s motion also said it was Scott’s son-in-law at the time, Timothy James Hines, who worked as his main salesman, who was telling Scott’s clients that Gas Products Corp. was having credit problems, not Montigo.
In a deposition in the case, Hines, who no longer is Scott’s son-in-law, said his relationship with Scott had come to the point where he “just didn’t like what was going on,” and that he had no idea why those credit problems were happening.
Other emails between Montigo executives said Scott told them not to share any financial information with Hines or tell him why orders were being placed on hold.
“The method that Ray uses to pay his bills (through the bank?) is undependable. Sometimes the payments arrive when expected and sometimes they are inexplicably late by several days,” Baron wrote to other Montigo officials. “Plus, the fact that Ray does not want TJ (HIS OWN SON IN LAW) to know that orders are on hold because of money, is a big danger signal also. Ray is making good money on these (fireplaces) and gets paid in full before they ship, so he definitely is blowing his money somewhere and then scrambling trying to cover for it.”
The manufacturer’s motion said the situation got so bad that some of Scott’s clients began to complain directly to Montigo.
“My unanswered voice mails and e-mails led me to contact the controller at Montigo directly,” Mike Simpson, project manager for Structural Associates Co., wrote in an email to Scott in March 2012. “He stated that they have just received a $15,000 payment from Gas Products Corp. This is completely unacceptable given we paid you a 50% deposit and you cashed our ($75,000) check on February 10th.”
Scott’s suit claims his company was earning upwards of $1 million a year until the sales contract was taken away. His suit claims his company had an agreement “in perpetuity” to be Montigo’s exclusive distributor, something the manufacturer called a “drastic claim” that “neither the law nor the facts support.”
In a deposition, which he gave at his state Senate office, Scott said he had an oral contract with the company that had been in effect for nearly 20 years prior to being cut off in 2012.
In that same deposition, Scott said Montigo was “manipulating the books,” confusing which orders required deposits before it would ship the more expensive, high-end fireplaces.
In its motion for summary judgment, however, Montigo said the client list Scott had was not secret, and even if it were the statute of limitations on it would have run out years ago.
The manufacturer said about 70 percent of the customers Scott had on that list actually came from referrals Montigo made to him.
Scott, who now is assistant majority leader in the Colorado Senate, referred all questions to his Grand Junction attorney, Ben Wegener, who said he was still working on his response to Montigo’s motion and asked the court to give him more time to do so, an extension U.S. District Judge Michael E. Hegarty granted on Aug. 17.
While Wegener declined to comment more specifically on the suit before submitting his reply to the motion for summary judgment in the case, he did say that Montigo’s claim that the trade secret issue had passed the statue of limitations is incorrect because it took some time after 2012 for the two companies to take Scott’s clients away.