BIRMINGHAM, Ala. (CN) – Lives of U.S. military personnel have been put at risk because distributors misrepresented the quality of their steel and “passed off inferior, untested steel as steel meeting certain industry specifications and thereby induced plaintiffs to unknowingly buy the inferior, untested steel at inflated prices,” two steel dealers says in a federal RICO complaint.
O’Neal Steel and Leeco Steel sued Worldwide Steel Unlimited, General Purpose Steel, Lance Chatkin and Bruce Adelstein in the 66-page complaint, alleging RICO violations, fraudulent misrepresentation, wantonness, breach of contract, and negligence.
O’Neal and Leeco say they sold some of the steel for use in military Humvees and armored vehicles that were deployed to Afghanistan, Iraq and Israel. They say the defective steel products have put the lives of U.S. military personnel at risk.
The steel distributors call the defendants’ operations “a criminal enterprise, as defined by RICO, controlled by two persons who, through two corporations and various employees, fraudulently represented the quality of goods sold to enrich themselves and the companies they controlled through unlawful means, including mail and wire fraud, in disregard of possible personal injury, death, property damage or cost and expense.”
The complaint continues: “By virtue of this criminal enterprise, Defendants passed off inferior, untested steel as steel meeting certain industry specifications and thereby induced Plaintiffs to unknowingly buy the inferior, untested steel at inflated prices. Plaintiffs, relying on Defendants’ representations and certifications that the steel was tested and met the specifications in Plaintiffs’ purchase orders, then unknowingly sold this inferior, untested steel to Plaintiffs’ customers as steel meeting the customers’ specifications for applications for which it was potentially dangerously unsuited. In fact, none of the steel sold by Defendants to Plaintiffs had been tested either by the manufacturer or independent laboratories as represented and certified by Defendants, and much of the steel did not in fact meet the specifications in Plaintiffs’ purchase orders as represented and warranted by Defendants. If the steel did meet the specifications, it was completely fortuitous and not by virtue of test results as represented by Defendants.
“Plaintiffs’ customers included the United States Military, manufacturers of railroad freight cars, manufacturers of bucket trucks used for repairing power lines and other items many feet high above ground, and manufacturers of ladder trucks used in firefighting. Much of the steel ordered by Plaintiffs was intended to be High Strength Low Alloy (‘HSLA’) steel which is stronger and tougher than carbon steel, and is durable, highly formable and weldable. HSLA steel is intended primarily for use in structural applications where strength, as well as savings in weight and added durability, is critical. Furthermore, much of the steel ordered by Plaintiffs was intended to be steel with a very high yield strength, or steel where strength is critical. Defendants knew or must have known that the inferior, untested steel sold by them to Plaintiffs would ultimately be used in applications where it was essential for safety that the steel meet certain critical physical and chemical standards. Nevertheless, and knowingly or recklessly disregarding the danger posed by their sale of inferior, untested steel, Defendants persisted in pursuing their illegal enterprise, resulting in heavy equipment across the country and abroad containing safety-critical components made of inferior, untested steel.”
The plaintiffs say the defendants falsified documents “as to the supposed standards and grades of steel being sold.” They add: “These misrepresentations included not only the false mill test reports and certificates of conformance for each purchase made by O’Neal and Leeco, but also every response to request for bid and invoice for each purchase, as each of these communications included ASTM standards and grades information for which there was no support whatsoever. …
“In the steel industry, steel is bought and sold based upon the ASTM standards and grades of steel. Throughout the industry, these standards and grades are established by ASTM International (ASTM), which was originally known as the American Society for Testing and Materials. ASTM International is an international standards organization that develops and publishes technical standards for a wide range of products and materials, including steel.”
O’Neal Steel and Leeco Steel are middlemen between metal producers and end users of metal products. Though they maintain an inventory of steel products, they contract with vendors when they need a certain standard and grade of steel for their customers, including the U.S. military and manufactures of railroad freight cars, bucket trucks used to repair power lines and manufacturers of ladder trucks used in firefighting.
O’Neal and Leeco claim the defendants falsified documents so they could “sell inferior, untested product as substantially better and more expensive product … thus generating illicit profits for themselves.”
They claim that if no information was available on a product, Adelstein would instruct an employee to “prepare a certificate of conformation containing information that met O’Neal’s or Leeco’s specifications.”
They claim that this employee told O’Neal and Leeco that he was “instructed by Mr. Adelstein to fill in the certificates of conformance so that the physical and chemical properties shown met the customer’s specifications, regardless of the steel’s actual properties.”
The plaintiffs say the fraud came to light when Leeco employee questioned a mill test report because the steel “appeared to have been electronically cut and pasted together and did not appear to be authentic.”
O’Neal and Leeco say that when they confronted the defendants about the reports, Lance Chatkin, president of Worldwide and General Purpose, acknowledged the “potential magnitude of the consequences which could occur as a result of such incorrect analyses being supplied to customers” and instructed Worldwide to “complete a thorough investigation.”
O’Neal and Leeco say the defendants never produced any corrected reports, but in a letter “Worldwide, through Mr. Adelstein, confirmed that none of the physical properties shown on the purported certificates of conformance or mill test reports supplied by Worldwide were supported by testing performed by the manufacturer or testing performed by an independent lab at the request of either Worldwide or General Purpose.”
The plaintiffs say that by “disregarding the danger posed by their sale of inferior, untested steel, defendants persisted in pursuing their illegal enterprise, resulting in heavy equipment across the county and abroad containing safety-critical components made of inferior, untested steel.”
The plaintiffs say the defendants have denied liability and O’Neal and Leeco have had to pay more than $5.5 million to their customers to resolve claims.
O’Neal and Leeco want the defendants to defend and indemnify them against claims brought by customers.
The plaintiffs are represented by Crawford S. McGivaren Jr. of Birmingham.