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Integrator’s Lawsuit Claims Best Buy Recanted on Word
A Dallas dealer is suing the retailer for $126M for 'false representation,' annexing clients and falling short on promises.
A Dallas integrator is suing Best Buy for $126 million, claiming the retailer promised to deliver new business from area homebuilders, but did nothing more than usurp one of the integrator's existing customers.
In 2003, Powell Protection Systems had a "fairly steady" business in Dallas doing security and other low-voltage work for new homes, according to John Frick, the attorney representing Powell.
"Best Buy walked in the door and said, 'We're going to come into this market. We're going to get all these builders and we're looking for subcontractors. We've done our due diligence and have decided to select you to be our partner."
In the end, however, Best Buy never delivered the homebuilders, and in fact never intended to use Powell for low-voltage work, according to the lawsuit.
It all apparently started when Best Buy approached William Ryan Homes, a production builder with developments in Dallas and Fort Worth. "William Ryan told Best Buy that it already had a relationship with Powell it was happy with, and that it would not participate in Best Buy's program unless Powell was its subcontractor," says Frick.
According to Frick, Best Buy then conspired to get Powell to hand over the William Ryan business by promising that Powell would remain the low-voltage contractor for the William Ryan jobs (albeit at reduced rates) and that Best Buy would deliver thousands of new homes from builders Powell was not already working with.
The lawsuit alleges that Best Buy laid out an ambitious plan for its nascent Networked Home Solutions (now Best Buy for New Homes), already launched in the Minneapolis area and destined for Texas. According to the suit, the retailer said it would complete 2,000 homes in 2003, 5,000 homes in 2004 and over 10,000 homes per year in five years in Texas, beginning with Dallas and expanding into Houston.
More specifically, Frick explains, Best Buy said it had 725 homes already under contract in Dallas, and these homes would be handed over to Powell.
Based on these representations, Powell, which does about $2.5 million in low-voltage business, agreed to work with Best Buy, says Frick, and Best Buy assured William Ryan that it would get its subcontractor of choice. But installers from DecisionOne began showing up at the William Ryan sites.
As it happens, Best Buy already had an agreement with this national provider of IT-related services. The retailer tapped the service provider in 2002 to perform low-voltage installations for Networked Home Solutions on a national basis.
"They [Best Buy] had no intention of using Powell," says Frick, who adds that a Best Buy executive conceded this point in a deposition. "They used false representation to get Powell to tell William Ryan that Powell was going to be the subcontractor. Then they took William Ryan from Powell."
Powell got none of the low-voltage work for William Ryan, except for security, which had to be offered at a discounted rate for Best Buy.
For that work, Powell claims it did not get paid by Best Buy, apparently due to glitches in Best Buy's new billing and logistics software, which also influenced William Ryan's past-due payables to Best Buy. According to Frick, Best Buy insisted Powell collect the delinquent moneys from William Ryan if it wanted to get paid.
William Ryan did not appreciate the payment notice it received from Powell, and simply wanted to "rid their hands of everything" associated with Best Buy, including Powell, says Frick. William Ryan severed its relationship with both parties for good.
Frick says that both Best Buy and William Ryan had "absolutely no problem" with Powell, and that Powell performed its work professionally and on schedule.
The loss of the William Ryan account cost Powell "several million dollars," says Frick.
Here's the gist of the lawsuit: Best Buy promised Powell thousands of homes; in return, Powell gave up a major existing homebuilder account, William Ryan. Not only did Best Buy bring in another contractor for the William Ryan account, the retailer never brought Powell business from other homebuilders.
With Best Buy in the picture, the William Ryan relationship went awry, explains Frick, costing Powell millions of dollars in future business with the builder.
Powell is charging Best Buy with fraud and business interference. For starters, although Best Buy told Powell some 2,000 homes would be contracted for Networked Home Solutions in 2003, and 10,000 would be completed five years later, those predictions were completely bogus, alleges Frick.
In depositions, according to the attorney, a Best Buy employee admits that the company did in fact present those numbers to Powell, when "Our internal projections never came close to that."
The over-ambitious predictions were simply a ploy to get Powell to cough up the William Ryan account, says Frick. "Had Best Buy not told them [Powell] they were getting all of those homes, they would never have signed over the [William Ryan] contract and reduced their rates. Powell got nothing from Best Buy, and they lost all the low-voltage work they had contracted for."
Powell's forensic accountant estimates that the actual losses sustained by Powell as a result of Best Buy's alleged fraud totals $42 million.
That includes business that Powell would have secured from both William Ryan and other homebuilders apparently under contract with Best Buy. Exemplary damages could add another $84 million to that amount.
Frick says Powell is only owed around $8,000 for work performed for Best Buy, and that Powell did not make any extraordinary investments to ramp up for new business promised by Best Buy.
The case goes to court Oct. 17 before the Hon. David Evans in the 193rd District Court of Texas. Best Buy failed to have the case dismissed without a trial in May 2006.
Best Buy declined to comment for this story.
If those first four or five years of Best Buy's home systems installation business were a little bit experimental, today the retailer "has really solidified what we feel is a top-quality offering," says Tim Wirtz, national sales manager for Best Buy's commercial sales builder channel.
"We started out dipping our toe in the water, using third-party contractors for everything that we did. This past year, we really finalized on the products and packages ... and most important, because of customer service and competencies, brought all installation in-house."
Wirtz says the company has hired installers through "normal recruiting efforts," thanks in particular to the company's ability to provide a "very good career path." He indicates that the Best Buy installation crew is "totally different" from those who install for Best Buy's sister company Magnolia
While builder-related efforts are particularly strong in Best Buy's backyard of Minneapolis/St. Paul, the company has made inroads nationwide including California, Florida, Denver and Columbus, Ohio. Participating builders include Centex Homes, Brookfield Homes, Pulte Homes, Lennar, Ryland Homes and US Home, according to the company's Web site (http://www.bestbuyfornewhomes.com/findabuilder/).
Wirtz would not specify the number of homes that Best Buy has equipped with technology lately, other than to say it was in the thousands. Nor would he say exactly how many installers are on the payroll. "The number [of installers] is affected by the builders' production," he says. "We sit down with the builder, find out what the needs are, then hire appropriate staff."
And those needs aren't necessarily limited to structured wiring and cheap in-wall speakers. Wirtz says Best Buy takes jobs from run-of-the-mill structured wiring to fancy installations "with multiple home theaters and drop-down screens."
Systems are sold to consumers either through model homes or selection studios, where Best Buy offers a range of demos and marketing materials. End-user pricing is established by the builder, but Wirtz says the retailer is not on a mission to be the low-cost providers. "In some markets we may be quite a bit less, in some markets we may be a little bit higher," he says.
Best Buy sets up an orientation with each new homeowner after move-in to "ensure everything is working perfectly, and that they understand it," says Wirtz. "Then we try to extend the reach by offering other types of shopping incentives."
In 2003, Powell Protection Systems had a "fairly steady" business in Dallas doing security and other low-voltage work for new homes, according to John Frick, the attorney representing Powell.
"Best Buy walked in the door and said, 'We're going to come into this market. We're going to get all these builders and we're looking for subcontractors. We've done our due diligence and have decided to select you to be our partner."
In the end, however, Best Buy never delivered the homebuilders, and in fact never intended to use Powell for low-voltage work, according to the lawsuit.
Best Buy Nabs Big Builder
It all apparently started when Best Buy approached William Ryan Homes, a production builder with developments in Dallas and Fort Worth. "William Ryan told Best Buy that it already had a relationship with Powell it was happy with, and that it would not participate in Best Buy's program unless Powell was its subcontractor," says Frick.
According to Frick, Best Buy then conspired to get Powell to hand over the William Ryan business by promising that Powell would remain the low-voltage contractor for the William Ryan jobs (albeit at reduced rates) and that Best Buy would deliver thousands of new homes from builders Powell was not already working with.
The lawsuit alleges that Best Buy laid out an ambitious plan for its nascent Networked Home Solutions (now Best Buy for New Homes), already launched in the Minneapolis area and destined for Texas. According to the suit, the retailer said it would complete 2,000 homes in 2003, 5,000 homes in 2004 and over 10,000 homes per year in five years in Texas, beginning with Dallas and expanding into Houston.
More specifically, Frick explains, Best Buy said it had 725 homes already under contract in Dallas, and these homes would be handed over to Powell.
Based on these representations, Powell, which does about $2.5 million in low-voltage business, agreed to work with Best Buy, says Frick, and Best Buy assured William Ryan that it would get its subcontractor of choice. But installers from DecisionOne began showing up at the William Ryan sites.
As it happens, Best Buy already had an agreement with this national provider of IT-related services. The retailer tapped the service provider in 2002 to perform low-voltage installations for Networked Home Solutions on a national basis.
"They [Best Buy] had no intention of using Powell," says Frick, who adds that a Best Buy executive conceded this point in a deposition. "They used false representation to get Powell to tell William Ryan that Powell was going to be the subcontractor. Then they took William Ryan from Powell."
Powell got none of the low-voltage work for William Ryan, except for security, which had to be offered at a discounted rate for Best Buy.
For that work, Powell claims it did not get paid by Best Buy, apparently due to glitches in Best Buy's new billing and logistics software, which also influenced William Ryan's past-due payables to Best Buy. According to Frick, Best Buy insisted Powell collect the delinquent moneys from William Ryan if it wanted to get paid.
William Ryan did not appreciate the payment notice it received from Powell, and simply wanted to "rid their hands of everything" associated with Best Buy, including Powell, says Frick. William Ryan severed its relationship with both parties for good.
Frick says that both Best Buy and William Ryan had "absolutely no problem" with Powell, and that Powell performed its work professionally and on schedule.
The loss of the William Ryan account cost Powell "several million dollars," says Frick.
Fraud Alleged
Here's the gist of the lawsuit: Best Buy promised Powell thousands of homes; in return, Powell gave up a major existing homebuilder account, William Ryan. Not only did Best Buy bring in another contractor for the William Ryan account, the retailer never brought Powell business from other homebuilders.
With Best Buy in the picture, the William Ryan relationship went awry, explains Frick, costing Powell millions of dollars in future business with the builder.
Powell is charging Best Buy with fraud and business interference. For starters, although Best Buy told Powell some 2,000 homes would be contracted for Networked Home Solutions in 2003, and 10,000 would be completed five years later, those predictions were completely bogus, alleges Frick.
In depositions, according to the attorney, a Best Buy employee admits that the company did in fact present those numbers to Powell, when "Our internal projections never came close to that."
The over-ambitious predictions were simply a ploy to get Powell to cough up the William Ryan account, says Frick. "Had Best Buy not told them [Powell] they were getting all of those homes, they would never have signed over the [William Ryan] contract and reduced their rates. Powell got nothing from Best Buy, and they lost all the low-voltage work they had contracted for."
Powell's forensic accountant estimates that the actual losses sustained by Powell as a result of Best Buy's alleged fraud totals $42 million.
That includes business that Powell would have secured from both William Ryan and other homebuilders apparently under contract with Best Buy. Exemplary damages could add another $84 million to that amount.
Frick says Powell is only owed around $8,000 for work performed for Best Buy, and that Powell did not make any extraordinary investments to ramp up for new business promised by Best Buy.
The case goes to court Oct. 17 before the Hon. David Evans in the 193rd District Court of Texas. Best Buy failed to have the case dismissed without a trial in May 2006.
Best Buy declined to comment for this story.
Best Buy Today
If those first four or five years of Best Buy's home systems installation business were a little bit experimental, today the retailer "has really solidified what we feel is a top-quality offering," says Tim Wirtz, national sales manager for Best Buy's commercial sales builder channel.
"We started out dipping our toe in the water, using third-party contractors for everything that we did. This past year, we really finalized on the products and packages ... and most important, because of customer service and competencies, brought all installation in-house."
Wirtz says the company has hired installers through "normal recruiting efforts," thanks in particular to the company's ability to provide a "very good career path." He indicates that the Best Buy installation crew is "totally different" from those who install for Best Buy's sister company Magnolia
While builder-related efforts are particularly strong in Best Buy's backyard of Minneapolis/St. Paul, the company has made inroads nationwide including California, Florida, Denver and Columbus, Ohio. Participating builders include Centex Homes, Brookfield Homes, Pulte Homes, Lennar, Ryland Homes and US Home, according to the company's Web site (http://www.bestbuyfornewhomes.com/findabuilder/).
Wirtz would not specify the number of homes that Best Buy has equipped with technology lately, other than to say it was in the thousands. Nor would he say exactly how many installers are on the payroll. "The number [of installers] is affected by the builders' production," he says. "We sit down with the builder, find out what the needs are, then hire appropriate staff."
And those needs aren't necessarily limited to structured wiring and cheap in-wall speakers. Wirtz says Best Buy takes jobs from run-of-the-mill structured wiring to fancy installations "with multiple home theaters and drop-down screens."
Systems are sold to consumers either through model homes or selection studios, where Best Buy offers a range of demos and marketing materials. End-user pricing is established by the builder, but Wirtz says the retailer is not on a mission to be the low-cost providers. "In some markets we may be quite a bit less, in some markets we may be a little bit higher," he says.
Best Buy sets up an orientation with each new homeowner after move-in to "ensure everything is working perfectly, and that they understand it," says Wirtz. "Then we try to extend the reach by offering other types of shopping incentives."
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About the Author
Julie Jacobson, Editor-at-large, CE Pro
Julie Jacobson is co-founder of EH Publishing and currently spends most of her time writing for CE Pro, mostly in the areas of home automation, networked A/V and the business of home systems integration. She majored in Economics at the University of Michigan, earned an MBA from the University of Texas at Austin, and has never taken a journalism class in her life. Julie is a washed-up Ultimate Frisbee player with the scars to prove it. Follow her on Twitter @juliejacobson.
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