CapitalWerks $9 Million Alabama Judgement

by Kit Menkin

In yesterday's Leasing News, it was reported that six employees showed up on Monday, Dr. Martin Luther King, Jr. holiday, and gave their notice to CapitalWerks, located in Orange County, California. Among them was the credit manager and operations manager, confirmed by the two principals Jim Raeder and Mark McQuitty.

Readers told Leasing News there was more to the story, although we could not substantiate or verify what were told, and the final advice was “to dig deeper.”

Ariton company wins $9 million jury award

By Evelyn S. Pelfrey / Eagle Correspondent

January 18, 2005

ARITON - Construction contractor Carl Sutton went to work as usual on Martin Luther King Jr. day.

Even though Sutton Construction, based in Ariton, had just won a $9 million jury award against California equipment lease/brokerage firm CapitalWerks, LLC, Sutton said he had a lot of work to do Monday.

"It took me two and a half years to get them to court," Sutton said.

In the summer of 2002, Sutton said he was contacted by CapitalWerks via facsimile offering what he thought were good financial terms for the lease purchase of a high-lift fork lift.

"I thought if I could get one Lull lift and move it from job to job, I could save money," Sutton said.

Sutton is a specialty general contractor in the drywall, paint and floor covering market for multi-family apartment complexes.

Sutton testified before a Barbour County jury that he entered into an equipment agreement with CapitalWerks, bid five jobs in South Carolina and one in Auburn based on the terms of that agreement and then could not get the company to return his phone calls.

"The guy I was dealing with... he just became vacant," Sutton said. "We couldn't get up with him."

When contact was finally resumed, Sutton said the company refused to honor the original terms of the agreement, requiring a larger down payment and higher interest rate.

"It was a classic bait and switch," said Sutton's attorney Jock Smith, managing attorney of the Tuskegee office of Cochran, Cherry, Givens & Smith and national law partner of Johnnie Cochran.

"Sutton Construction factored having that equipment into multiple bids and construction contracts making the acquisition of the equipment absolutely necessary," Smith said. "Then, to capitalize on (Sutton's) vulnerability, CapitalWerks refused to honor the agreement unless Sutton Construction agreed to much less favorable terms."

Smith called the case "a perfect example of unlawful predatory lending practices."

On Jan. 6, the jury found CapitalWerks guilty of fraud involving leases on construction equipment and awarded Sutton Construction $4 million in compensatory damages and $5 million in punitive damages.

Sutton made claims for lost profits, increased labor costs, equipment rental, damage to the business reputation and emotional distress.

"They scared me," Sutton said. "I thought they'd drive me into bankruptcy."

Sutton said he feels vindicated by the verdict whether or not he collects on the award and has not yet heard if CapitalWerks plans to appeal.

Evelyn S. Pelfrey can be reached at


CapitalWerks states the issue is not about “Advance Rentals” or a deposit, as they state no contract or money exchanged hands. The award was due to a broadcast fax with “pre-approval language.” Even if they win on appeal, Jim Raeder states by Alabama law, the maximum fine would be $160,000, not $9 million dollars.

He also was aware this group, plus perhaps a few others, were planning a new company and the news of the loss of the law suit may have been the impetuous to move forward their time table.

“I think it's important to make your readers aware of the potential pitfalls involved with any and all direct marketing,” Jim Raeder said in an e-mail. “ I would also like to make it clear that we worked very hard to secure an approval for this tough credit customer all without a signed commitment letter or a deposit check. This situation arose in October, 2002 regarding a D & B profiled marketing flyer pre-qualifying the customer for an equipment lease up to $150,000.00. The marketing flyer was sent without specifying any payment, term or structure to a customer in Barbour County, Alabama.

“The client responded to the marketing piece requesting information to lease a used forklift for $35,000 and filled out an application. After several discussions regarding his equipment needs, the client increased his request to include a work truck for an additional $34,000. Knowing this amount was a reach for a 570 FICO with paid tax liens, we sought out a specialty lender that would understand this type of challenged credit with good collateral. Additional information was provided, and an approval requiring a security deposit equal to 20% of the equipment cost was given. The client was notified of the approval and the requirement of a 20% down payment, and requested we prepare documents for his review. After several calls went unanswered to get the signed agreements back to complete the transaction, we closed the file.

“Less then 30 days later we received a law suit from the Johnny Cochran law firm in Alabama asking for unspecified damages caused by the client's reliance on this marketing piece, as he claimed to have entered into contracts he couldn't complete without the use of this leased forklift, “ Raeder explained. “ Although he was unable to provide documented proof of any monetary damages, the jury still found in his favor for the ridiculous amount of $9,000,000.

“We have notified our insurance carrier, The Hartford, to assist in the appeal and settlement process and intend on fighting this injustice to the Supreme Court if needed. I would also like to seek the help of Equipment Leasing Association and United Association of Equipment Leasing to assist in this case to help brokers and lenders avoid similar traps in the future.”

There have been other cases where attorneys have taken to
court leasing companies and brokers for sending out mass faxes.
One involved Gary Saulter of Chase Industries, in

Grand Rapids, Michigan:


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