Lawsuit filed by Target alleges massive fraud by contractor

Target Corp. filed a federal racketeering lawsuit in Minneapolis Friday, alleging that it has been systematically defrauded by a contractor it hired in 2009 to oversee about $100 million in repairs and maintenance on its parking lots around the country.

The company alleges that LCH Pavement Consultants of Pearland, Texas, conspired with paving contractors in California, Wisconsin, Texas and Illinois to inflate prices, rig bids, fix prices, misrepresent work being done and distribute kickbacks.

It's unclear from the lawsuit how much Target claims it was damaged, though it appears to be in the millions of dollars. The company is seeking triple damages, with the precise amount to be proven at trial.

Target declined to provide an estimate of the damages and would not say whether it has reported the alleged fraud to law enforcement. It issued the following statement in response to those questions:

"Accountability is the foundation of how Target does business, and we expect honesty from our vendor partners. Several paving vendors breached this trust by misrepresenting the services they performed on behalf of Target. ... Target is pursuing civil action to recoup the amount paid for services that were not performed, or performed in-part."

Only one of the companies named in the suit, Rose Paving Co. of Bridgeview, Ill., responded Friday to requests for comment. The company would only say it had not yet been served.

In addition to LCH and Rose Paving, the other defendants include one of LCH's owners, Leslie J. Bailey, 51, of Friendswood, Texas, and LCH general manager Keith Heutzenroeder, 49, of Fruta, Colo.

According to the suit, Target has hired consultants for years to oversee the maintenance and repair of the parking lots at its 1,700 stores. Until last year, these contractors solicited bids from paving companies and ensured that the work was done properly.

LCH was hired in 2009 to oversee asphalt work through most of the United States except the Upper Midwest. Target alleges that Bailey, Heutzenroeder and perhaps others concocted a scheme to defraud the company that involved the "knowing participation" of the other defendants, and perhaps others.

As part of the scheme, Target says, LCH would overstate the type and quantity of work that needed to be done.

The suit alleges that LCH organized the participating paving companies in a scheme to divvy up the work on a territorial basis. LCH did this by denying some contractors a chance to bid, by getting some contractors to submit bids they knew were too high, and by fraudulently inflating legitimate, lower bids when it filed reports with Target, the suit says.

It says the defendant paving companies collaborated with one another by not submitting bids that would compete with another and reflect actual market pricing. Rather than overseeing the work, the suit says, LCH let the paving companies themselves, or a subcontractor, do the job and certify completion.

"This fraud was concealed by applying a surface overlay of asphalt, which provided the outward appearance of completely new pavement," the suit says.

Target says it paid LCH and the contractors hundreds of thousands of dollars for work that was never performed. In return, the suit says, LCH demanded and received kickbacks.

In June 2011, Target changed the way it allocated funds for such paving projects.

It conducted a "sourcing event" in Minneapolis and asked contractors to prepare "archetype prices," or unit prices, for certain kinds of tasks. Then it assigned contracts on a geographic basis, which had the effect of disrupting the alleged bid-rigging scheme, the suit says. Even so, the defendants continued to short Target on the work that was billed, the suit says.

The suit provides examples of allegedly fraudulent billings in Cypress, Calif.; Billings, Mont.; Peoria, Ariz.; Skyline, Va., Neshaminy, Pa.; Monroeville, Pa.; Hurst, Texas; Irving, Texas; Augusta, Ga.; Cicero, Ill.; Lake Zurich, Ill., and Henrietta, N.Y.