Prison Industry Takeover of Private Sector Businesses

How Prison Industries Take Over Private Sector Businesses

In Florida, as discussed on the PRIDE page, the prison industries are operated by Prison Rehabilitative Industries and Diversified Enterprises (PRIDE). Since 1995 when the PIECP Program first made its debut in Florida, PRIDE has utilized this program to encourage private sector businesses, manufacturers and Corporations to "partner" with them under the PIE program. The partnerships entail teaching or training inmates in the manufacture of products sold by the private sector partners, shipping of those products to consumers and customers of the partners.

The foregoing partnerships are considered "Employer" models under the PIE Guidelines. An employer model is one where the private sector business or corporation utilizes the facilities and inmate labor provided by the prison industry to manufacture products or provide services. The private sector business is referred to as the Employer and is responsible for payroll, taxes and deductions. The employer has oversight of the industry operations, inmate work and all aspects of the operation.

(The second model is the "Customer" model where the prison industry operates the industry itself, pays the inmates for their work, determines what products are made and develops their own customer base. Under the Customer model the prison industry is responsible for deductions of taxes, payroll and wages).

An important note to this issue is that PRIDE received the PIECP Certificate (issued by the BJA) from the Department of Corrections via legislative Act in 1999. The practices and violative acts that occurred have taken place since immediately following the acquisition of the Certificate from the FDOC. A Second important note is that the private sector businesses mentioned below all had ongoing profitable businesses in operation for years prior to their partnering with PRIDE or their spin-offs. In fact, PRIDE requested and received financial information on each during contract negotiations, and knew them to be reputable businesses with healthy sales, income and Triple A or better Credit standings. Following their partnerships with PRIDE or their spin-offs, all of the below businesses were forced into closing and lost all equipment, products, materials and their credit ruined. In effect, they were all put out of business by PRIDE. (Recently we discovered another PRIDE PIE partnership was made between Man-Trans, LLC and ITC. PRIDE pulled the same take-over attempt on Man-Trans that it did on the others. Man-Trans, LLC proved to be the exception to the rule. Man-Trans owner, Darrell Moore's family are well connected in Tallahassee circles. A call from Mr. Moore's father to Governor Bush's office resulted in PRIDE settling with Man-Trans and giving all equipment back to Man-Trans as well as a financial compensation for the attempted take-over. Man-Trans continues to operate today. Attorney Brewton was able to secure a Court-sealed settlement agreement to prevent others from learning the exact wording and terms of that agreement).

PRIDE solicits and enters into employer model partnerships with private sector manufacturers or service providers, promising these partners that: using inmate labor, low cost leasing of industrial space and paying wages far below scale, PRIDE can guarantee lower production overhead, increased production and as a consequence, higher profits. Once the partnerships are formed, PRIDE's partners provide equipment, proprietary formulas and technology, customer lists and shipping schedules for the operation start-up.

Within a short period of time the "partners" notice that production using the inmate labor has decreased from the private sector norm, quality of the products are far below expectations and as a result, delivery of products is slowed and the partner begins to experience a loss of market share for his products. When the partners approach PRIDE (or one of their spin-off corporations they're partnered with) and complain of the lack of production and loss of sales, income and distribution, PRIDE attempts to get the partner to change or alter their contracts. When these partners attempt to get PRIDE to enter into a Joint Venture Agreement to cure the problems, PRIDE declines and continues to stall.

During the tenure of the partnership, PRIDE marketing staff contacts customers of the private sector partner in an effort to inform those customers that they can produce the same products for less and ship directly to them without the participation of the private sector business. PRIDE then puts a business plan into effect that allows them to cut out the private sector partner altogether and work directly with the partner's previous customers.

Once production has fallen off to the point that the private sector partner is financially weakened by their inability to fill orders of their customers, PRIDE finds reason to close down the partnership operation, orders key partner personnel from the property, keeps the equipment, inventory, and proprietary formulas and technology owned by the partner and takes over the entire operation. In some casses PRIDE presents bogus invoices, claiming the partner owes them for production or lease expenses, and demand payment. Their demands are accompanied by a suggestion that the partner sign over their businesses to PRIDE to satisfy the outstanding funds PRIDE falsely claims they're owed.

If the partner does not agree to the terms, PRIDE goes through with expelling the partner's representatives from the prison property and continues to market the same products on their own and sell and distribute those products to the previous partner's customers. Miracuously, production increases and PRIDE is able to keep up with customer demand. See: CCS v. Global Outsourcing and PRIDE, in our files section. PRIDE has accomplished such private sector take overs on at least three (3) occasions: Custom Converter Sales, Inc. and Value Line Converters, Inc., Fresh Nectars (a Bernard Egan and Company subsidiary) see article "Citrus Venture Sours for State Prison Project" in our files section) and ATL Industries, Inc. In each case PRIDE claims their "partners" owed them money - where PRIDE actually owed the partners money.

In each case PRIDE actively works to steal the partner's customers away from them. In each case PRIDE kept the equipment, proprietary formulas, technology, ingredients, supplies and packaging materials including labels. In each case PRIDE amended these employer model PIE opeations into customer models and continued to operate the businesses for their own corporate profits.

To support their take-over tactics, PRIDE utilizes top dollar law firms to represent them against their previous partners (takeovers are not cheap). PRIDE's activities of reduced production and poor quality products have already reduced the former partner's ability to fund legal actions to recover their equipment, lost products, lost income and compensation for the theft of proprietary information. PRIDE's counsel are able to tie up proceedings in Florida Circuit Courts for years on end, simply waging a war of attrition upon the former partner and plaintiff. The assistance of the multi-state law firm of Greenberg, Traurig and the Tallahassee firm of Brewton & Plante are critical to the practices complained of (another interesting note: Attorney Brewton also is a paid lobbyist for PRIDE and served as the resident agent for PRIDE and all of their spin-off corporations - until the IG's report in 2005 when he turned over resident agent status to others. Ron LaFace of the Greenberg, Traurig firm sits on the PRIDE Board and is also a registered lobbyist for PRIDE). Without their legal manuvering and ability to deflect investigations and questions about their corporation, PRIDE would not be able to complete take overs of private sector businesses, corporations or manufacturers who were unfortunate enough to have been enticed into partnering with the prison industry operations.

In addition to wearing the ex-partners down financially, PRIDE requests a Court "Gag" Order, prohibiting the ex-partner from disclosing the facts of the case or the actions complained of. This allows PRIDE to continue to prey upon private sector manufacturers who are without knowledge of the facts of any court action brought by former partners of PRIDE.

In at least two of the operations involving CCS and ATL, PRIDE took steps to certify their "new" industries as Service Industries and as such qualify as non-PIECP, so the mandatory requirements such as wages and workers compensation benefits would not be required.

In the case of ATL, documents obtained indicate that prior to the litigation between PRIDE and ATL, a memo of a meeting at the Food Processing plant outlining the ouster of ATL by PRIDE and the anticipated formation of a new organization to replace ATL were sent between PRIDE VP of Operations, Jack Edgemon (now serving as PRIDE President) and Rod Horne (now serving as PRIDE's Industry Manager for their Sugar Cane Industry at Glades CI). In that communication Mr. Horne describes the formation of new entities (by ATL Employee J. Javetz) to do business with one of ATL's vendors. It indicates that PRIDE should immediately take steps to force ATL into receivership so they could liquidate inventory, acquire ATL's products and sell the inventory to ATL's vendor- and new PRIDE business partner - and whatever they don't sell, move to another location, out of the reach of ATL. They discuss the need to move away from ATL and "get some real customers." In addition, Mr. Javetz was urged to immediately resign from ATL to form the new business relationship between PRIDE and the ATL vendor. The ATL customer indicated he would jointly with PRIDE, pay Mr. Javetz as a broker for "bid business" and other sales.

PRIDE formed these partnerships using spin-off corporations such as ITC (Fresh Nectars) and Global Outsourcing, Inc. (CCS and ValueLine). At the time of the forming of these partnerships, some of PRIDE's corporate officers were:

President - Pamela Davis
Vice Pres - Jack Edgemon
CEO - Ray Goode
Secretary - Randal May
Vice Chair - Maria Camilla Leiva
Dir - Cecilia Bryant

The Board of Global Outsourcing consisted of:

CEO - Pamela Davis
Chairman - Ray Goode
Dir - Marcello Alvarez
Secretary - Esther Knightly
Treasurer - Robert Smith

The Board of ITC consisted of:

Chair - Ray Goode
President - Pamela Davis
Secretary - Esther Knightly
Treasurer - Robert Smith
Director - Randall May
Director - Marcello Alvarez

(The foregoing Board or Management personnel enjoyed salaries from both PRIDE as well as ITC and Global Outsourcing...and the 8 or 9 other spin-offs they owned or had an interest in. See 2005 Florida IG's Audit Report at: http://www.flgov.com/ig/pdfs/PRIDE_2005.pdf).

The NCIA who has responsibility for oversight of the PIE program is only told that the previous designation of Employer model has changed to a Customer model and business goes on as usual. One might wonder why the NCIA never questioned the number of new industry operations that had gone from a partnership to an industry run PIE operation. There are two explanations for this: 1) PRIDE had previously certified the partnered programs as "Service Industries" for purposes of PIE, so there was less oversight required - no wage or other mandatory requirement verification, etc., and; 2) As stated elsewhere, the NCIA is an organization consisting of a membership of prison industry managers, administrators, vendors or suppliers and others whose industries or businesses are currently in the PIECP program or supplly those who are.

Additionally, there is the lobbying done by PRIDE at the Executive and Legislative levels of Florida Government. They have at least one of these lobbyists on their Board (currently) in Ron LaFace. Two more Lobbyists, W. Brewton and Guy Spearman. These voices in Tallahassee with contributions and favors keep legislators and the Governor happy. Requests to the Governor and the Inspector General's Office for an investigation by private individuals and corporations, fall on deaf ears. Florida agencies consider PRIDE as a quasi-state department that enjoys soverign immunities. They don't believe they can go after the corporation - even if shown their violations in black and white.

In support of the foregoing, let's look at the period from October, 2007 through January 2008. In October of '07 then DOC Secretary, James McDonough took on PRIDE. He was appointed to office in February of '06 to replace ex-Secretary and PRIDE Board Member, James Crosby who was slated for federal prison on federal corruption and bribery charges. McDonough cleaned up the DOC, firing many top level career office holders, wardens down to CO I's. He turned around a department that was rife with corruption, drug dealing and embezzlers. The Governor applauded his actions to improve the DOC.

We provided Secretary McDonough with documents and information we had previously sent to Crosby complaining of the questionable business practices of PRIDE and their failure to pay prevailing wages. He had his staff and Departmental Inspector General look into the allegations submitted. In April of '06 he requested that the PRIDE Board allow Bob Sloan of PIECP Violations to make a presentation to the PRIDE Board. At the initial presentation, the Board was apprised of the business situation with ATL Industries, the wage and other important issues. The Board was presented with a list of written questions to answer. McDonough requested that PRIDE provide the answers to Sloan and provide a copy to the Secretary's office.

In October of '07 FDOC staff completed their investigation and review of PRIDE and McDonough publicly called for the abolishment of PRIDE and that the Legislature return the operations of the state prison industries to the DOC. He cited PRIDE for having "lost their way" and straying from their mission statement of inmate training and job placement, questionable business practices and failure to implement new programs that would employ and train more inmates. Additionally, McDonough sought more than $1 million in back room and board deductions owed the FDOC by PRIDE from the PIE program profits.

When McDonough's Legislative requests made the news, there was an uproar. One of the loudest was Senator Victor Crist, Chairman of the Senate Appropriations Committee. A hearing before Crist's Committee on McDonough's proposal was set for mid-December '07. PRIDE's lobbyists, Spearman and LaFace requested more time to prepare "their" response to the DOC proposal and it was then re-scheduled to January 10, '08. On January 9, '08 Secretary McDonough announced his "retirement" as Secretary of the FDOC and the hearing was again re-scheduled to January 24, '08.

At the hearing (see 1/24 Hearing Synopsis in files section) McDOnough made his presentation but was made to tone it down for the Committee through negotiations prior to the hearing. Senator Crist agreed with McDonough that PRIDE had held a "monopoly" on the prison industry for more than 25 years and had made no appreciable strides to keep up with the increasing inmate population and had strayed from their mission goal of training in favor of profits. A Representative of Governor Crist (no relation to Senator Crist) was at the hearing and stated the Governor agreed and had a proposed a bill ready for the Congress which would create an independent Prison Industries Board, return the PIECP Certificate back to the FDOC and additional issues that appeared to satisfy everyone but PRIDE.

Since that hearing, not one piece of Legislation has made it out of either House. In early '09 the new Secretary of the DOC, Walter McNeil stated that he was withdrawing the DOC's request that the PIECP Certificate be returned to them...and for PRIDE business goes along as usual, with the exception that the main authority and voice against their practices is out of the picture and the Lobbying activities continue, with PRIDE now wanting to amend state laws so they aren't required to post bonds on bids, (see PRIDE Bd. Mtg. Min. '09 in files section).

In addition, as argued previously, the PRIDE member of the NCIA is usually a Board member of the NCIA, and contemporaneously serves as a Board member, administrator or PIECP Coordinator for PRIDE. It doesn't appear to be too difficult a task to avoid investigation when you serve the investigator as well as those investigated. During the period from 1999 through 2005 when the above-mentioned business dealings were taking place, and private sector businesses were losing their entire operations to the prison industries, PRIDE's CEO, Pam Davis served as Chairman of the Correctional Industries Association or as the treasurer depending upon the year and was a member of the NCIA. Keep in mind she also served on the Boards of all the PRIDE spin-off corporations such as Industries Training Corporation (ITC) and Global Outsourcing, Inc. and was on the Board the Florida Chamber of Commerce and a member of the Florida Council of 100 that worked closely with Florida Tax Watch on taxpayer issues in Florida (http://www.floridataxwatch.org/resources/pdf/JOINTREPORT.pdf and

http://www.myfloridalegal.com/NewsBrie.nsf/OnlineBriefs/118378E926D1E8D685256D4000482C34).

For those who don't believe that the NCIA work hand in glove with PRIDE and other state prison industries - in fact allowing them to operate in the manner described above, we would point to the CCS situation with PRIDE, mentioned earlier. We learned that CCS had opened facilities partnered with other state prison industries under PRIDE - one in the Carolinas - entering into lengthy contracts under the PIE program to manufacture their products. Within four (4) months of operational start-up the Carolina Prison Industry (an NCIA member) voided the contract with CCS, citing they were a bad business risk as reported by the NCIA and PRIDE's NCIA member (at that time it was Pam Davis). The belief is that PRIDE could not afford for CCS to be able to manufacture and generate sales and income that could be used to battle them in Florida, and used their association with the NCIA to effectively put an end to CCS once and for all.

If the foregoing "business practices" of PRIDE or their spin-offs, had resulted in one partnership failing and the closure of the private sector partner's business it could be chalked up to a failed attempt to merge private sector with prison industries, possibly due to the product line. However, when it happens three (3) consecutive times, with seized equipment, assets, products, customer lists and proprietary formulas and technology being kept or "stolen" by PRIDE or their spin-offs, it is more than failed partnerships. It is a pre-planned corporate strategic operation specifically designed and targeting reputable financially sound private sector enterprises with the goal of taking over their businesses, customers and operations and placing PRIDE in their position - financially and with respect to the markets of each.

Keeping in mind that the partners of PRIDE were required to provide the equipment for the operations to begin and continue, the businesses became dependent upon PRIDE or the spin-offs. Their operating equipment and machinery were placed inside of prison fences - out of reach of the partners. They had no way of just washing their hands of the partnership and continuing operations elsewhere. The only way they could have done so would be to invest in more equipment and that path had been closed to them once production had fallen off and they became financially strapped due to the lack of sales. Once PRIDE kicks them off prison property, they no longer have access to equipment, completed products or materials with which to attempt to generate the funds necessary to continue their business - and what capital they have on hand has to be spent to battle PRIDE in the state courts. Again, a war of attrition. (CCS has been in litigation against PRIDE and ITC since 2002, Fresh Nectars was in litigation from 2003 through 2008 and ATL Industries has been in litigation since 2005. All of these companies lost their equipment and ability to operate to PRIDE just prior to the beginning litigations in '02, '03 and '05, respectively and were put out of business and their reputations ruined).

We believe these "questionable" business tactics are not limited to Florida. Currently we are researching other state PIE program operations to determine if this has occured in other jurisdictions and if so, how many times and to whom. Obviously, if this can be done in Florida, and those involved with PRIDE oversee other state prison industry operations, it would not be difficult to sanction such actions in the other jurisdictions. Especially where there is little or no actual federal oversight or regulation.

We would point to the shut down of CCS or Value Line's North Carolina operation shortly after they sued PRIDE. There was no reason for the N.C. Prison Industries to terminate their 10 year contract with CCS and Value Line, as there had been no problems with that operation. So in effect, we now have 2 separate states where this kind of manipulation has occurred. How many more out there we have not discovered yet is anyone's guess.