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Is University Loft's rival going on attack again?

August 21, 2010

It’s not clear whether California-based Furniture by Thurston did anything to spur last month’s federal raid of University Loft’s Greenfield headquarters, but you can bet company officials didn’t mind seeing it happen.

The two furniture-makers, which compete in the military and college-dorm markets, have an acrimonious history.

Way back in 2002, University Loft sued Furniture by Thurston, charging the firm libeled it to win a $3 million contract from the University of California at Santa Barbara.

Last year, Furniture by Thurston got in its own zinger. In June, Loft paid $400,000 to resolve federal contract-fraud allegations leveled by—you guessed it—Furniture by Thurston. The California firm launched the inquiry by filing a 2006 lawsuit under the federal False Claims Act, and it got to keep $66,000 of the recovery.

Now, a new cloud hangs over Loft. On July 13, agents from the Department of Defense, the Air Force, the Defense Criminal Investigative Service, and Immigration and Customs Enforcement converged on Loft’s offices and seized records. The agents were executing a sealed search warrant, according to the U.S. Attorney’s Office in Indianapolis, which would not disclose its contents.

It’s not clear what they were after, or who put them on the trail. Reached at her home in California, Furniture by Thurston co-founder Susan Thurston was downright mysterious.

“I don’t feel comfortable commenting on this yet,” she said. “I just know it was a sealed warrant, and we probably are not supposed to talk about it.”

In an e-mail, Loft’s founder and CEO, James Jannetides, said he doesn’t know what investigators are after but added, “We are 100 percent confident we are abiding by all laws.”

Jannetides Jannetides

A similar group of federal agencies was involved in the probe leading up to last year’s settlement. In that case, the government investigated allegations that Loft sold Malaysian-made furniture to a Marine Corps base in Okinawa, Japan, in violation of the federal Trade Agreements Act and Buy American Act. Furniture by Thurston’s suit included photos of shrink-wrapped pallets of furniture labeled “MADE IN MALAYSIA.”

In his e-mail, Jannetides defended the company’s behavior, saying “confusion arose out of the very complex interplay” of the two laws. He said purchasing agents for U.S. bases in Japan had requested the Malaysian-made furniture, which saved the military thousands of dollars in shipping costs.

Last August, two months after the settlement, Jannetides announced his firm signed a deal to provide metal furniture for the Marine Corps’ Camp Lejeune base in North Carolina. The multimillion-dollar contract runs into 2014. The company, which employs more than 200, began hiring to ramp up production.

If Furniture by Thurston officials now are raising questions about that deal or any other, they’re not saying. The company was sold in late 2007 to San Antonio-based KLN Steel Products, whose CEO did not return calls. Susan and her husband, Lee Thurston, the company president, left soon after the sale.

KLN is owned by the Herman family, which also owns Dehler Manufacturing Co., a Chicago-based maker of lofts and beds. The three firms now operate under the moniker Three Mountain Furniture.

The Three Mountain companies have had their own issues. Last year, the Occupational Safety and Health Administration proposed more than $200,000 in fines against Dehler after alleging dozens of violations, including failure to protect workers from flying sparks at welding stations.

And a court never got to the bottom of whether Furniture by Thurston did anything wrong when it beat out Loft for the lucrative university contract eight years ago. A judge dismissed the suit on jurisdictional grounds before Thurston even had filed a response to the libel allegations.

According to the suit, Furniture by Thurston falsely reported to the university that a type of wood used by University Loft—Hevea Brasiliensis, commonly known as Rubberwood—was “not nearly as strong … as red oak or any of the other of the four American hardwoods.”

During the bidding process, Furniture by Thurston gave the university a document titled “Wood Comparisons” that cited as its source a U.S. Department of Agriculture handbook. Particularly damning was a chart within the document that cast Rubberwood as inferior.

“In fact,” the suit says, the handbook “contains no such information.” The document “is intended to convey the message that in selling its Rubberwood products, ULC offered an inferior product and questionable business practices.”

Susan Thurston told IBJ this month “there was no basis to the suit.” Then she added to the intrigue: “It is all tied together, so I would rather not comment on it.”•

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