Glock has filed a federal lawsuit against former distributor Global Guns & Hunting - better known as OMB Guns alleging the Olathe, Kansas company illegally sold Glock law enforcement handguns into the civilian marketplace and pocketed the price differences. In the lawsuit, Glock is asking for a $5.4-million judgement against OMB.
Like most companies that sell to both law enforcement and commercial marketplaces, Glock maintains separate sales "channels" for those transactions. It's no secret that the law enforcement pricing is significantly lower than retail, so the sale of guns purchased at the LE distributor rate and then sold into the commercial market would give a significantly higher return per-gun on the straight transaction (Glock's LE guns also come with three magazines, one more than the commercial guns. Conversion would, ultimately leave an extra magazine available for sale).
The law enforcement channel, however, has another significant difference.
Section 4181 of the Internal Revenue Code collects a Firearms and Ammunition Excise Tax (FAET) that is generally ten percent of the sales price of pistols and revolvers sold by manufacturers and importers in the United States. The manufacturer (in this case, Glock) is responsible for collecting the FAET and filing the returns with the ATF.
The Glock lawsuit says they pay FAET on all pistols it sells to its independent distributors and that FAET is incorporated into the purchase price.
Here's where the wicket gets sticky: unlike the commercial market, law enforcement sales to state or local governments are eligible for rebate of FAET.
After getting documentation from the distributor, Glock says it applies for the FAET rebate. When it is repaid, that amount is credited to the distributor's account with Glock.
In order to keep them separate, most manufacturers maintain two separate distributor agreements (LE/Commercial). Glock is apparently no exception. According to their suit, "specific contractual terms prohibit Glock distributors from diverting pistols sold at lower Law Enforcement prices to the higher-priced Commercial markets."
The lawsuit alleges OMB did just that, illegally "enriching" themselves by their act of "conversion" - selling LE pistols to the commercial marketplace.
After submitting a bill for $5,410,064.20 - the price differential and cost of an extra magazine (LE guns come with 3 mags, commercial ones only two), Glock said OMB was unresponsive and is consequently in default.
Ergo, the claims of "unjust enrichment, conversion, and theft by deception" and Glock's request for a declaratory judgement for that amount and claim for punitive damages, along with a "constructive trust" over all property and funds OMB received from the sales conversions, costs and attorney's fees and pre-and post-judgement interest and "awarding it such other and further relief" as the Court finds "just and proper."
Clear, huh? The claim and its seventy-seven total pages (suit, exhibits, etc) provides a pretty good insight into how business is normally conducted..including how things proceed (or hang up) when a contract is not renewed.
Glock and OMB did not renew their relationship and in 2011 was in a "winding down" period following the end of their formal relationship. That's where OMB and Glock apparently have come int conflict.
Glock says they've been cheated, OMB - in a letter submitted by Glock- says it's a misunderstanding.
That letter, dated April 11, 2011 from OMB's general counsel, is a frank omission that OMB did, indeed, "convert" LE to Commercial and vice versa.
That letter says the conversions were made because of delays in getting product from Glock. "In other words," the letter states, "we have been working under the premise that, at this point, guns are guns and we will give the LE departmental orders first priority. Those orders must be filled. That is our deal with you. Whatever is left, we can sell commercially."
"If that is not your understanding," it continues, "we apologize. In hindsight, we should have cleared that procedure with you."
Reading the OMB letter, it appears the guns in question may have been necessary to fill outstanding orders. In fact, the OMB letter says "it appears to me you are punishing OMB for violation of a contract you clearly state does not exist."
We've not spoken with either party (yet), but we'll keep you posted on this one.
On another subject, the web is buzzing with reports that there may be a "deal" in the works between the Obama administration and House Republicans. The House committee into government oversight and reform chaired by California Republican Darrell Issa, has continued despite the best efforts of Democrats, to push their investigation into Operation Fast and Furious. They've methodically pushed and built what seems to be a fairly solid- if somewhat complicated chain of misdirection and deception by Attorney General Eric Holder and various subgroups (DEA, ATF and now the FBI) of the Justice Department when it came to investigating the failed operation.
As one observer has written, it seems the House Republican leadership is determined to cut a deal, essential "snatching defeat from the jaws of victory" as the case -and public furor over it - has built momentum. This, surprisingly enough, despite the mainstream media's best efforts to completely ignore the story.
If that's the case, and a deal is cut that shelves Issa's investigation until after the upcoming elections, it's just another piece of evidence that it's time for a major housecleaning in Washington. To ignore the will of the people is bad enough, to willfully cut a political deal that turns a blind eye to illegal conduct by our senior law enforcement officials might just be the straw that breaks this camel's back.
As always, we'll keep you posted.
--Jim Shepherd
