The Curious Case of Larry Kladek
Do you take the money?
Larry Kladek is an entrepreneur. In the mid-1960s he was working for the railroad and got injured on the job. He got a monetary settlement from the company and used the money to open a polka bar. The polka bar didn’t do well and he changed the bar into a “Gentlemen’s Club” called the “King of Diamonds.” Kladek is personally worth more than $10.5 million.
Kladek got in trouble with the Internal Revenue Service (IRS). He used undeclared revenue from his business to replenish an ATM machine in the club. He then deposited nearly $2 million in ATM revenue into a hidden bank account for personal use. He pleaded guilty in December 2008 to one count of filing a false individual tax return and admitted owing the IRS more than $912,000. He acknowledged receiving about $1.2 million in unreported income between 2000 and 2004. He was sentenced to 20 months in prison, fined the maximum of $40,000 and has to pay the IRS. By the way, the Federal Court Judge who presided on Larry Kladek’s case was Patrick Schiltz, former Dean of the University of St. Thomas School of Law
But, Kladek maintained that he should stay out of prison because he does a lot of charity work including renting 28 vegetable farm plots on his hilly estate to about 50 Hmong farmers. Ly Vang, head of the Association for the Advancement of Hmong Women in Minnesota even said that the Kladeks’ land feeds hundreds of Hmong families and those farmers relied on the tilling and other help that Kladek had given them, as well as his low land rental prices.
Kladek’s liquor license was coming due at the King of Diamonds, and under Minnesota law (Minnesota Rule 7515.0410) the applicant “shall have good moral character and reputation.” To avoid this legal problem, Larry Kladek sold the business to his wife, Susan Kladek.
Susan is trying to raise the profile of the King of Diamonds with projects such as the food donation drives and by publicizing the help and support that she and and her husband have given Hmong farmers. She also wants to support the local high school that needs money for their sports program. She signs a written pledge promising to give $1000 to the Sports Boosters Club.
So on a recent Saturday, Susan, Larry and their employees including some of their female entertainers donned tank tops and shorts, and soaped cars for a car wash fundraiser in the back of their King of Diamonds Club to raise over $1000 for the high school’s sports programs.
The school board must formally approve accepting contributions from booster clubs if the money is used to hire additional coaches. But, the school board has no authority over the booster clubs and the organizations that contribute to them if it is used for other purposes.
You are the Athletic Director of that high school and your department really needs the money. The school has recently announced that there may be either cuts in sports or activities fees may be raised dramatically.
Part I – Analyze the facts.
a. Can you legally enforce the pledge from the Kladeks? Do they have a contract to give the gift? Do they need a contract? What are the best argument(s) for enforcing the pledge?
b. If the Kladek’s now refuse to pay, do they have any defenses?
Part II – Analyze the facts.
a. From a manager’s position would you take the donation?
b. Does it make a difference if it was a donation from Applebee’s or Tires Plus?
c. If you do want the money, and Kladek’s refuse to pay, should you sue them?
d. Would it make a difference if, instead of being $1000, the amount they pledged was $10,000 or $25,000 or $50,000?
Apply what you have learned in your readings and in class to this case!
Your Executive Memo should be, at most, two pages and it is due by ___________________