Contract and United Airlines
Cardillo Travel Systems, Inc.
ACT 1
Russell Smith knew why he had been summoned to the office of A. Walter Rognlien, the 74-year-old chairman of the board and chief executive officer (CEO) of Smith’s employer, Cardillo Travel Systems, Inc. Just two days earlier, Cardillo’s in-house attorney, Raymond Riley, had requested that Smith, the company’s controller, sign an affidavit regarding the nature of a transaction Rognlien had negotiated with the United Airlines. The affidavit stated that the transaction involves $203,000 payment by United Airlines to Cardillo but failed to disclose why the payment was being made or for what specific purpose the funds would be used. The affidavit included a statement indicating that Cardillo’s stockholders’ equity exceeded $3 million, a statement that Smith knew to be incorrect. Smith also knew that Cardillo was involved in a lawsuit and that court injunction issued in the case required the company to maintain stockholders’ equity of at least $3 million. Because of the blatant misrepresentation in the affidavit concerning Cardillo’s stockholders’ equity and a sense of uneasiness regarding United Airlines’ payment to Cardillo, Smith had refused to sign the affidavit. When Smith stepped into Rognlien’s office on that day in May 1985, he found not only Rognlien but also Riley and two other Cardillo executives. One of the other executives was Esther Lawrence, the firm’s energetic 44-year-old persistent and chief operating officer (COO) and Rognlien’s wife and confidante. Lawrence, a long-time employee, had assumed control of Cardillo’s day-to-day operations in 1948. Rognlien’s two sons by a previous marriage had left the company in the early 1980s following a power struggle with Lawrence and their father. As Smith sat waiting for the meeting to begin, his apprehension mounted. Although Cardillo had a long and proud history, in recent years the company had begun experiencing serious financial problems. Founded in 1935 and
ACT 1
Russell Smith knew why he had been summoned to the office of A. Walter Rognlien, the 74-year-old chairman of the board and chief executive officer (CEO) of Smith’s employer, Cardillo Travel Systems, Inc. Just two days earlier, Cardillo’s in-house attorney, Raymond Riley, had requested that Smith, the company’s controller, sign an affidavit regarding the nature of a transaction Rognlien had negotiated with the United Airlines. The affidavit stated that the transaction involves $203,000 payment by United Airlines to Cardillo but failed to disclose why the payment was being made or for what specific purpose the funds would be used. The affidavit included a statement indicating that Cardillo’s stockholders’ equity exceeded $3 million, a statement that Smith knew to be incorrect. Smith also knew that Cardillo was involved in a lawsuit and that court injunction issued in the case required the company to maintain stockholders’ equity of at least $3 million. Because of the blatant misrepresentation in the affidavit concerning Cardillo’s stockholders’ equity and a sense of uneasiness regarding United Airlines’ payment to Cardillo, Smith had refused to sign the affidavit. When Smith stepped into Rognlien’s office on that day in May 1985, he found not only Rognlien but also Riley and two other Cardillo executives. One of the other executives was Esther Lawrence, the firm’s energetic 44-year-old persistent and chief operating officer (COO) and Rognlien’s wife and confidante. Lawrence, a long-time employee, had assumed control of Cardillo’s day-to-day operations in 1948. Rognlien’s two sons by a previous marriage had left the company in the early 1980s following a power struggle with Lawrence and their father. As Smith sat waiting for the meeting to begin, his apprehension mounted. Although Cardillo had a long and proud history, in recent years the company had begun experiencing serious financial problems. Founded in 1935 and