The back taxes were not Mr. Flaherty's, nor Leader's. The back taxes belonged to Dr. Leander J. Eckard, one of the former owners of Leander Research.
Dr. Eckard sold the company and the name "Leander" in 1992 for a total package of over $2 million in cash, deferred compensation, royalties, consultation fees, noncompetition fees, options and other agreements; this was in addition to any money Dr. Eckard received for his services at various conventions.
Much of the money was paid over 20 years, providing Dr. Eckard with ongoing income. In 1994, Dr. Eckard requested that his consulting/royalty/deferred compensation contract be transferred to Tamarack Trust. When Leader balked at the transfer, they were contacted by Mr. Alan Rubens, Dr. Eckard's attorney.
Leader conditionally consented to the transfer of the consulting agreement to Tamarack Trust in January of 1995. At that point, Dr. Eckard had already received over $500,000 from the sale of the company. At his request, the remainder would now be sent to the Tamarack Trust.
By the time the IRS contacted Leader, there was still $840,000 remaining to be paid to Tamarack Trust on the Eckard consulting agreement at a rate of approximately $60,000 per year. While the IRS had only computed the back taxes through 1993, there was the indication that additional money was owed for more recent tax years.
When Leader began paying the consulting/royalty/deferred compensation payments to the IRS, Dr. Eckard and the Tamarack Trust protested. Finding themselves between Tamarack and the IRS, Leader filed an "interpleader" in October of 1996 asking the court to decide who should get the money; the IRS or Tamarack. Surprisingly enough, neither Dr. Eckard, nor Tamarack Trust, responded to the filing. It appeared that, by default, the consulting agreement payments would begin to pay off Dr. Eckard's back taxes, the amount of which was steadily growing due to the interest assessed by the IRS.
All of this would appear to be of little or no interest to the chiropractic profession except for the next chain of events.
Before any additional money was turned over to the IRS, Leader filed another lawsuit claiming that Dr. Eckard was in violation of the original agreement for the sale of the company. The lawsuit was reportedly in response to numerous phone calls from DCs who thought they were buying a "Leander table" from Leader, but had actually bought it from Dr. Eckard. Much of the confusion was apparently due to the name Dr. Eckard gave his new table: Leander Advantage. Specifically, Leader claimed that Dr. Eckard had violated their agreement:
- "by disclosing and utilizing proprietary information" of Leader;
- "copying in every significant detail the appearance, function and content of the proprietary Chiropractic Treatment Table so that they could pass off their copy as a Leander brand Chiropractic Treatment Table";
- "selling a chiropractic treatment table of inferior quality to that of (Leader) despite an identical appearance in every form and appearance";
- "intentional willful infringement of the 861 patent, the Leander trademark, and trade dress rights";
- "pursue improper access to proprietary rights in the form of soliciting confidential and technical trade secret information from business associates of (Leader)";
- "infringed copyrights by copying advertising literature";
- "sold and promoted the Spine Power Belt which is licensed under an exclusive arrangement (by Leader) with the patent holder";
Leader also filed an amended suit which added trademark, patent and unfair competition to the allegations. The final amended lawsuit sought $2 million in damages, plus treble damages on the patent issues.
This time, Dr. Eckard and Tamarack did respond, asking that the original default judgment be set aside. Their reasons for not responding to the interpleader were stated in their motion:
- "They did not receive any summons."
- "Although they had general knowledge that such a suit was pending, they did not have sufficient funds to afford legal representation."
- "To the extent that defendants (Eckard and Tamarack) owed money to the United States, they did not dispute that periodic payments owed by the plaintiff (Leader) under the agreement to defendants should be paid to the United States."
In an additional effort to protect their position, Leader's attorney contacted Kyro Manufacturing Co., which had been manufacturing the Leander Advantage for Dr. Eckard. After reviewing Leader's existing patent on their tables, Wess Culwell, president of Kyro Manufacturing confirmed that: "I have so advised Dr. Leander Eckard that I will not manufacture tables for him as long as he is in conflict with your client (Leader)."
In summary, Leader is basically accusing Dr. Eckard of selling chiropractic adjustment tables deliberately made to look like the "Leander" tables sold by Leader Health and Manufacturing, Inc. Leader believes that this violates their patent and trade rights and confuses DCs into thinking that they are buying a Leader table.
Dr. Eckard and the Tamarack Trust denied virtually all of the allegations, and insisted that a "significant difference exists between the tables presently sold by Eckard and the tables sold by (Leader)."
In an exclusive interview, Richard Flaherty, Leader's president, presented additional allegations:
"We learned about this situation when chiropractors began calling us claiming to have bought one of our tables and wondered when it would be delivered. When we couldn't find any record of these sales we discovered that they had bought the table from Leander Eckard, not realizing he hadn't been with our company for years. Every week we continue to get more phone calls, some from doctors believing they purchased the tables from us and others already wanting service on those tables.
"But this isn't all. In 1992, we sold several hundred motors and gearboxes to Dr. Eckard. These were used parts that we had taken out of older tables which wouldn't qualify for our tables because we use only new parts. When we became concerned about Dr. Eckard's table sales, we arranged to buy one of his tables. Upon inspection, we found what we believe to be one of the old motors and old gearboxes. The motor's origin was confirmed by serial number. The gearbox was painted over, but we're almost positive it was one of ours. In addition, we inquired from the manufacturer of the motors and gear boxes, Boston Gear, and they confirmed that they have never sold any components to Dr. Eckard, his current company nor Kyro Manufacturing, the company that used to manufacture his tables.
"We also noticed that Dr. Eckard's tables didn't have any kind of laboratory certification for electrical and mechanical devices, such as Underwriters Laboratory, City of L.A., CSA, etc. Motorized chiropractic adjustment tables are required to demonstrate that they meet local, state and federal electrical guidelines and are safe for use with patients. This table didn't have any such certification.
"To our knowledge, Dr. Eckard hasn't filed a 510(k) registration with the FDA. This has the potential to cause a multitude of problems for the unsuspecting doctor using this table with patients.
"Let me make this clear. I have no issue with fair competition between Dr. Eckard and our company. I would welcome it, without all this confusion about who the doctor is really buying from. But failure to use new parts, get his electrical certified and file with the FDA while copying our tables is not only unfair competition, but puts innocent chiropractors and their patients in jeopardy."
Dr. Leander Eckard was contacted and asked to respond to the issues raised by Mr. Flaherty. This is how he responded:
"As you know, I am presently involved in a lawsuit with Mr. Flaherty's companies, Leander Health Technologies Corporation (LHTC) and its wholly owned subsidiary Leander Research, Manufacturing and Distributing, Inc.
"As part of that lawsuit, Mr. Flaherty has admitted that LHTC still owes a substantial sum for the purchase of my stock in LHTC, and he is attempting to avoid paying that balance.
"The lawsuit is pending in the United States District Court of the Western District of Washington and was referred to arbitration, over Mr. Flaherty's objection, only days before you requested an interview. Perhaps Mr. Flaherty is seeking publicity because the Court is not accepting his arguments.
"The lawsuit and arbitration proceeding are still pending and I believe that my disputes with Mr. Flaherty should be resolved in that forum rather than in the media. Consequently, no further comment is appropriate at this time."
Editor's note: In conducting research for this article, one DC noted that Dr. Eckard had encouraged the use of trusts to avoid federal income taxes in one of his seminars. This reportedly included introducing an authority on the topic who spoke to the doctors. Given Dr. Eckard's current situation with the IRS, those DCs that may have or are considering such a scheme would be well served by contacting their tax accountant first.
Dynamic Chiropractic editorial staff members research, investigate and write articles for the publication on an ongoing basis. To contact the Editorial Department or submit an article of your own for consideration, email
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