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Florida's Private Prison Industry Corporation Sues Spinoff

Florida's private prison industry corporation, Prison Rehabilitation Industries and a Diversified Enterprises (PRIDE), has sued its spinoff company to recover some of the millions spent to prop up that company. The lawsuit comes after over a year of scrutiny into PRIDE's corporate structure. See: PLN, January 2005, cover.

PRIDE was created in 1981 by the Florida Legislature to operate the state's prison industries, which were losing money. PRIDE is supposed to be a nonprofit, but began setting up for profit corporations, which were operated and staffed by members of PRIDE's board.

One of those entities was Industries Training Corp. (ITC), which handled payroll and other services for PRIDE. The state's lawsuit comes after ITC sold its employment placement service, Labor Line, to a North Carolina company that recently incorporated in Florida.

The lawsuit illuminates the corporate nepotism that existed, charging R. Michael Smith, ITC's chief financial officer, of breaching his fiduciary duty to PRIDE by helping ITC spend PRIDE's money when he was serving as chief financial officer of both companies.

Smith placed himself in direct conflict of interest that prevented him from promoting the best business and financial interests of PRIDE," the lawsuit charges. The new PRIDE board installed by Gov. Jeb Bush estimates PRIDE spent more than $67.7 million over six years, keeping ITC afloat while it continuously lost money. Despite losing money, ITC's Chief Executive Officer (CEO), who was also PRIDE's CEO, Pamela Jo Davis was paid $236,000 a year. Smith also received a large salary for his ITC services. The prisoners who work for PRIDE, by contrast, are paid pennies an hour for their labor. In that respect, PRIDE mirrors private industry.

PRIDE's lawsuit seeks money from the sale of Labor Line because it was a company PRIDE created and gave to ITC in 1999. Thereafter, PRIDE continued to invest hundreds of thousands of dollars in its operation.

PRIDE broke with ITC in January 2005. With it being its own entity, ITC was now free to rein in maximum profit for its stakeholders, all former PRIDE board members. Davis and Smith both left PRIDE to work solely for ITC.
PRIDE's lawsuit was filed in Pinellas County Circuit Court on September 8, 2005. PLN will report future developments.

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