Levi Files Lawsuit to Counter Fired Pair

Levi Strauss & Co. has countersued two fired employees who accused it of tax fraud, portraying them as liars who conspired to damage the reputation of the San Francisco apparel maker and its executives.

In San Francisco Superior Court filings Friday, Levi also moved to have the lawsuit of former tax managers Robert Schmidt and Thomas Walsh thrown out. Their wrongful-termination suit, filed last month, alleges that the inventor of blue jeans used accounting gimmickry and overseas tax shelters to improperly lower its tax rate, inflate financial results and boost executive bonuses.

The two “failed to perform their duties in a truthful and competent manner,” Levi said in its answer to their suit.

The company claims that Schmidt defied his supervisor and lied to Levi’s tax law firm, and it further contends that Walsh missed deadlines, turned in error-filled work at the last minute and tried to undermine his supervisor’s authority by defaming her.

In a separate cross-complaint alleging that the pair broke contracts and confidentiality pledges, Levi asked for unspecified actual and punitive damages and for a court order requiring Schmidt and Walsh to return confidential documents.

Walsh, who had worked at Levi since September 1999, and Schmidt, who was hired in June 2001, contended that they were dismissed last year because they refused to obey orders to mislead the Internal Revenue Service and Levi’s auditor KPMG.

They were fired on Dec. 10, five days before KPMG began a major audit, the lawsuit states.

Levi’s schemes allowed it to report pretax income of $50 million in 2002 rather than the $336-million loss it would have been forced to record if it had followed the proper legal and accounting standards, according to the suit.

An attorney for Schmidt and Walsh could not immediately be reached for comment Sunday.

Levi has struggled in recent years with declining sales. Last year, its net income plunged 84% to $25 million while revenue dropped 3% to about $4 billion.

For the first quarter ended Feb. 23, Levi reported a $24-million loss, contrasted with a $42-million profit a year earlier.