The world of waterbeds took a dramatic turn in the late nineteen seventies. A small air mattress company became an unwitting participant in a legal case that helped define several key issues of business law. The ramifications of General Bedding Corporation v. Echevarria echoed through the business community especially in the areas of intellectual property law, fraud and the fiduciary responsibility of employees to their employers.
In nineteen seventy seven, Fredrick Brandau was employed by a small air mattress manufacturing company in Missouri. Brandau approached his company with an idea he thought would revolutionize the growing market in waterbeds. According to published reports and subsequent court filings, Brandau claimed to have conceived of a completely new approach to the traditional hard sided waterbed.
Modern waterbeds were themselves an improvement on a very old idea. Historical evidence suggests that the ancient Greeks and Romans slept on water filled bladders made from animal skins. Hard sided waterbeds became popular in the nineteen sixties. The typical hard sided waterbed consisted of a vinyl water bladder or mattress surrounded by a wood frame. A vinyl safety liner was placed inside the frame in case the bladder sprung a leak. An electric heating system was needed to raise the temperature of the water to just above normal body temperature.
Brandau conceived of a soft sided waterbed that replaced the large water filled bladder with a series of smaller vinyl tubes, encased in a foam rubber frame and covered with standard mattress fabric. The General Bedding Company was at a disadvantage. Without the resources to develop Brandaus idea on their own and anxious to capitalize on the promise of this new concept, General Bedding sent Brandau sent on a mission.
A Los Angeles supplier, the Angel Echevarria Company, provided mattress coverings to General Bedding. Brandau was dispatched to Los Angeles in order to convince Echevarria to help in the design. Upon his return to Missouri, Brandau allegedly reported to his employer that Echevarria was not interested in the project.
In nineteen seventy eight, by some amazing coincidence, the Angel Echevarria Company filed a patent application for a soft sided waterbed based on the Brandau concept. Nineteen seventy eight also saw the demise of the General Bedding Company.
According to court papers, Brandau though still employed by General Bedding, signed an agreement with Angel Echevarria. The pair agreed to split the profits from what was to become the Somma Mattress Company. Published reports estimate that by nineteen eighty seven Somma had grossed over three hundred million dollars in sales. The bedding trades and news media hailed Echevarria as an innovator while his nearly silent partner, Fredrick Brandau, faded into the background.
With the success of the Somma soft sided mattress came a revelation. Though essentially out of business, and nearly ten years after the fact, the General Bedding Company was advised of some startling information. According to lawyers involved a patent dispute over the soft sided waterbed mattress, the name Fredrick Brandau surfaced. According to documents filed with the court, Fredrick Brandau secretly collaborated with Echevarria, while still an employee of General Bedding.
General Bedding filed suit against Brandau and Echevarria, claiming fraud, theft of intellectual property. The lawsuit, General Bedding Corporation v. Echevarria, also accused Brandau of breaching his fiduciary responsibility to act in good faith on behalf of his employer. The original trial court dismissed the lawsuit, ruling that too much time had elapsed. General Bedding appealed the decision, a Federal Court of Appeals ruled overturned the lower court, and the lawsuit proceeded.
In the end a Federal Court jury awarded General Bedding 95 million dollars in back royalty payments. It reaching the decision, the court ruled that an employment contract gave General Bedding the rights to any invention Brandau may have developed during the term of his employment. As late as 1996, according to published reports, the judgment against Brandau, 94 million dollars, was never collected.
The judgment did not stop Angel Echevarria from publicly claiming credit for the invention of the soft sided waterbed, dismissing any involvement by Brandau. Never paying his share of the judgment, Brandau slipped into relative obscurity. However, more legal troubles were in his future.
According to court records, Brandau resurfaced in Florida in 1996 and took a path that eventually would lead him to federal prison. Creating what prosecutors described as a classic Ponzi scheme, he began recruiting investors in a new venture. The scheme involved viatical insurance settlements. Using investor funds, Brandau was to have purchased the life insurance policies of terminally ill people. The investor stood to make up to a forty percent return on their investment if the patient died within a calculated period of time.
Court records revealed that Brandau and his co-conspirators spent over 100 million dollars, not on insurance policies, but on the trappings of ill gotten wealth. The list of assets seized under federal criminal forfeiture laws is a long one, including parcels of land, luxury sports cars, boats and vintage automobiles. A mere 6 million dollars was spent buying the policies.
In 1999, the Securities and Exchange Commission convinced a federal grand jury to indict Fredrick Brandau on seventy three counts ranging from conspiracy and mail fraud to money laundering. The Brandau bubble had burst and the fortunes of over three thousand investors were lost.
In 2002, Fredrick Brandau, the self proclaimed inventor of the soft sided waterbed, began serving a fifty five year sentence in federal prison.