By Mark Hrywna
October 1, 2013
Fresh off a settlement with the state attorney general’s office, a California veterans charity has filed suit against its longtime direct mail vendor, seeking more than $5 million in compensatory damages.
Help Hospitalized Veterans (HHV) claims that American Target Advertising (ATA) of Manassas, Va. and its list manager American Mail List Corporation (AMLC) has interfered with business practices and relationships.
The Winchester, Calif.-based charity filed suit Sept. 20 in U.S. District Court Eastern District of Virginia, seeking compensatory damages of $100,000 for breach of contract and $5 million for expenses, lost profits, permanent destruction of a contract and damage to business relations. HHV also seeks control of intellectual property and copyrights, with complete rights of ownership, control and use of the property.
ATA has 20 days – until Oct. 11 – to respond in District Court to the complaint. In response to a request seeking comment, President of Corporate Affairs Mark Fitzgibbons called the complaint a “frivolous lawsuit” that is “riddled with false statements and is wrong on the law, as our response and counterclaim will show. It is a frivolous lawsuit, and I have no doubt that we will prevail.”
As the California litigation drew to a close, HHV commenced “wholesale revitalizing of key personnel and contractual relationships” and initiated a competitive biding process with direct mail service providers, including two from current providers, ATA and Creative Direct Response Fundraising Group (CDR).
Hugh Quinn of Fluet Huber and Hoang in Alexandria, Va., the attorney for HHV, said the charity sought eight to 10 solicitations in July for a new direct mail vendor before informing ATA in August that it would no longer require its services come Sept. 30.
HHV questions ATA’s claims that the firm owns all intellectual property that it has done over the years for the charity. “Our belief is it’s our intellectual property, we’ve hired them and paid them over the years,” Quinn said. “Our contention is we own what we’ve paid for, they contend they own what we hired for them,” he said. HHV distributes arts and crafts material for recreational and occupational therapy, and voluntary departments, seeks individuals to provide voluntary services within Veterans Affairs (VA) community. Founder Roger Chapin served as president until August 2009 and remained involved until his death in August 2013.
For many years, HHV used the direct marketing services of ATA, founded by Richard Viguerie, as well as list management and brokerage services of AMLC.
Over the past four fiscal years, HHV received in excess of $1.77 million or about $443,000 per year for rental of its house file, through AMLC. During that same time, ATA has been responsible for raising $90 million or $23 million per year while HHV has paid the firm in excess of $9.3 million in fees, or about $2.34 million per year.
After HHV informed ATA in late August that it would no longer be using them as of Sept. 30, the charity claims that the firm contacted vendors who are either under contract with HHV or with whom HHV maintains business relationships to intentionally interfere with HHV’s contracts and/or business relationships.
The suit alleges that ATA forwarded correspondence or communicated with CDR Fundraising Group, Direct Mail Processing, Venture Associates, Moore Response, Action Mailers, Colortree Group, Vertis/Quad, Direct Mail Impressions, and Shock Promo, advising them that HHV was attempting to violate terms of their contract with ATA and warning them to avoid copyright violations by refusing to work with HHV.
“Improper communications has led to reluctance to continue serving HHV needs,” the suit alleges.
The contract with ATA was to expire this year but it allows for cancellation or termination without case, Quinn said, and compensation for work performed but nothing in the contract required exclusivity.
Under the settlement agreement in the California litigation, HHV must replace a majority of its board of directors with new members approved by the Attorney General’s Office. HHV will receive $2.5 million in restitution, with $2 million from the trust of Chapin and $500,000 from liability insurance. Its executive officers and directors were sued in August 2012 for “improperly diverting funds” intended to support programs serving veterans and active-duty military, including providing arts and craft kits to hospitalized veterans.
ATA was not named a defendant in the California litigation but Attorney General Kamala Harris alleged certain business dealings between HHV and ATA, specifically between Chapin and Viguerie, violated the law and wasted charitable assets. HHV was accused of making inappropriate loans in excess of $800,000 to ATA over a three-year period. It also was alleged that Viguerie agreed on behalf of ATA to reimburse a Chapin charity called Conquer Cancer and Alzheimers Now (CCAN) for $500,000 for operational costs incurred during an ATA campaign, and another $50,000 to be reimbursed by AMLC. The attorney general had claimed that Chapin wrongfully diverted funds intended for CCAN to himself after they were remitted to CCAN by ATA and AMLC, respectively.