Companies drop suits against each other

Companies drop suits against each other

URBANA – Champaign-based Sports Publishing has voluntarily withdrawn a suit it recently filed against InnerWorkings Inc.

The suit, filed March 31 in U.S. District Court in Urbana, alleged the Chicago-based print services broker and six other defendants engaged in fraud and racketeering in an effort to gain control of Sports Publishing.

Magistrate Judge David G. Bernthal granted the motion for dismissal Monday, terminating the case.

On the same day, a suit filed April 3 by InnerWorkings against Sports Publishing was dismissed in Cook County Circuit Court.

In that suit, InnerWorkings called Sports Publishing's filing "a sham lawsuit" and claimed those at Sports Publishing were trying to bilk InnerWorkings "out of millions of dollars in receivables while lining their own pockets with the proceeds of their fraudulent scheme."

Now the companies will try to work out things outside the courtroom.

"The differences between the parties are being resolved, and the lawsuits have been dismissed," according to a statement issued by Sports Publishing President Peter Bannon, who declined further comment.

InnerWorkings Vice President of Marketing Mark Desky said the company was pleased the Sports Publishing case was dismissed.

"We believe the case was without merit and intended to defend it vigorously," a statement released by Desky said. "The parties are currently discussing a mutually acceptable resolution of their business dispute."

Allegations of fraud

The Sports Publishing suit claimed that InnerWorkings gained a "stranglehold" on Sports Publishing's book publishing business.

Specifically, the suit claimed that InnerWorkings engaged in fraud to steal money from Sports Publishing and other customers and to create maximum disruption in Sports Publishing's business "in order to force the company to sell itself to InnerWorkings for millions (of dollars) less than its net worth."

The suit, which sought $1 million under the Racketeer Influenced and Corrupt Organizations Act, was filed by attorney Daniel J. Pope of the Phebus & Koester law firm in Urbana.

Named as defendants were: InnerWorkings Inc.; founder Eric Lefkofsky and his wife, Elizabeth Lefkofsky; Chief Executive Officer Steven Zuccarini; Chief Financial Officer Nicholas Galassi; Chief Operating Officer Eric Belcher; and Orange Media LLC, another company founded by Lefkofsky.

In an e-mail commenting on the dismissal, Eric Lefkofsky said the case was "completely without merit."

He said InnerWorkings was a "fantastic supplier to Sports Publishing" during his time there.

"I believe they (Sports Publishing) have fallen on hard times as of late, and I think this lawsuit was an act of desperation that absolutely will not (withstand) the scrutiny of legal diligence," Lefkofsky added.

Sports Publishing, based at 804 N. Neil St., has published more than 800 books, many about collegiate and professional athletes and teams. The company had gross annual sales as high as $10 million in 2004 and had more than 60 full-time employees in 2005, according to the suit.

However, the company has cut back in the last year. In December, Bannon said the company's workforce was down to about 22.

The InnerWorkings suit, filed by the Chicago law firm of Winston & Strawn, said InnerWorkings has been the exclusive print procurement provider for Sports Publishing since 2002. The suit claimed Sports Publishing began to fall behind in its payments and today owes InnerWorkings $2.4 million.

InnerWorkings claimed that by filing suit, Sports Publishing was trying to leverage the court system to avoid paying "a previously undisputed and repeatedly admitted debt." It called the allegations of racketeering and overbilling "wildly absurd and fanciful."

"Such an egregious and transparent scheme cannot be permitted to succeed," the InnerWorkings filing said.

'Terrorist tactics' alleged

The Sports Publishing suit claimed InnerWorkings promised customers a 10 percent to 20 percent discount over market prices as the result of proprietary technology.

Sports Publishing claims that InnerWorkings did not actually have proprietary software.

The suit also alleged the defendants used InnerWorkings to conduct racketeering with the intent of deceiving Sports Publishing about its bills, overbilling the company, gaining access to its distributors and bank and "eventually to destroy Sports Publishing" with the intent of buying it for less than its market value.

The Sports Publishing suit claimed InnerWorkings billed Sports Publishing for fraudulent amounts hundreds of times, beginning in 2005 and ending in 2007, and engaged in "a pattern of terrorist tactics" to distract the company.

As part of that, the suit contended, InnerWorkings created bills in the name of Sports Publishing's biggest distributor, Tennessee-based Ingram Publisher Services, at two to three times the price that had been quoted.

"Lefkofsky falsely told Sports Publishing's bank and Ingram that Sports Publishing was deeply in debt to InnerWorkings when the truth was InnerWorkings had stolen as much as $2 million from Sports Publishing, and the company owed InnerWorkings no money at all," the suit claimed.

According to the Sports Publishing suit, the defendants contacted Sports Publishing's bank and Ingram directly, telling them Sports Publishing was not paying its bills and arranging for them to make direct payments to InnerWorkings.

Then, the suit contended, "Lefkofsky began to threaten Sports Publishing with ruin if it did not begin to fire employees, make greater payments to InnerWorkings and give InnerWorkings greater economic control over Sports Publishing than it otherwise could have gotten legally."

"Working in conjunction with Sports Publishing's bank, Lefkofsky effectively began to control Sports Publishing's operations. He decided what 'allowance' the company would have to run its operations, made constant threatening phone calls and threatened to force the company into bankruptcy if the company did not meet his demands. Lefkofsky went so far as to threaten to have Mr. Bannon shot," the suit stated.

Lefkofsky offered to buy the company for "millions below its fair market value" and threatened to "put them out of business" if they did not agree to his terms, according to the suit.

Sports Publishing then fired InnerWorkings and began working directly with printers.

According to the suit, that was when Sports Publishing discovered InnerWorkings had overbilled the company for more than 300 titles of books InnerWorkings had arranged for publication.

"Even today, Lefkofsky demands that (Sports Publishing's) debt to InnerWorkings exceeds $2.5 million, a number the company must record on its balance sheet and which eliminates the company's ability to regain reasonable financing," the suit stated.

Seeking a buyer

The InnerWorkings suit claimed Sports Publishing identified a possible buyer in December 2007, but the sale was never realized. InnerWorkings said Sports Publishing officials told them if the sale went through, Sports Publishing's creditors would receive more protection than equity holders.

The 10-count complaint filed by InnerWorkings included counts of fraud and breach of contract against Sports Publishing. Among other defendants named in the complaint were Bannon, David Vise and Tom Ealy, whom InnerWorkings said were involved in Sports Publishing's day-to-day operations.

Sports Publishing's bank, Strategic Capital Bank, and Ingram Publisher Services were also named as defendants, with InnerWorkings claiming it was due money or property from them.

InnerWorkings' annual report listed revenue of $288.4 million in 2007 and net income of $22.5 million that same year.

Formed in 2001, InnerWorkings had 567 employees last year.

It is publicly traded and listed on the Nasdaq exchange under the INWK symbol.

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