Defiant is.group hit by dealer backlash

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Former members of US dealer network is.group have reacted with fury to the legal action mounted against them

 

Last month, OPI revealed how chiefs at the group had issued court proceedings against 62 ex-affiliates it claimed owed them over a million dollars.

 

The group were part of 182 dealers who resigned from is.group following the introduction of the controversial RDC programme which was designed to offer a more efficient way to buy direct.

 

Many dealers chose to opt out of the warehousing and distribution scheme because they were not prepared to pay the required fee for a programme they said didn’t work for their business model.

 

In July, after months of wrangling, is.group issued a string of legal actions to recover the cash it claims it is owed by the group of breakaway dealers.

 

But now the former members have banded together to mount their legal defence that is threatening to split the network with the possibility of a counter-claim.

 

Kent Harrell of El Dorado Printing and Stationery in El Dorado, Arkansas, is co-ordinating the dealer’s legal response.

 

He told OPI: "I have helped try to coordinate the response to the legal action we’re dealing with, I am one of the 62 that has been served with the legal papers.

 

"We don’t want to sue for the sake of suing; I want this to be finished for their benefit as much as ours." Kent explained how confusion and mystery billing had fuelled the fall-out from the introduction of the RDC warehousing programme.

 

"The original contract we signed said something about overhead allocation but it was very vague," he said. "It read like a one-time fee and it doesn’t mention it’s a monthly fee and it certainly doesn’t mention it can be billed retroactively.

 

"It would have cost us dearly to have remained in the group because we didn’t do the volume that a huge dealer would do so it wouldn’t be cost-effective.

 

"We were all doing as much as we could do to help the group but now we all feel deceived because they were promising us the rebates but at the same time weren’t filling us in on the financial situation of the group.

 

"We were totally in the dark until the point of June of 2005 when they admitted they were losing their shirts and came clean with the situation and that’s when they changed their fee structure.

 

"Personally, I don’t believe any of this was done in a malicious way, we weren’t informed as much as we could have been but that wasn’t intentional just incompetent."

 

Chuck Inwood, of Nickerson Business Supplies in Monroe, Ohio, who was one of the original dealers to settle, described to OPI the background to the legal tussle now threatening to engulf is.group.

 

He explained: "When they introduced the programme in the early part of 2004 their estimated first year cost was approximately $2 million.

 

"However, the actual cost was around $7 million and they didn’t tell anyone about that huge increase until the spring meeting of 2005.

 

"We were all into the fifth month of the new year before we found out what the results were from the prior year. At the time when I asked why we hadn’t found out sooner, we were told it was because they didn’t know.

 

"It just doesn’t make sense that they couldn’t have known that they were spending an extra $5 million. If they didn’t know they must be completely incompetent and if they did know then I think they had a responsibility to tell the members prior to the end of 2004, so that if a dealer wanted to opt out at that point he had the opportunity to.

 

"When they did their post mortem on why the costs were so high it was because of the decisions they made during the year to purchase some software and some very specific things which they pointed to as part of the reason for the cost overrun but they must have known about that at the time they spent it.

 

"They knew they were buying it, they didn’t decide after the fact to buy those things – they knew they were spending the money and they didn’t tell anybody.

 

"We were only informed through the rebate statement when I was sent a letter saying this is the rebate you earned and this is how much we’re keeping – which was all of it – and this is how much you still owe for last year.

 

"I was just incredulous at the way it was handled, we lost all of our rebates for 2004 that we had earned – it totalled about $15,000 – and then they sent us a bill for an additional $3,200.

 

"We are now happy to be done with it but I still get angry when I read about it."

 

Fellow dealer John Carpenter from Coleman’s Office and School Products in Conway, Arkansas, told OPI: "I felt I was really ripped off.

 

"Everything was going along fine until they proposed the RDC situation – I could never see how that would work.

 

"In March 2004 when they sent me a new contract to sign the alarm bells started ringing – when I get a contract that’s 80 pages long I was concerned, it took 80 pages of fine print to explain all the detail.They said that I would either sign the document or I will leave the group. So I called TriMega and made arrangements to be one of their members.

 

"Then is.group started sending letters saying I owed them money which I disagreed with but we worked through it.

 

"They were pulling figures from the sky and when I tried to get some form of explanation they just wouldn’t provide me with a reason.

 

"They even sent me bills from July and August when I had left the group the previous March.

 

"It just rocked along and rocked along until the end of 2005 when they sent me a 1099 tax return form for the rebate they supposedly paid me for the $4,861.92. So I had to pay taxes on that amount even though it was withheld and offset against the amount I supposedly owed.

 

"I have heard of other dealers who have received these tax return forms for up to $30,000 even though they haven’t seen a single dime of it. They can write off this in tax terms because they can say they have paid it out.

 

Attorney Jeff Lund of Indianapolis law firm Yoder, Ainlay, Ulmer and Buckingham, who is representing up to 18 of the targeted dealers, confirmed: "We are very early in the negotiations, they have filed a complaint and we are now in the process of preparing our response to that complaint.

 

"We are obligated to answer that complaint within a statutory period of time. Right now we are in the process of determining what counter claims we think would be appropriate, if any.

 

"All things are on the table, we could get these things settled out, dismissals, pursuing these litigations – at this stage of the litigation we have to make a business decision for our clients to determine what will be the best course of events for them so they can get back to what they’re supposed to be doing which is selling office products."

 

Jordan Kudler, chairman of is.group, told OPI: "We are limited in what we can now discuss about the situation because of the ongoing legal situation. However, I would like to stress that the group embarked on a multi-city roadshow to explain the programme in detail to our list of members.

 

"They had many opportunities to raise questions and enquire further about the workings and details of the programme. It appears that they did not take full advantage of this at the time.

 

"They were presented with membership agreements which are legal documents and they had a responsibility to seek appropriate advice if they did not clearly understand at the time.

 

"It is wrong to suggest we used an 80 page document to conceal any hidden costs, the agreement was only 7 pages long and that was accompanied by a 12 page licensing contract which was purely designed to protect the buying group’s intellectual property.

 

"As I explained last month, this is a very unfortunate situation and we are eager to get it resolved so we can all move forward with our businesses."