WPP Awaits Ruling in CMD Case; Is There a Pattern Here?
WPP (WPPGY) is awaiting a ruling from a New York state judge in a case in which it is suing the former chief of a medical ad agency it acquired in 2004, Current Medical Directions. WPP claims that it was deceived by CEO Daniel Salamone as to CMD’s revenue projections and is owed $18 million.
In a counterclaim, Salamone alleges that WPP has refused to provide the accounts of the agency and thus cannot demonstrate that the agency’s revenues are off.
The case appears to be part of a pattern for WPP: Martin Sorrell’s holding company acquires a stake in a smaller agency and then sues the agency’s management, alleging some sort of wrongdoing, and demanding its money back. That’s what happened in the acquisition of George Patterson Y&R, a case which WPP recently won for $10 million AUD. It also happened with Spot Runner, where WPP failed to prove that the TV buyer’s managers made deceptive stock sales. And it happened in the mysterious Goldfarb Consultants suit, in which WPP unit Millward Brown bought the Canadian shop and then sued the owner for C$110 million (the case settled for C$12 million). The reverse situation occurred after WPP’s Grey Group acquired Texas’ Crossmark – there, the former management sued WPP. That case was settled.
In the Current Medical Directions suit, WPP claims Salamone estimated that the shop’s revenues would be $17 million in 2005. WPP bought the shop for $18 million plus $47 million in contingency payments, and tucked it into its Sudler & Hennessey unit.
The revenue estimate was off by 47 percent, WPP alleges, and its operating profit was off by 71 percent, thus triggering the end of the agreement. Salamone also didn’t show up for work on a regular basis for six months and failed to disclose that one of its clients was about to commence an audit of the agency, WPP claims. Salamone “lied repeatedly,” a WPP filing in the case claims.
Salamone tells a different story. According to his counterclaim and other filings, “none of the Contingent Payments have been paid yet,” and the suit is “nothing more than vexatious litigation tactics.” Salamone’s lawyer shows that one part of WPP’s suit, which claims fraud, is merely “a thoughtless cut and paste job” from a separate misrepresentation claim. The text of the two claims is shown side by side to demonstrate their similarity.
Salamone alleges that WPP has refused to deliver a report or audit on CMD’s accounts, and thus has not demonstrated that the agency’s revenues are off. He also claims that Jed Beitler, CEO of Sudler, forbade CMD from pursuing clients that other Sudler units were interested in, thus preventing CMD from expanding its revenues.
There have been filings in the case through 2009, however the electronic docket has been sealed since November 2008. Paper copies were not available at the courthouse for a public inspection. (WPP dislikes litigating in public — it successfully persuaded a different New York judge to seal internal documents that allegedly described a controversy involving clients at the London office of Grey Group.
Jim Edwards, a former managing editor of Adweek, has covered drug marketing at Brandweek for four years, and is a former Knight-Bagehot fellow at Columbia University's business and journalism schools. Follow him on Twitter or send him an email.
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