An $8.3 million lawsuit has been filed by Time Warner Entertainment and four Turner Broadcasting System cable networks-CNN, TBS, TNT and Cartoon Network-against Sears, Roebuck & Co., seeking payment for advertising time bought in 1999 by a now-defunct ad agency acting on Sears’ behalf.
Sears paid the agency, Focus Media, but the agency did not in turn pay the networks, according to the suit, which contends that the “reasonable value” of the Sears advertising that was telecast is just over $7 million. That amount plus interest now totals more than $8.3 million, according to the court filing.
Industry custom and practice holds the advertiser ultimately responsible for television time bought by an agency acting on its behalf, according to the complaint filed Nov. 30 in California Superior Court.
A Sears spokeswoman said the department-store chain was “in discussions” with Time Warner Entertainment about resolving the lawsuit. A spokesman for the TBS cable networks that are party to the suit declined comment.
The current suit is related to an earlier lawsuit, filed in March 2000 by Sears against Focus Media, the agency that acted for and then later was fired by the retailing giant. In the earlier suit, Sears claimed that Focus, which had been receiving a $500,000-per-month retainer, had “abused the trust and confidence of Sears by failing to pay to the Media Outlets the sums that it held on Sears [sic] behalf for that specific purpose.”
The Focus-Sears relationship went back more than a decade, the Sears spokeswoman said, and the department-store chain was “shocked” by Focus’ failure to pay the media for time it had bought for Sears. In all, Focus failed to pay media invoices “in excess of $20 million” for advertising time it had bought, according to Sears.
Focus, which at one time had 150 employees, ceased operations in summer 2000, but legal proceedings have continued against it and its former executives, who include Tom Rubin, founder and chairman, and Tom Sullivan, chief financial officer. In October 2000, for example, NBC, ABC and Paxson Communications filed an involuntary bankruptcy petition against Focus. In a bankruptcy court hearing last May, reported on by Advertising Age, attorneys for the three creditors wanted to know how two checks cashed in April 2000 by Focus, each for more than $5 million, were spent, and why $3 million was wire-transferred to Mr. Rubin in July 2000. The attorney for Focus told Advertising Age that the two $5 million payments went to pay the ad agency’s state and federal taxes and that the $3 million payment to Mr. Rubin was for severance.
In this latest lawsuit, the plaintiffs contend that Sears owed them, as of February 2000, the following amounts for advertising purchases made by Focus acting on the Hoffman Estates, Ill.-based retail chain’s behalf: to TWE, approximately $4.8 million; to CNN, approximately $791,000, about half of which is owed to CNN Headline News; to TBS Superstation, approximately $533,000; to TNT, approximately $812,000; and to Cartoon Network, approximately $48,400. The plaintiffs also contend that in April 2000 Sears had promised in writing to “make good on the bills to the extent [Warner] cannot recover from Focus the money Sears remitted to Focus for payment to Warner.”