Suit Centers on Right of First Refusal Clause.

In a dispute triggered by the termination of a contract, Lou Communications, Inc., parent company of AAN member Metro land, filed a lawsuit June 12 against Date-Maker, Inc. a/k/a Newspaper Voice Services [NVS], seeking damages “in excess of $20,000.”

The seven-page complaint, filed in Albany County Supreme Court, alleges that the Williamsville, New York-based voice mail personals company has wrongly withheld money it owes the Albany newsweekly.

Metro land had been an NVS customer for two years when its contract expired earlier this year on Feb. 28. Until that point, Metro land and NVS had been engaged in a typical relationship in the newspaper personals business: NVS provided administrative services in return for a cut of the revenue it collected from the phone messages and mailbox services purchased by Metro land’s personals customers.

According to Metro land’s complaint, NVS began withholding payments after it learned that Metro land decided to switch to a different personals vendor, Tele-Publishing, Inc. [TPI].

At the center of the dispute is a clause in the contract which NVS claims gives it a “right of first refusal” to match any competitor’s offer before Metro land selected another personals vendor.

In its pleading, Metro land claims that NVS “has no right of first refusal.” It also alleges that NVS was given the opportunity to match TPI’s offer, but that NVS “asserted that it is incapable of matching all terms and conditions of the offer of Tele-Publishing, Inc.”

The events leading up to the lawsuit were “fairly benign,” according to Metro land Publisher Stephen Leon.

“It all began late last year,” he says. “Our contract with NVS was to expire in February [1998] and we wanted the opportunity to shop around a little bit. We weren’t going to leave NVS necessarily, but it was a combination of things: We had seen declining revenues from our personal ads and we were also being wooed by TPI.”

After TPI presented its offer, the suit states, Metro land “as a courtesy, and without any obligation, in or about January, 1998 … gave the defendant notice” of TPI’s bid. According to Leon, NVS then countered with its own proposal. TPI responded by sweetening the terms of its original offer.

“I decided to go with TPI,” says Leon. “These companies don’t do everything the same. They use different software; they have different features. I just liked what TPI had to offer.”

Citing the lawsuit, Leon declined to elaborate on the specific advantages of TPI’s system.

Leon says his contract with NVS stated that Metro land would receive a percentage of every phone minute billed for the personals ad services. He also says that NVS customarily sent the paper its take about 45 days after each billing cycle — i.e., payment for February billings should have arrived around April 15.

When Metro land hadn’t received a check by the end of April, Leon phoned NVS. He says that an NVS representative told him the company was withholding payment.

“She cited the right of first refusal as the reason for them withholding the check,” he says. “Beyond that, I really didn’t understand her explanation.”

Leon says he tried to contact NVS President Tory Williams, but his voice-mail messages were never returned.

Williams claims he returned all of Leon’s calls.

In May, Leon referred the matter to his attorney, Jeff Siegel.

.The right of first refusal is vague and unenforceable, Siegel argues.

“[The clause] is unclear,” he says. “It has no expiration date and has no mechanism in terms of complying with it.”

Conversely, Williams claims the contract did give his company a right of first refusal, and that he was never given the chance to match TPI’s offers until “after the fact.” Williams also claims Metro land’s lawsuit “doesn’t accurately represent the facts.” He says Metro land violated his company’s right of first refusal because the paper had already agreed to a deal with TPI before it notified NVS.

Although Williams could not cite any contractual justification that would allow his company to withhold money it owes Metro land — even if the newspaper violated NVS’s right of first refusal — he says keeping the paper’s cash for awhile isn’t out of the ordinary.

“When a paper switches service providers,” says Williams, “there are charges we receive from the phone company on the old 900-number — charges from people who used the service but didn’t pay. We get stuck with those charge-backs. That’s why we hold on to the money.”

Leon, however, isn’t swayed: “That’s our money. We want it.”

Metro land is the only AAN paper, so far, to file suit against NVS. However, it may not be the last.

Richard Meeker, one of the owners of the Santa Fe Reporter, and Boulder Weekly Publisher Stewart Sallo both say they are pondering legal action against NVS. Like Leon, both claim that NVS is withholding revenue owed to them in retaliation for switching vendors.

Williams doesn’t deny that he is withholding their money. However, he says that he’s justified because both were in violation of their contracts with NVS.