6:04pm PT by Ashley Cullins
U.S. Army's Ad Agency Sued for Fraud by Cable Network
An African-American-focused cable network is suing the U.S. Army's outside advertising agency, claiming it was duped into doing business with a financially unviable partner as part of a scheme to defraud the government.
TV One claims Universal McCann Worldwide misrepresented the financial health of an advertising placement partner to cash in on federal incentives related to boosting military recruitment of minorities, according to a lawsuit filed Friday in Maryland federal court.
According to the complaint, McCann "conspired to identify a small business media buying agency to use as their puppet in order to collect hundreds of thousands of dollars in incentive bonuses from the United States government, defrauding the Plaintiffs in the process." TV One claims it was misled into doing business with and extending credit to a "sham" buying agent, Penn, Good & Associates, so McCann could continue to cash in on Army incentive bonuses.
The bonuses were part of a 2004 contract with the U.S. Army for an ad campaign designed to boost recruitment of African-Americans. The contract included incentives for placing subcontracts with small, minority-run and disadvantaged businesses as part of the federal government's goal of awarding five percent of contracting dollars to such companies.
The cable network claims McCann then hired Carol H. Williams Advertising to place Army ads on media outlets geared toward African-Americans like TV One. When CHWA became too large to qualify as a small business, McCann partnered with LaGrant Communications. CHWA continued planning the media strategy and LaGrant placed the ad buys on McCann's behalf. According to the complaint, this partnership continued for years without incident until McCann discovered LaGrant didn't qualify as a small business. So McCann turned to another company, PGA.
While engaging in due diligence, TV One claims it discovered PGA had a poor credit rating and history. The company says it was assured CHWA would remain the lead, but that invoices should be sent to PGA.
"TV One reasonably and foreseeably relied upon and accepted CHWA’s representations, made on behalf and at the request of McCann, that PGA was merely an implementation agency and that the relationship would remain the same as it had in the past," writes attorney Bonnie Hochman Rothell in the complaint, which is posted below.
The company claims McCann misrepresented PGA as financially sound and knew or should have known that it had recently emerged from Chapter 11 bankruptcy and had been involved in about a dozen lawsuits. TV One says PGA currently owes more than $930,000, and claims it has racked up more than half a million in litigation expenses in an effort to recover those funds.
TV One says it discovered McCann's fraud after it sued CHWA and PGA over the money due. That matter settled during a mediation, after CHWA claimed it was indemnified by McCann.
"The parties mutually agreed that TV One would dismiss all claims with prejudice against CHWA and in exchange McCann would pay TV One $550,000.00," writes Rothell. "Within days, and despite TV One’s intent to fulfill its end of the bargain, McCann repudiated the oral contract and indicated that it would not pay TV One the amount previously agreed upon."
The lawsuit also alleges McCann failed to inform the companies when PGA filed for Chapter 7 bankruptcy in 2012 — and that it advanced PGA funds to cover labor costs and repaid itself by withholding money due to others.
"McCann submitted invoices to the U.S. Army for the running of advertisements, but McCann never ensured that the money for advertisements was paid to the Plaintiffs," writes Rothell. "McCann also falsely represented to the U.S. Army that the funds the U.S. Army paid to McCann for the advertisements were being paid to the Plaintiffs."
African-American-focused radio network Reach claims it was similarly duped and is currently owed more than $375,000.
TV One and Reach are suing McCann for breach of oral contract, fraud and negligence. They are seeking at least $1.8 million in damages.
A spokesman for McCann on Tuesday sent The Hollywood Reporter a statement in response to the complaint: "A related case brought in 2015 by TV One was summarily dismissed in court earlier this year, and we fully believe this case will be dismissed as well, as the claims are baseless."
Aug. 21, 12:40 p.m. Updated with a statement from Universal McCann Worldwide.