Co-Op files suit agains OC

The Co-Op Bookstore filed a startling $2 million lawsuit against its management company and Oberlin College on Monday, alleging fraud and breach of contract.

The civil suit claims that the management company, [College and University Bookstore Partnering Concept], violated its contract with the Co-Op while also conspiring with the College to secure control of the Bookstore and its inventory for financial gain. The suit, filed in the Lorain County Court of Common Pleas, names CUBPaC and its President Ronald Duvall for breach of contract, and requests a $2 million judgement against CUBPaC. The suit also names the College for planning to take over the Co-Op with CUBPaC, and requests that the College cease from interfering in the running of Co-Op business.

"I am deeply concerned about the Co-Op and very surprised by the lawsuit," said College President Nancy Dye.

The Co-Op closed its doors to the public on Nov. 9 after an ongoing disagreement with CUBPaC. The management firm claimed that the Co-Op had not fulfilled its April 1998 contract. The Co-Op refused to issue payments set forth in their agreement, alleging CUBPaC made numerous violations of the contract. This forced CUBPaC to terminate their contract on Nov. 5 and ordered the Co-Op to stop selling its inventory. Under the terms of their agreement, CUBPaC bought all of the Co-Op's inventory - purchasing the inventory to provide money for the everyday running of the business.

In June of 1998, two months after CUBPaC and the Co-Op finalized their contract, the College agreed to secure CUBPaC's investment by guaranteeing that the College would purchase the Co-Op's inventory back from CUBPaC if their contract with the Co-Op was terminated. According to Bookstore President Brian Cartier, the Co-Op had no knowledge of this agreement.

Both Dye and Vice President of College Relations Alan Moran stated that the Co-Op actually requested that the College guaranty the agreement with CUBPaC. "We were asked by the Co-Op to guaranty the inventory," said Dye.

The lawsuit claims that the College and CUBPaC planned on taking over the Co-Op if it went out of business. Once Co-Op management was out of the way, the College could purchase the inventory under the terms of their agreement and allow CUBPaC to manage the bookstore. "...CUBPaC could operate the bookstore in a manner which would satisfy the needs of the College and make it serve as a profit center for the College," states the suit.

College administrators denied such a conspiracy existed but said more lucrative opportunities had presented themselves in years past from the likes of Barnes and Noble. But the College maintained it remained loyal to the Co-Op.

The suit asserts that once CUBPaC had a guaranty agreement with the College, "CUBPaC, at the direction and control of Mr. Duvall, breached its obligations and intentionally and fraudulently failed to provide to the Co-Op the Management Services delineated...".

According to the suit, CUBPaC failed to perform numerous contractual obligations, including providing training and necessary financial management to the Co-Op. The law suit also states that the Co-Op "performed all obligations incumbent upon it under the Agreement including all obligations of compensation up to, in or about June of 1999." At that time the Co-Op independently reviewed its financial situation, and concluded that they owed CUBPaC less money than the contract stated.

The contract stipulated that the Co-Op would pay CUBPaC a "Base Management Fee" that would decrease incrementally through the five-year life of the contract. In addition to the base management fee, the Co-Op would also reimburse CUBPaC for its monthly expenses incurred through retail sales.

Built into the contract was a clause that guaranteed the Co-Op would not sustain more than a three percent loss. In the first fiscal year of the contract, the Co-Op lost $430,000 - more than twice their losses of the previous year. In June, the Co-Op decided that CUBPaC had breached their agreement, so they had their accounting firm, Clifton-Gunderson Ltd., evaluate how much the Co-Op owed CUBPaC in monthly fees. Clifton-Gunderson Ltd., found that the Co-Op had the right to reduce its management fees with CUBPaC by approximately $402,000 due to its high losses.

Based upon the accounting report, the Co-Op ceased making monthly payments to CUBPaC in July. CUBPaC continued to bill the Co-Op and finally warned the Co-Op board that they would take legal action. In a correspondence dated Oct. 28, CUBPaC attorneys told the Co-Op board that CUBPaC would terminate their contract on Nov. 1 if they did not meet their demands, including payment of management fees dating back to July.

CUBPaC finally terminated the contract on Nov. 5, and requested payment for the store's inventory. The correspondence stated "Because the Management Agreement has been terminated, the Co-Op has no further authority to either receive or sell any of our client's inventory or other property." As a result, the Co-Op board closed the bookstore's doors on Nov. 9.

According to Cartier, the Co-Op Board met on Nov. 22 in a closed meeting and decided to pursue a civil action against CUBPaC and the College, which they filed on Monday. The suit lists multiple counts: fraud, breach of contract, breach of warranty, breach of guaranty, wrongful termination of contract and tortious interference in a business relationship. The suit requests $2 million from CUBPaC. The College is not being sued for any monies, but the suit requests that the College does not take any action that would interfere with the Co-Op's ability to carry on business.

The Aftermath

The Co-Op's abrupt closing had been expected for quite some time. Since the construction of their current building at 37 West College Street in 1994, the Co-Op has suffered increasing financial losses.

In an effort to stem the rising losses, the Co-Op sought the aid of a management company, and decided to contract the services of CUBPaC. The Co-Op board hoped to get the bookstore on its feet with the help of the Baltimore based CUBPaC. Unfortunately, their relationship turned sour within the last six months, with allegations floating back and forth from both sides of breach of contract.

The Co-Op's closing leaves the College without a textbook provider for next semester. As a result, the College has hired a consultant, former Co-Op textbook manager Jan Eastman, to coordinate textbook distribution. The College also hired Campus Book Consulting to help determine the most effective long-term solution for the bookstore problem. Dye also appointed a College committee, to work with their new consultants.

Dye said, "We need to be prepared for the fact that we may stay in the bookstore business."

College sources were more than a little miffed at the unexpected civil suit. The College has aided the Co-Op at a few crucial junctures, such as a $40,000 loan in the summer of 1997 that allowed the Co-Op to purchase textbooks for the following semester. College sources also indicated that the Co-Op did not notify them of the suit until its public filing, a courtesy sometimes extended in legal conflicts.

The College has dealt with many different board members in the past five years. The current six-person board is made up of five new members. Including Cartier, those board members assumed their positions on Oct. 7.

Regardless of the lawsuit's outcome, the Co-Op faces a long line of creditors. The Co-Op has continued its mortgage payments, but it is unclear how long they will be able to sustain those installments.

On advice from their lawyers, the Co-Op board has not paid its employees for their last pay period, amounting to about $7,000. Cartier said, "If things work out, we certainly would want to be able to pay them." Cartier explained that the Co-Op has prioritized its debts, with secured creditors and the government sitting atop the list, and unsecured creditors like their employees at the bottom.