CTS Counters ECS Claims, Lists Carlson Wagonlit Travel Among Lost Customers

By | March 18, 2016

[UPDATE, May 9, 2017: OnyxCenterSource acquired fellow hotel commission recovery specialist eCommission Solutions. Onyx CEO Mark Dubrow said the deal expands his company’s client base and provides pre-existing ECS clients “an expanded hotel network and additional support services around the world.” Dubrow added that Onyx is determining how the ECS “big data platform” may help build out business intelligence services. ECS founder and CEO Paul Hoffmann “will stay on in a consulting role,” according to the Onyx announcement. Terms of the transaction between the privately held firms were not disclosed. Meanwhile, the ECS lawsuit against CTS continues, with a trial expected to start no earlier than fall 2017.]

[UPDATE, May 31, 2016: Plaintiff eCommission Solutions and defendant Dell Marketing agreed to dismiss claims and counterclaims. The presiding judge in Dallas County Court on May 27 signed the order for dismissal with prejudice prohibiting ECS from bringing the same claims in the future. The case is now closed. The related ECS suit against CTS continues in a U.S. District Court in New York. Defendant CTS is ordered to file its motion to dismiss by June 6.]

Convoluted legal proceedings about a complicated niche of the industry advanced recently in two courtrooms. Hotel commission collector CTS Holdings this month responded to allegations filed in court last year by one-time partner eCommission Solutions. CTS also is a subcontractor to Dell Marketing, which itself faces allegations from ECS, and likewise has filed counterclaims.

ECS last year accused CTS of fraud, misleading ECS on a potential acquisition agreement and stealing proprietary information and customers. CTS has now denied the allegations and directed similar ones back at ECS.

The dispute left some corporate travel agencies scrambling for new services. Commission revenue from hotels represent a vital subsidy for travel management services otherwise largely covered by business customers themselves. Some corporations earn commissions directly. Anthem, for example, is a former CTS user, according to court documents. Actually getting hotels to pay can be a challenge; hence, this cottage industry.

CTS

Dell Marketing also is involved in hotel commission recovery. CTS became a Dell subcontractor in 2004. The next year, Dell entered into a reseller deal with ECS, through which ECS sold Dell services to travel agencies, including CTS subcontracted work. The reseller deal expired March 10, 2015.

“At some point, ECS formulated and launched surreptitious scheme [sic] to steal CTS’ proprietary technology and processes, defame CTS to the travel agency customers and Dell and provide its own competing product,” according to CTS’ March 3 filing in the U.S. District Court of Southern New York. Further, CTS alleged that ECS’ discussions about acquiring CTS were meant to “gain access to CTS’ proprietary information while supposedly conducting due diligence.”

The series of CTS counterclaims alleges that the company lost customers to ECS following ECS’ actions, including “false” statements about CTS “service issues.” As a result, CTS “suffered special damages in an amount to be determined at trial, but in no way less than $93,903.30.” That figure is the sum of estimated profits lost from dozens of customers. It said these included such travel management companies as Balboa, Campbell, Gant, MacNair, S.R. Travel, Travel Store, TS24 and Uniglobe. It also includes three Carlson Wagonlit Travel contracts, with alleged lost profits accounting for more than half the total.

CTS alleges that ECS misappropriated proprietary CTS information under the guise of creating “a user manual and ‘bible’ of the services provided to the travel agencies.”

“ECS was actually trying to develop a platform to compete with CTS, disengage CTS from its relationships with the travel agencies, and then assume the role of service provider to the travel agencies,” according to the CTS filing.

CTS also accuses ECS of refusing to extend the Dell reseller deal unless it contained a clause prohibiting CTS from servicing travel agencies outside the CTS-Dell subcontractor agreement. “When ECS made these demands, approximately 30 percent of CTS’ business came from CTS’ own independent contracts,” CTS claimed.

CTS alleges that ECS enacted its scheme after hiring as an advisor Thomas Sparico of Brand New Matter.

CTS contends that Sparico made “unfounded and spurious complaints to Dell about CTS regarding non-existent service issues;” sought to eliminate CTS from travel agency interactions “pursuant to the reseller agreement and subcontract;” misrepresented ECS intentions regarding an extended Dell reseller deal; and engaged in “fraudulent discussions” about ECS’ interest in acquiring CTS.

Sparico and ECS president and CEO Paul Hoffmann declined to comment.

CTS also claimed that while “travel agencies paid ECS directly for the Dell services received pursuant to the reseller agreement,” ECS also owes it “significant amounts” for CTS services provided to the agencies outside the scope of the reseller deal.

CTS wants a judgment that dismisses ECS’ claims, covers legal fees and provides at least $10 million in compensatory damages and punitive damages “to be determined at trial.”

Discovery in the case is scheduled to run through June 1.

Meanwhile, in a Dallas district court, a separate ECS suit against four Dell entities also continues. Three of the Dell entities claim no involvement in the matter and seek summary judgment to dismiss ECS’ claims against them. A hearing on that request is scheduled for April 14.

The fourth, Dell Marketing, also denied ECS allegations and filed counterclaims in December. Those include an alleged breach of contract. Dell claims ECS hasn’t paid invoices for travel agency commission and reconciliation services and owes more than $2 million.

Related to similar issues in the CTS suit, ECS accuses Dell of breach of contract, fraud, negligent misrepresentation, tortious interference, trade secret misappropriation and conspiracy.

Since filing the suit in March 2015, ECS claimed Dell engaged in “improper solicitation efforts with American Express,” then an ECS client. “In July 2015, Dell Marketing received the ill-gotten fruits of its misconduct. American Express, in particular, informed ECS that it would no longer do business with ECS [and] transitioned its business to Dell Marketing,” according to an amended ECS complaint filed in November.

A trial is scheduled to start Aug. 8.

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