Reader's Digest has filed a lawsuit against Books Are Fun founder Earl Kaplan charging that Kaplan violated his noncompete agreement when he agreed to help his stepson, Stephen Rosebrough, create a display marketing firm, a business similar to BAF's. In late 2004, RD filed suit against Rosebrough alleging that the former BAF employee used trade secrets to start his company, Reader's Choice (PW, Nov. 15, 2004). Reader's Choice closed last year.
The basis of the new suit against Kaplan, who sold BAF to Reader's Digest in 1999, is heavily based on a new document unearthed during the discovery phase of the Rosebrough case which seems to indicate that Kaplan had agreed to work with Rosebrough more than a year before his noncompete with RD expired on Oct. 1, 2004. The document was recently made public after an attempt by Kaplan and his attorneys to keep it confidential was denied by a judge.
Leslie Cohen, an attorney for Kaplan, said she is confident Kaplan will eventually be vindicated. She pointed to papers filed with the court during the motion to keep the Kaplan-Rosebrough proposed agreement confidential that stated that while both men signed the newly discovered document, the purported agreement was never acted upon. According to the filing, Kaplan told Rosebrough he couldn't sign the Sept. 17, 2003, document until he was sure when his noncompete expired. After learning the agreement had more than a year to run, he told Rosebrough he couldn't get involved with RC. Kaplan maintains he later signed the agreement without Rosebrough's knowledge and never delivered a copy to him. In a deposition, Kaplan said that prior to the expiration of his noncompete, he never provided any kind of financing for Reader's Choice or consulted with Rosebrough on forming the company.
The court papers also show that Kaplan wanted to keep the proposed agreement confidential because he was worried Reader's Digest would use it in an attempt to ruin his new business, Imagine Nation, which he formed after the noncompete expired. According to the filing, Kaplan was concerned that if the arrangement became public, "BAF will use the document to suggest falsely that Kaplan was the motivating force behind Reader's Choice and that any independent contractor to BAF who joins Imagine Nation risks joining another failed venture."
In its suit, RD is asking the court to enjoin Kaplan from participating in any display marketing activities, including the solicitation of reps, for at least 13 months from the time of the judge's order. The suit also seeks to permanently enjoin Kaplan from disclosing or using any confidential information regarding BAF.
BAF's performance drew much of the focus of RD's second-quarter report. Sales and earnings were down in the period, and in the quarter RD took a $188-million writedown to reflect the diminished value of BAF, for which it paid $380 million. Eric Schrier, new RD CEO, emphasized that the company is committed to turning around the unit. In a conference call discussing second-quarter results, Schrier said, "I want to make it clear to our employees, to the competition, and to you [analysts] that we have not lost one ounce of faith in this business."
