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CT Court to Hear Case Involving MeritDirect, Former Exec

Connecticut Superior Court in Stamford is expected to hear a case today involving business-to-business list firm MeritDirect LLC and a former senior vice president while the core dispute between the parties is in arbitration.

After an almost three-year business relationship, MeritDirect and Chad Slater parted ways Oct. 7. On Oct. 24, Slater commenced a civil action contending that MeritDirect breached its contract by wrongfully dismissing him, not paying wages due, defaming his character and other allegations.

Though MeritDirect's operating agreement stipulates that disputes be settled in arbitration, Slater asked that MeritDirect's bank account be garnished for $2.6 million pending the determination of the arbitration. Under a Connecticut statute, the court can garnish double the amount of the alleged owed wages, which in this case is $1.3 million, according to Slater's claim.

A separate arbitration demand filed with the American Arbitration Association lists $7 million as the amount sought by Slater in that proceeding. However, arbitration is a private process, and no further information was available.

Meanwhile, MeritDirect filed a motion to dismiss for lack of subject matter jurisdiction, said MeritDirect's attorney, Stephen J. Curley. MeritDirect CEO Ralph Drybrough referred questions to Curley.

“It's our position that this motion to dismiss should be considered before any other motions,” Curley said. “That motion ostensibly should be heard on the [court's] calendar on Monday.”

Further, Curley said MeritDirect has filed motions to quash a subpoena and request that the file be sealed and sanctions be imposed against Slater.

Lawrence F. Reilly, who is Slater's attorney and is with Fogarty Cohen Selby & Nemiroff LLC, was out of the office and could not be reached for comment.

Drybrough and Mark Joyce formed MeritDirect as a limited liability company in late 1999, according to Slater's arbitration statement, and each invested $250,000 and each has 27 percent of the company's proportionate shares. Slater joined the company in February 2000, invested $50,000 and received 7 percent of the proportionate shares, which was increased to 10 percent at an unspecified date, the statement said. He also claims to have brought existing clients to the company.

In January 2001, a compensation plan was put in place saying “profit center leaders would be entitled to a percentage of the net proceeds of their profit center.” The plan was retroactive to 2000. According to the statement, Slater's profit center “was vastly outperforming the LLC's other profit centers” and Slater wanted more shares and control of MeritDirect. It also says that he, Drybrough and Joyce discussed four options: Slater buy out other members; MeritDirect increase Slater's equity and power; Slater take his clients and use MeritDirect as a back office; or MeritDirect buy out Slater and keep his clients.

The statement also says MeritDirect “expressed interest” in late August in buying Slater out for $3.2 million to $3.5 million. On Sept. 11, MeritDirect lowered the amount to $1.5 million, and Slater countered Oct. 4, though the document does not give a figure.

Slater was let go “with cause” in a letter from MeritDirect on Oct. 7, according to Slater's statement, which includes that he sent a letter to MeritDirect Oct. 16 saying he would visit the office the next day to look at books and records. He claimed Drybrough left a voicemail message saying Slater was “voted out of the LLC.”

The affidavit lists compensation owed Slater as $250,000 for his work in 2000; $271,000 for the third quarter of 2002 and $700,000 for the balance of 2002 as well as $160,000 for the first quarter of 2003, bringing the total to more than $1.3 million.

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