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Emaildirect Wants $5.3M Delivery From Exactis

Emaildirect Inc., Aliso Viejo, CA, has filed court papers alleging that Exactis.com failed to adequately deliver e-mails on its behalf and seeking damages of $5.3 million against the high-profile e-mail outsourcer.

Emaildirect filed an eight-page complaint with the Orange County (CA) Superior Court on June 6, accusing Exactis of breach of contract, fraud, negligent misrepresentation and other charges. About a week later it served those papers to Exactis, which has yet to respond, representatives of both parties said.

Emaildirect is a 2-year-old e-mail marketer whose core product is Value-mail, a biweekly e-mail that delivers online coupons and offers to local restaurants, retail shops and service providers to more than 1 million consumers.

The legal beef stems from a deal reached in November in which the e-mail marketer contracted Exactis to distribute e-mails to its more than 1 million customers. There were no problems after the first two months, according to the complaint. The trouble began in January, when emaildirect said it “encountered numerous inadequacies with Exactis’ distribution and nonperformance.”

Emaildirect said it gave Exactis time to try to resolve the problems but that the company never did. By April, the relationship deteriorated, and emaildirect started requesting reimbursement for fees paid to Exactis, according to the complaint.

Shortly thereafter, emaildirect said it had sustained damages of $1.77 million in actual billings, assumed billings from April to May and other losses, including make goods to unsatisfied customers, lost click-through revenues, lost subscribers and damaged relations with its business partners. Emaildirect reached the $5.3 million figure it is asking for by tripling the original sum, a provision specifically allowed in the business and professions code of California state court, according to Peter Young, the Irvine, CA-based attorney for emaildirect.

“We just learned of the suit, we’ve apprised 24/7 Media of the situation and our attorneys are reviewing the situation,” said a representative of Exactis.com, Denver. “It is a legal issue and not something we have sufficient information on to make a comment just yet.”

Exactis is less than a week away from the likely closure of its acquisition by 24/7 Media, the New York-based online media and marketing network. The shareholders were scheduled to approve the deal on June 27. 24/7 would then formally acquire Exactis on June 28.

Exactis would not comment on what impact the lawsuit might have on the vote. 24/7 Media did not return a telephone request for comment. It is unlikely, however, that a $5 million lawsuit against Exactis would derail a deal that is expected to provide 24/7 with additional cash and cash equivalents of $40 million.

There are whispers that emaildirect — which issued a press release detailing its suit against Exactis and made specific mention to the imminent closure of the 24/7 deal — timed the action hoping to stir up trouble, and perhaps a quick settlement. If that was the case, the plan wasn’t working as of late last week.

Young, emaildirect’s attorney, said he hadn’t heard from Exactis yet and that nothing would proceed until he did. Under California state law, he said, Exactis has four options: file an answer to the complaint and move onto the court proceedings phase, file what is called an attack on the pleadings to delay the case for a few months, file a petition to move the case to a federal court or reach a settlement.

“They can pony up, settle the case and be done with it,” Young said. Neither party specified how much time Exactis has to decide which option it wants to pursue.

This is not the first time emaildirect has been involved in legal actions. In 1999, CoolSavings, a Chicago-based Web coupon company, conducted a year-long patent infringement lawsuit against emaildirect. CoolSavings dropped the lawsuit in January 2000, after emaildirect agreed to accept an unspecified licensing arrangement.

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