Unusual Legal Battle Is a Textbook Case

by Mark Friedman  on Monday, Oct. 8, 2018 12:00 am   6 min read

It seems an odd ground for a pitched legal battle, the college textbook market.

Yet college textbook stores owned by the husband-wife team of James and Terry Barnes have generated a spate of lawsuits from angry business partners. Court filings even include allegations from publishers that the Barneses and a company affiliated with their BBA Corp. of Little Rock were selling counterfeit textbooks.

The Barneses, who operate multiple textbook-related companies under several company names and with different investors, have returned legal fire, denying the allegations and filing counterclaims against their partners in the book businesses.

The latest litigation involves Little Rock businessman James Batcheller and seven others who have various ownership interests with the Barneses in textbook stores across the country. They accuse the couple of breach of fiduciary duties for starting related textbook companies to compete with their own stores.

The Barneses opened their first college bookstore 22 years ago in Arkadelphia. Since then, one of the Barneses’ companies, BBA Solutions of Little Rock, has grown to more than 110 locations in 24 states and generated more than $180 million in revenue in 2015, making it the third-largest college textbook company in the United States, according to the company’s website. The Barneses’ affiliates also rent textbooks and do business online.

But lawsuits have littered BBA’s growth path, especially in recent years.

Last year, BBA affiliate Fbaaz Corp. was one of several booksellers sued in U.S. District Court in New York by three leading publishers of educational books, including McGraw-Hill Global Education Holdings and Cengage Learning Inc.

The publishers accused Fbaaz and other booksellers of selling counterfeit textbooks through Amazon.com and other outlets.

“Defendants are undoubtedly aware that their activities are illegal, yet they persist in them nonetheless,” according to the lawsuit filed by attorney Kerry Mustico of Oppenheim & Zebrak of Washington, D.C.

In related litigation, René Morgan, BBA’s chief operating officer, said in a Nov. 30, 2016, letter to the publishers’ attorneys that BBA tries to root out counterfeit textbooks, but that is almost impossible “given the subjectivity involved in determining whether a book is or is not ‘counterfeit’ and the ever-increasing skill with which counterfeits are produced.”

She added that counterfeiting is “just as much a problem for our companies as it is for your clients.” That comment didn’t sit well with an attorney for the publishers.

“Your effort to portray BBA as the victim here is without basis,” attorney Leslie Lagomasino of Oppenheim & Zebrak wrote in a Dec. 2, 2016, email to Morgan. “The claim that counterfeit books are ‘just as much a problem’ for BBA as for the publishers borders on insulting.”

BBA seeks to buy inventory at below-market prices, “and in so doing, it purchases counterfeit textbooks,” Lagomasino said. “When BBA purchases a counterfeit book, it does so because it is looking to maximize its profit.”

Another attorney for the publishers alleged that BBA sold a significant number of counterfeit textbooks in violation of federal copyright and trademark laws. Under those laws, the publisher is not required to prove the booksellers knew the books were counterfeit in order to collect damages, which can be up to $150,000 per work infringed.

The publishers said in a 2017 settlement proposal that they discovered that the inventory of BBA and its affiliates held 1,631 counterfeit copies of 83 titles.

The publishers were seeking a settlement of $2 million. “This may seem like a large number to the Barneses who were given a free pass the first time they were caught, but given the exposure, the proposed settlement is quite reasonable,” the filing said.

The case settled in April 2018 and terms were not publicly disclosed. But as the couple battled the publishers, they also had legal fights with the co-owners of their individual bookstores.

James and Terry Barnes were newlyweds when they opened their first bookstore near Henderson State University in 1996.

“Our mission was superior customer service, a large used book inventory, and low prices,” BBA Solutions said on its website. “BBA grew five additional stores over the next six years, increasing market share while learning to navigate the campus environment.”

In some cases, BBA agreed to manage bookstores for colleges, including the University of Central Arkansas in Conway. UCA paid BBA Solutions $1.1 million during the academic year that ended June 30, 2017, a decline of 7.5 percent from the previous year.

Over the years, the couple brought friends into the bookstores to teach them the business, David Wilson, an attorney at Friday Eldredge & Clark who represents the Barneses, said in a statement to Arkansas Business. The Barneses then created new business entities with these friends through which to open new textbook stores.

The nature of these relationships is a matter of dispute.

Partnership? Or Not?
“These were a bunch of entities with people that were friends with overlapping ownerships,” Wilson said. “At times, they would call themselves partners or associates, and they also called universities they did businesses with partners. So they used that word really loosely.”

But, he said, there was no partnership between the individual entities and the BBA Corp.

In fact, the Barneses’ co-owners in the individual bookstores agreed in their lawsuits that they don’t have a written partnership arrangement with BBA.

“Our position is there’s no partners and no partnership as Arkansas law defines partnership,” Wilson said. The co-owners, though, see it differently.

Batcheller and the other plaintiff co-owners said they invested millions of dollars in the textbook businesses over the years and have worked within a general partnership called the BBA Group to build a successful textbook enterprise, according to the lawsuit filed in Pulaski County Circuit Court in August by attorney Michael Thompson of Wright Lindsey & Jennings of Little Rock.

While the plaintiffs “have never executed a written partnership agreement, they have operated the enterprise as a partnership,” the lawsuit said.

The plaintiffs said in the lawsuit that “the self-proclaimed leaders of the Partnership, James and Terry Barnes wielded control over a number of functions of the common enterprise.”

The group of co-owners said they didn’t know that starting around 2013, the Barneses began using three entities that they owned — BBA Corp., Fbaaz and FirstClassBooks Inc. — to compete with the plaintiffs’ textbook businesses, the lawsuit said.

“The Barnesses were careful to conceal their misdeeds to maximize their gains and, even upon the Individual Plaintiffs’ discovery of the deception and confrontation of the Barneses, refused to remedy their actions,” the lawsuit said.

The plaintiffs want the Barneses to stop competing directly with the businesses they co-own with the plaintiffs.

BBA and FirstClassBooks provide administrative services, such as accounting and human resources, to the co-owners’ companies, and the plaintiffs said failing to account for fees could result in the Barneses diverting money to themselves.

The plaintiffs are seeking unspecified damages. The Barneses denied the allegations and filed a counterclaim.

Wilson said in an interview that James Barnes implemented profitable ideas after the plaintiffs had rejected them. He suggested that the co-owners “got miffed” at Barnes meddling in what they thought was their business, anger that he thinks triggered the lawsuits.

“There has been no damage to any plaintiff on the account of any ‘conduct’ of any defendant,” Wilson said in the answer.

Instead, the filing said, the Barneses provided them the opportunity to make significant profit “for years and years based upon the training, business models, information and structure of individual entities with retained ownership and parallel competition, as established by James Barnes over the course of 20 years.” Wilson said the Barneses “intend to successfully defend the case” and get out of business with the plaintiffs.

More Lawsuits
The co-owners’ lawsuit shared a script with another co-owner, Sam Carter of Little Rock, who sued the Barneses and BBA last year. He also is represented by Thompson of Wright Lindsey & Jennings.

Carter also accused the BBA affiliates of competing with the stores that the Barneses owned with him. He sued the Barneses for breach of fiduciary duties and wanted an accounting of all partnership funds.

The Barneses filed their own lawsuit accusing Carter of creating a competitor, Second Class Books Inc., which operates as High Country Books, to compete against the bookstores they own together. They also accused him of computer fraud and misappropriation of trade secrets, which he denied.

That case eventually settled out of court last year.

The Barneses rekindled that legal fight in July, when they and BBA sued Carter for not complying with their settlement, according to the lawsuit filed in Pulaski County Circuit Court by attorney Graham Talley of the Little Rock firm of Mitchell Williams.

The Barneses said Carter was supposed to share financial information but didn’t. The Barneses and BBA are seeking an unspecified amount of damages.

Carter and his business partner in Second Class Books, Jeremy Cucinella of North Carolina, denied the allegations and filed a counterclaim alleging that Carter and Cucinella were “fraudulently induced … into entering into the agreement through their [the Barneses’] misrepresentations and omissions,” their filings said.

Carter and Cucinella accuse the Barneses of withholding financial statements of the companies they were negotiating about. They are seeking unspecified damages.

The Barneses and BBA denied the allegations, and that case is pending.

 

 

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