Story of the Day Replay: AVN, Paul Fishbein Being Sued by Babenet Over Internext Loan

The allegation I particularly like is the one where Babenet says that while other companies were being given free exhibitor space they, in essence a partner, were being zapped 25 G’s per Internext Show.

The other irony of this story is that AVN’s Darren Roberts, a former employee of Gallagher’s, is the one instrumental for bringing this deal to the table in the first place.

Porn Valley- In a story that has its roots going back to 1999, AVN and Paul Fishbein are being sued by Babenet’s Jack Gallagher. Gallagher filed the suit on October 19th in the Superior Court of the State of California alleging fraud and breach of contract among other issues.

The lawsuit stems over a $300,000, five-year loan Gallagher made to Fishbein which would allow Fishbein’s Teddy Communications Inc. [TCI] to acquire the Internext Trade Show. TCI, a Pennsylvania corporation, is also named in the suit.

According to the allegations, Babenet and TCI had a written agreement by which in exchange for the loan, Babenet, an Internet company, was to be paid 8% of the gross revenues, i.e., all receipts derived by TCI, collected from the operation of Internext then known as IA 2000.

Also, according to the written agreement, Babenet was to receive no less than the “favored nations pricing” for exhibitor space at the show.
The suit goes on to say that after execution of the agreement, AVN periodically made payments to Babenet.

The payments were in the form of checks indicating the date of the show to which they were related and were accompanied by back up reports.

According to Gallagher, between the execution of the agreement and early 2008, Fishbein told Babenet reps- Gallagher, Rob Gould and Andy Garroni – that the back up reports accurately reflected the gross receipts as did the checks which reflected 8% of the gross receipts.

During that same period, Fishbein, according to Gallagher, also stated on multiple occasions that Babenet was paying as low a price for booths at the show as any other exhibitor.

Babenet, however, soon had reasons to believe differently according to the suit.

“The back up reports did not accurately reflect AVN’s gross receipts derived in operating the shows. To the contrary, actual receipts were greater.”

The suit also alleges that the checks Babenet got from AVN were substantially less than 8% of the gross receipts and that AVN “secretly” provided free exhibition space to other companies at the same time it was charging Babenet up to $25,000 per Show for space.

The suit, thus, alleges fraudulent concealment on Fishbein’s part, claiming that AVN had earned more gross revenue than it was accounting for; and that AVN and Fisbein had “induced” exhibitors and attendees of the Shows to migrate to other adult trade shows wholly owned by AVN in order to avoid paying Babet its 8%.

Babenet and Gallagher say that it subsequently had reason to believe the representations were false and that there was an attempt at concealment on Fishbein and AVN’s part.

According to the suit in April, 2008, Babenet got its first glimmer of what may have been allegedly going on. At a lunch attended by Gallagher, Gould and Garroni, Fishbein was supposed to have admitted that AVN was affording free exhibitor space to other companies while charging Babenet.

Fishbein was also supposed to have admitted that the gross receipts never reflected hotel room commissions, affiliated marketing, trade or barter and revenues from a spin-off show.

The suit is claiming that prior to the luncheon, Babenet, Gallagher and his associates had no idea this was happening.

Among its causes of action, Babenet is citing fraudulent misrepresentation and concealment, claiming that AVN and Fishbein’s conduct was “despicable, fraudulent and done in conspicuous disregard of Babenet’s rights.” To that end, Babenet is asking $1 M in the amount of damages.

Babenet is also asking $1M for breach of contract as well as $1M for breach of the implied Covenant of Good Faith and Fair Dealing. In the “Accounting” cause of action, Babenet is also petitioning the court to order a constructive trust on all funds held by Fishbein, AVN and TCI and is requiring them to return any amounts wrongfully required from Babenet.

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