Lowe, breakaway shop lock horns

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A New York state Supreme Court judge Nov. 1 denied a request by Lowe Direct for a temporary restraining order against five executives who left the unit of Lowe & Partners/SMS in mid-October to form a rival shop.

The request was part of a lawsuit Lowe filed last week that also seeks compensatory and punitive damages of more than $50 million. According to the suit, the new agency already has poached Lowe Direct's $15 million Merck account and may win two more.


Roche Laboratories has been waiting to see if Lowe can adequately replace lost staffers before deciding the fate of a $45 million account for its anti-obesity drug Xenical. And Dell Computer Corp. has awarded the fledgling agency a fourth-quarter direct mail campaign and may review its entire direct account early next year.

The new agency--Lieber, Levett, Koenig, Farese & Babcock--was formed the week of Oct. 14, one week after Lowe announced it had won the Xenical account. A contract on that account was never signed (AA, Oct. 28).

Lieber Levett and its lawyer, Richard Kurnit of Frankfurt Garbus Klein & Selz, New York, said Lowe doesn't have grounds for the suit. The breakaway shop is planning to countersue.

J. Robert Lieber, CEO of Lieber Levett and formerly CEO of Lowe Direct, said none of the five founders of the new agency signed non-compete agreements while at Lowe.

The lawsuit from Lowe, a unit of Interpublic Group of Cos., makes no mention of contracts. However, it alleges breaches of loyalty and fiduciary duties, as well as other counts including misappropriation of confidential information and unfair competition.


Besides Lieber Levett's five principals, 10 other Lowe Direct employees have joined the breakaway agency, reducing Lowe Direct's staff from 63 to 48, Lowe's lawsuit says.

According to Lowe's suit, Dell wrote to Lowe Direct Oct. 21: "As you know, [Lowe Direct employees hired by Lieber Levett] comprise virtually the entire account team that worked on Dell. The ability of Lowe Direct to provide adequate services to Dell is dependent on the knowledge and experience that the team has acquired respecting Dell and its projects."

An executive familiar with Dell's plans said the computer marketer is considering reviewing its entire direct account early next year. Goldberg Moser O'Neill, San Francisco, part-owned by the Lowe Group, handles Dell's ad account.

Lowe's lawsuit alleges that the principals of Lieber Levett began planning a breakaway nearly two years ago, and that since then they have conducted secret meetings in an office they leased around the corner from Lowe nicknamed the "war room."


Mr. Lieber said Lowe's allegations "are all very surprising because we'd been in very intense negotiations for 16 months about long-term employment with [Lowe Direct] and the structure of the company."

Mr. Lieber said discussions concerned his spending the next five years as the lead manager of a distinct direct department that could serve both direct-only and integrated clients for Lowe. He added that Harry Koenig, a former chief operating officer of Lowe Direct who holds the same title at Lieber Levett, and Paul Levett, former Lowe Direct president-executive creative director and now vice chairman-creative director at the new shop, also were discussing their contracts during this period.

Lowe's suit also alleges that dozens of boxes and computer tapes loaded with confidential and proprietary materials have been ferreted out of the agency in recent weeks.

The turning point of discussions about Lowe Direct came on Sept. 30, Mr. Lieber said. That day, he said, a memo was distributed internally about the unit's integration into Lowe & Partners/SMS.

"It was a dictate from Frank Lowe," chairman-CEO of Lowe Group, Mr. Lieber said.


Of his new agency's formation about two weeks later, Mr. Lieber said, "the precipitating cause was their announcement to fold the structure into Lowe & Partners."

"We're definitely in a pitch mode," Mr. Lieber said of his new agency. "We're trying to build an agency right now, and some of that will involve taking clients in categories where we've worked before."

According to Lowe's lawsuit, Mr. Lieber flew to Texas to pitch the Dell account Oct. 15, one day after handing in his resignation and two days before that resignation was accepted.


Another hearing is set for Nov. 25. At that time, the judge will hear arguments on Lowe's request for a preliminary injunction.

Regarding the denial of a temporary restraining order, Bernard McCarthy, an attorney with Chadbourne & Parke representing Lowe, said: "It's not surprising. These things are always hard to get. But it was merely the first round."

Contributing: Alice Z. Cuneo, Bradley Johnson and Michael Wilke.

Copyright November 1996, Crain Communications Inc.

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