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Entercom Reacts to USTN Lawsuit

After failed buyout negotiations, USTN alleges “fraudulent inducement, breach of fiduciary responsibility and misappropriation of trade secrets”

Entercom Communications announced that the company has ended its formal relationship with United States Traffic Network, but USTN says “not so fast!”

In fact, USTN filed a lawsuit against Entercom Friday in the 269th District court in Harris County, Texas. The court filing alleges that Entercom was in talks to buy USTN but backed out at the eleventh hour and then accused the company of “fraudulent inducement, breach of fiduciary responsibility and misappropriation of trade secrets,” according to a statement released by USTN. Furthermore, the suit alleges that Entercom benefited by actions that ultimately damaged USTN.

According to USTN’s statement, “Defendants on July 25th, sent written notification that the $1,300,000 payment had not been made, and that plaintiffs were in default under the April loan agreement. Defendants did this knowing that the deal had not closed on the 24th, knowing that under the terms the loan was to be rescinded, and knowing that they had repeatedly instructed plaintiffs to not seek additional financing, raise additional capital, or even hire an investment banker.”

With that in mind, USTN, as represented by Dallas law firm Sessions Fishman Nathan & Israel LLC, is seeking “material and punitive damages in excess of $5,000,000,” the company said. The case will be tried before Judge Dan Hinde.

[Read more: Entercom Takes Equity Stake in Traffic Provider]

In turn, Entercom released its own strongly worded statement, characterizing the lawsuit as “baseless, frivolous and frankly insulting.”

The statement also confirms that Entercom does indeed plan to sell “traffic and other short duration advertising” — as the broadcaster has done “on its own for many years,” according to Entercom, perhaps addressing the allegations that the company stole trade secrets during the course of its negotiations with USTN.

In the announcement, Entercom President and CEO David Field said, “We are relieved to no longer be mired by the difficult USTN situation that was inherited as part of the CBS Radio merger. We will move quickly to augment our strong internal sales organization to ensure that we realize the full value of this inventory.”

That was a significant change in tone from his statements in early May, when Field was quoted saying, “We are pleased to announce our new partnership with USTN. Their new management team has moved quickly to fix their issues and establish a solid business model following the company’s separation from its former corporate parent. We look forward to participating in their future growth as they capitalize on the significant opportunities in this attractive market segment.”

That statement was also preceded by Entercom taking back some of inventory from USTN, as Entercom notes in its more recent statement.

Entercom’s actions were foreshadowed by the company’s Q4 earnings report. In March, Randy Stine reported that “Entercom suffered a $4 million write down of revenues in Q4 related to its contract with United States Traffic Network;” in 2017, USTN provided about 2% of Entercom’s net revenue. However, in March, Field also indicated Entercom was then “currently negotiating with them on a new beneficial arrangement” and also “ working on alternative paths to mitigate the losses if USTN fails.”