Small Business

New barter group begins: Rival files suit claiming execs stole trade secrets

April 25, 2005

A new association offering business owners an opportunity to barter their services among a network of company members has arrived in the city, but not without a legal challenge from a competitor.

Tony Sandlin and David Treacy founded Barter Indiana Group after working on a contractual basis at rival Henry Street Trading Co. The two barter organizations and another in the city, the Californiabased franchise BXI Exchange Inc., coordinate the exchange of services among members without involving cash.

If a printer needs a new roof, for instance, a roofing company might do the job for $20,000. But rather than the printer paying for the work, the roofing company's account is credited the dollar amount that it can use to barter with another member business. The printer's account, meanwhile, is deducted the dollar amount. To compensate for the shortfall, the barter organization acts as a sales team to shop the printer's services to potential clients.

A commission fee on each transaction is standard in the industry. BXI and BIG charge 10 percent. Henry Street takes 9 percent on the "buy" portion only. Vickie Reynolds, area director for the local BXI office, forwards her fees to the corporate office in California.

"Cash is still king," said Sandlin, who warned that companies should barter no more than 10 percent of their annual revenue. "Bartering is just to fill the gaps or to get new clients. We're basically another financial institution for them."

BIG signed its first member in February and now has about 75. Henry Street has 375 members, while BXI has 200.

The startup is targeting small businesses with 10 or fewer employees and wants to have 300 members by the end of the year. But the manner in which it's operating is the crux of a lawsuit brought Dec. 29 by Henry Street.

The complaint pending in Marion Superior Court accuses Sandlin and Treacy of taking their former employer's trade secrets, including a customer list and other items of value to the organization, to launch their business. Henry Street also claims breach of contract; fraud and misrepresentation; interference in business relations; conversion; and misappropriation of trade secrets.

"There's nothing illegal in starting a business," said James Smith, lawyer for the plaintiff. "But we're alleging the Henry Street customer list and other trade secrets were misappropriated by Sandlin and Treacy."

Jennifer Graham, counsel for the defendants, has filed motions to dismiss most of the claims, and a hearing is set for May 9 to address the fraud charge. She sent a letter to Smith requesting he drop the allegations involving trade secrets, she said.

"The customer list has not now, and has never been, [considered] a trade secret," Graham said. "Henry Street, on a weekly basis, sent e-mails out to 4,000 or 5,000 people with some of their customer names. So you can't claim it's a trade secret if you're telling everybody what it is."

The pair have agreed to not use the information in dispute while the case is pending, according to court documents.

Sandlin, who is president and CEO of BIG, went to work for Henry Street as a sales broker in January 2003 and became president in May 2003. Treacy came aboard in August 2003 as controller. Henry Street terminated its relationship with the two Dec. 21, according to court documents.

Sandlin and Treacy had sought to purchase the company from former owner Dennis Watson, who brought the lawsuit on behalf of Henry Street before selling to new owners Feb. 1.

During its first few months in operation, BIG has coordinated about $50,000 in trade and hired a saleswoman to boost membership. Henry Street, meanwhile, bartered almost $2 million worth of business last year. BXI's Reynolds declined to divulge how much BXI bartered here last year.

BIG itself has bartered enough services, Sandlin said, to enable it to hire an employee six months earlier than operators envisioned. Through bartering agreements, BIG received embroidered shirts, and printing, advertising, consulting and Web-site services, Sandlin said.

To get its name out, BIG has joined the Greater Indianapolis Chamber of Commerce and the local chapter of Business Networking International, and is a sponsor of the Rainmakers business networking organization. It, as well as Henry Street, is a member of the Cleveland-based National Association of Trade Exchanges, which counts 78 associations as members.

Sandlin received his certified trade broker designation from Tom McDowell, NATE's executive director, by completing a mandatory certification course, written and oral examinations and other requirements. To be eligible for the certification, a person must possess at least two years of brokering experience with a trade organization.

Despite the lawsuit, McDowell said he thinks Sandlin and Treacy can be successful. Reynolds concurred.

"One trade company will never have everything a member will need," she said. "Our city has over a million people in it. We certainly have room for another trade company. That's what we need to be focused on-what benefits our members."

Added Shannon Pence, Henry Street's director of operations: "If we take care of our customers, I'm not worried at all. There's plenty of business for everybody."

Besides the 10-percent commission on transactions, BIG charges each member a one-time, $195 application fee and a monthly $15 fee to cover administrative costs. The national rate to become a BXI member is $595, but the current promotional rate is $295, half of which can be paid in trade, Reynolds said. BXI charges a monthly $10 accounting fee. The corporate office tracks all transactions. On average, Henry Street charges new members $199 to join followed by a monthly $25 fee, which is comprised of $10 cash and $15 worth of trade.

BIG will host an official grand opening at 5:30 p.m. April 27 at Track Attack on North Shadeland Avenue. It's bartered, naturally.
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