By Steven Feldman
HICKSVILLE, N.Y.—The World Floor Covering Association ( WFCA) on Nov. 16, filed suit in Los Angeles against Bridgeway Media Group over the management of its joint venture Creating Your Space (CYS), which was created to develop and market Web sites to WFCA members and potential members.

CYS was set up with WFCA investing $1 million for 40% of the stock and a new Web site. For its part, Bridgeway was to provide all the technology and know how to develop the retail Web sites. It was also to manage CYS and produce the Web sites under a service agreement for a monthly fee.

But according to the WFCA, it discovered in 2008 that Bridgeway was paying itself more than the agreed-upon management fee. Specifically, it claims beginning in 2007, Bridgeway started to pay itself for third-party expenses that were included in the original pro forma budget Bridgeway prepared. In addition, WFCA claims Bridgeway included in its own income, instead of CYS’ income, payments from floor covering manufacturers and retailers, all of whom were members of WFCA.

Finally, the association claims Bridgeway was charging CYS for services performed for Bridgeway’s countertop and homebuilder customers.

Chris Davis, president and CEO member of the WFCA, along with member Aaron Pirner, met with Bridgeway over the course of several months at the end of 2008 and beginning of 2009 to negotiate a resolution of these issues. While an agreement in principle was reached on three key changes, Bridgeway rejected the written draft agreement.

As a result, WFCA was forced to file formal demands to the CYS board to take corrective action and to Bridgeway to cease from its misappropriation of CYS funds and assets. A CYS board meeting was held Sept. 29, at which the six Bridgeway-appointed directors refused to take any action to enforce its rights against Bridgeway, the WFCA says.

WFCA claims it then agreed to negotiate a resolution of the issues. It was agreed that Bridgeway would review and edit WFCA’s earlier draft of the agreed upon changes, but that the key changes were not to be revised. Bridgeway’s proposed revision abandoned all three agreed upon changes.

“We tried for over a year to get this resolved,” Davis said. “A lawsuit is never the first course of action. It is only after exhausting all other options do we file suit. We have to protect CYS from Bridgeway’s misappropriations and mismanagement, as well as WFCA’s investment in CYS.”

The lawsuit names as defendants Bridgeway and the six Bridgeway-appointed directors of CYS: Michael Vogel, Micky Blackton, Jeff Flegel, Ike Gulesserian, Larry Kay and Wayne Wiles. It seeks repayment from Bridgeway of the misappropriations of CYS funds, business opportunities and assets, as well as all costs and legal fees. In the alternative, WFCA seeks rescission of the Joint Venture Agreement and return of the $1 million investment it made.

Vogel told FCNews that WFCA declined Bridgeway’s overture to go to mediation and remains willing to engage the association in discussions about resolution at any time. He also noted that CYS was profitable in both 2008 and 2009 despite the economic downturn and WFCA’s lack of marketing support over the last year.

“Bridgeway has just recently been served with the complaint, but the disputes it raises are internal disputes regarding the governance of CYS, a joint venture between the WFCA and Bridgeway,” Vogel said. “These disputes have nothing to do with CYS’ performance of its services to members of the WFCA. In fact, WFCA members have been uniformly satisfied with the services provided to them by CYS. Bridgeway and the other named defendants reject the allegations in the complaint and intend to vigorously defend themselves in the matter.”