Dealer files lawsuit against ADT for contract

Lawsuit awaiting approval from New Jersey court to become a class action claim
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Saturday, February 1, 2003

BOCA RATON, Fla. - Charging that ADT Security Services breached its contract when it informed dealers in August 2002 that it was limiting the number of qualified accounts it would purchase, a New Jersey dealer has filed a class action complaint seeking unspecified damages.

The complaint, filed in Camden County, N.J., on Dec. 23, 2002 alleges that dealers lost hundreds of thousands of dollars when ADT reduced the number of qualified accounts it would purchase by approximately 40 percent.

Stephen DeNittis, attorney for Spectracom Inc., the company that filed the lawsuit, said Spectracom lost “close to $300,000” as a result of ADT’s actions. It has since ceased to be an ADT authorized dealer.

While the complaint has not been officially certified as a class by a Camden County judge, DeNittis is hopeful that class approval will be given in the near future.

DeNittis did not name a specific figure that he would seek in damages, but said the figure would be based on a percentage of lost business.

ADT officials declined to comment on the lawsuit. Jay Stuck, ADT vice president of marketing and corporate communications, said it was not the company’s custom to make any comment regarding pending litigation.

At the core of the lawsuit is a directive from ADT dated Aug. 23, 2002 sent to ADT dealers which said “effective immediately, ADT will begin limiting the number of qualified accounts that it will purchase from the dealer network.”

DeNittis claims this was in violation of ADT’s contract with the dealers that specified that ADT needed to give 30 days notice before making any changes to the program.

“If you look at the notice it says ‘effective immediately’. That’s what was the harm; it’s difficult because a lot of these dealers couldn’t do anything,” DeNittis said. “They’re contractually obligated to sell their deals to ADT, their contract restricts them from selling deals to other carriers. The other carriers won’t do business with them if they don’t have a contract…which obviously they can’t because it breaches their agreement with ADT.”

John King, a security industry attorney in Wichita, Kan., said he feels ADT’s directive limiting the number of accounts it would purchase violated the dealer agreement, and gives the class action lawsuit merit.

“I think (ADT has) got some problems with that letter,” King said. “Not the least of which is that although the contract says ADT will purchase all the accounts it desires to purchase. It seems to me that if you’ve got an exclusive arrangement that the dealer has to give you all of his contracts, you have to at least review them and buy such accounts that are suitable, that’s what it says in the contract.”

King said that it is his opinion that the contract prohibits ADT from refusing to buy qualified accounts, even if they allowed dealers to sell them to other companies, “because that wasn’t the deal.”

“I think there’s an argument there, and a good argument,” King said.

One ADT dealer, who spoke to Security Systems News on condition of anonymity, said his business was severely impacted by ADT’s actions.

“My business is down 80 to 90 percent,” he said.

According to the dealer, ADT breached their contract when they refused to purchase certain accounts.

“They breached their contract because it said once our clients met a certain criteria…then ADT said they shall, that’s the key word to the whole contract, they shall buy the (account),” the dealer said.

The dealer feels that ADT breached their contract when they told dealers that they would lower the number of accounts that they would be purchasing. He said that the contract stated that if the client met ADT’s criteria, ADT would buy the contract.

Because he is still under contract with ADT, “but I don’t want to be,” the dealer said he is leery of taking legal action against the company, for fear of possible repercussions.