The Humboldt Transit Authority offices in Eureka. | Photos by Ryan Burns.

A local advertising partnership called ADS in Motion last week filed a lawsuit against Humboldt Transit Authority (HTA) accusing the regional bus service provider of breach of contract and defamation, among other allegations. 

The suit, filed by Arcata-based attorney Eric Kirk on behalf of Charles “Chuck” Edwards and Ted Sheets, claims that HTA “arbitrarily” canceled a multi-year contract agreement in early August, causing Edwards and Sheets’ advertising partnership, ADS in Motion, to lose $105,000, nearly eight months of ad revenue through the end of March, when the contract was set to expire.

The suit also seeks nearly $90,000 in additional losses and damages, plus $400,000 for defamation. Specifically, the suit alleges that HTA General Manager Greg Pratt and Finance Manager Katie Collender falsely accused the ad company of acting unethically and attempting to cheat HTA of money through inappropriate overcharges. 

ADS in Motion is identified as “an unincorporated partnership” in the suit. The entity is affiliated with Eureka firm Advanced Display & Signs.

The lawsuit further alleges that HTA terminated the advertising contract with the intention of claiming the plaintiffs’ business interests as their own — effectively stealing away clients that Edwards and Sheets had spent years cultivating.

“I think it’s unfair,” Edwards said in a recent phone interview. “Truly, I think they’re greedy.”

HTA is a public entity operating as a joint powers authority between Humboldt County and the cities of Arcata, Eureka, Fortuna, Rio Dell and Trinidad. Nancy Diamond, HTA’s legal counsel, told the Outpost that she and the rest of the agency’s legal team were reviewing the complaint and couldn’t discuss legal strategy. However, she said, “I think HTA has always acted with enormous integrity. Otherwise I can’t respond to the allegations.”

While the lawsuit says more than once that HTA terminated the contract with ADS in Motion arbitrarily, emails obtained via a Public Records Act request show that HTA had been questioning the company’s billing practices for months.

On Jan. 31, 2022, Pratt sent Edwards an email saying, “I would like a better understanding of the income/expense listed on your monthly reports.” Over the next six months, Pratt exchanged numerous emails with Edwards and Sheets, asking them to explain and justify various charges.

Speaking with the Outpost, Edwards said ADS in Motion first won the contract to provide bus ads for HTA in 2008 and has since bid and won contract renewal every four or five years. 

He acknowledged that billing mistakes had been made by a former bookkeeper, though he said that he and Sheets were transparent and proactive about trying to rectify those errors. HTA, he said, refused to abide by a dispute resolution provision in the contract, which calls for “good faith negotiation” and, if that fails, third-party mediation prior to either side initiating legal action.

In Edwards’ telling, the bookkeeper (whom he did not identify) worked both for ADS in Motion and for a separate business operated by Sheets. Last January, Sheets discovered that this bookkeeper had made an error related to his own business, so he terminated her. She kept working for ADS in Motion, however, even though Sheets found out that during the pandemic she’d moved out of town without telling anyone.

“In our partnership I never handled the books; I always did sales or customer service,” Edwards said. “So I was insulated from the the financial aspect, and I was fine with that.”

He recalls receiving the January email from Pratt, in which the GM asked for an explanation for certain charges. 

“And so we inquired and found out that [the former bookkeeper] was actually confusing certain expenses with other counties that we do bus advertising for, and frankly she should not have taken those,” Edwards said. In other words, the bookkeeper had been passing expenses along to HTA that should not have been HTA’s responsibility.

“So, again, being totally transparent, I told Greg — I called him up, emailed him and said, ‘Hey, I just did an audit. Here it is. It looks like we owe you about $5,200, almost $5,300. And here’s a check.’ Well, that just seemed to whet his appetite to look deeper, which is fine. He started asking for more clarification.”

These requests for clarity appear in the emails obtained by the Outpost. The check that ADS in Motion cut to HTA was actually for $5,959.15, and in a February email to Pratt, Edwards said he and Sheets “are looking to continue on well into the future without any further hiccups. Thank you for bringing this matter to my attention so I could make it right.”

A couple weeks later, Pratt responded with a list of follow-up questions. The back-and-forth communication continued, and in April Pratt directly challenged some expenses and requested financial records dating back to 2018.

“I know that the Quickbooks report is a push of a button so I would like that now … ,” Pratt wrote in an April 14 email.

A few days later, Sheets responded to Pratt, explaining the reason for a delay in turning over the financial records: “When Covid started, my previous bookkeeper went to work from home and took our files with her. I could not access them for the last two years,” he wrote. 

Before signing off he added, “Lets [sic] keep the line of communication open, I have nothing to hide here. I don’t like funny business and would not do that as a rule.”

The email exchange continued through early June. Edwards said he and Sheets hired local accountant Richard Hutchison to go over their company’s finances “with a fine-tooth comb,” and sometime in June or July Sheets and Hutchison had an in-person meeting with Pratt and Collender of HTA.

Edwards said the meeting was contentious, and it ended with Pratt and Collender abruptly standing up and leaving. 

“Richard looked at Ted [and] said, ‘What just happened?’ We don’t know,” Edwards said. “And then it was just a few weeks later, we get a letter of termination from Nancy Diamond.”

The letter said the account was being terminated for breach of contract. “And so that was when we retained counsel,” Edwards said.

To him it feels like HTA simply decided to take over the business he’d built up over a period of years. Before ADS in Motion took over the advertising on local buses the ads “looked like crap,” he said. “They were all on metal trays that were attached … . And so we came in and removed all that and then started a whole different kind of approach to bus advertising.” They adopted sleek adhesive ads with material from 3M. Some of the ads wrapped entire buses.

“And we built it up all these years on our own sweat and brow and efforts. And it has not been without expenses because we guaranteed the signs for up to seven years.”

He and Sheets had plans to further improve the business, Edwards said. They were planning to install video screens inside the buses for digital advertising, opening up a whole new stream of revenue.

“It’s pretty devastating to lose a business that you worked so hard to build since 2008 — to have someone just come and go, ‘Mine!’” Edwards said. “It’s, personally, it’s — it’s very sad. I’m really sad.”

When Diamond was asked why HTA canceled the contract with ADS in Motion she replied, “It was an ongoing situation and I think, given that the lawsuit has been filed, I’m going to say we just can’t comment on that right now. But it was after a lot of internal investigation as well as back and forth with ADS in Motion.”

Asked why HTA didn’t enter into third-party mediation, as required in the contract, she said, “The mediation request was brought forward without [ADS in Motion] identifying exactly what was going to be mediated, and I never got a good response to that [question] from their counsel. So the board [of directors] was not able to respond in a direct way, so because of that they just declined the request.”

A case management conference has been scheduled for April.

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