The new owners of Cindy Allen’s former business, ETA Advertising, have sued the Long Beach City Council candidate, arguing she misled them and breached the terms of their contract when she sold the business.
Allen, who is running to represent Long Beach’s Second District in the Nov. 3 election, said in a written statement that she has not been served with the lawsuit and “can’t comment on anything I have not read yet.”
Still, Allen defended the sale and denied that she made any misrepresentations. She said she provided full transparency throughout the process and fulfilled the terms of the contract.
“The entire transaction selling ETA Advertising was aboveboard and full disclosures were made,” she said. “The buyer performed their own due diligence and had full access to the books and bank accounts long before the close of sale in July.
“Please keep in mind,” she added, “that people can write anything they want in court filings and it does not make it true.”
The lawsuit, filed Monday, Oct. 5, with the Los Angeles County Superior Court, was first reported by the Long Beach Fourth District Blog.
ETA’s current owners, Ivana and Dominic Cummins, argue in their complaint that Allen told them during a May 14 meeting that she had not applied for a federal Small Business Administration Economic Injury Disaster Loan for the business — a loan the Cumminses said they planned to apply for once the purchase was complete and that “would be necessary to revive and for the success of” ETA Advertising. If Allen had applied for the coronavirus-related loan, according the complaint, the new owners knew the business would not be eligible for a second one.
On July 20, the Cumminses — with a business plan that included receiving the loan — closed on the sale of ETA. (Apart from the lawsuit, the campaign of Allen’s opponent in the Second District race has argued that Allen has not actually sold her business. The Monday complaint makes the sale contract public for the first time.)
But during the week of Aug. 3, according to the complaint, the new owners began learning of relevant financial and employment information that Allen should have disclosed prior to the sale but, they say, she did not. Among the pieces of information they say Allen misrepresented was that she had applied for and received a $29,000 Economic Injury Disaster Loan from the Small Business Administration.
The Cumminses also learned of $22,615.37 in vendor invoices, $67,848.22 worth of missing company equipment and employee agreements for the rescinding of $44,004 worth of temporary salary cuts, according to the complaint. Allen, the complaint said, did not disclose any of those.
The lawsuit also argues that Allen “failed and refused to provide audited and unaudited financial statements for the advertising firm, contrary to the terms of the parties’ agreement.”
The sale contract, included in the lawsuit, stipulates that Allen’s representations of the business to its new owners did not contain “any untrue statement of a material fact” or omit any material facts.
The Cumminses, according to their complaint, believe Allen breached that portion of the contract. If the new owners had known about the information they discovered after the sale, the lawsuit says, “they would not have executed and closed on the” agreement.
But Allen said she made all the necessary disclosures. She also said that, despite descriptions to the contrary laid out in the lawsuit, “ETA Advertising was a successful advertising agency when I was running it.”
She reiterated that her experience as a business owner positions her well to represent the Second District on the Long Beach City Council.
“As a former business owner, I know how challenging it is to build a business even in the best of times, and it is even more difficult during Covid,” Allen wrote. “I was proud of the successful business I built and I am sad that the new owners are apparently struggling.
“I am proud of my track record of building businesses from the ground up here in Long Beach,” she added. “I saw bringing good paying jobs to Long Beach as a continuation of my long history of service to Long Beach.”