Challenge, Dave House Continue To Battle In Courts

CHATSWORTH, CA (BRAIN)--The legal battle between David House and Ed Schenpf, House's former employer and president of Challenge Publications, continues and it seems to get more confusing every day.

On Sept. 24., House and his attorney Joseph P. D. Kern squared off against Schnepf's attorney, Keith M. Gregory, before Judge John P. Farrell in the North Valley Chatsworth Courthouse of the Superior Court of California, County of Los Angeles.

Afterward, both sides declared victory. But it may take many more appearnaces in court before a real winner can be named.

In a press release sent to the industry, Schnepf said the judge "issued a ruling allowing Challenge Publications, Inc. to expand its multi-faceted, multi-million dollar lawsuit against former employee Dave House and H3 Publications."

Schnepf alleged in a July 28 lawsuit that House illegally converted Challenge advertising contracts for his personal use while still associate publisher of "Mountain Biking" and "Flow." Schnepf also alleged that former employees Ralf Hauser, Scott Hart and Marc Jordan, as well as House stole a variety of Challenge property when they left the company. House left Challenge on July 8. Hauser, Jordan and Hart left on July 17.

"This is a very important ruling. The injunction allows us to prove that Dave House conspired to convert valid Challenge contracts to his own use while still a Challenge employee," Schnepf said in the release.

Schnepf's Sept. 26 press release also said the judges' ruling "forces defendant House to place all monies received by H3 Publications form advertisers in escrow."

It implied that House and his new publishing company, H3, will be forced to operate indefinitely without a revenue stream. H3 recently released copies of the first issues of "TwentySix," "Decline" and "Road" magazines.

House and attorney Roberto Orellana, who is supporting Kern in the case, strongly disagreed with Schnepf's claims. "It's all false," Orellana said.

On Friday morning Orellana faxed a formal demand for a retraction to Gregory's office. "The release is false and intended to mislead H3's clients and directly contradicts the court's actual orders of 9/24/03," the letter read, in part.

According to House and Orellana, the attorneys on both sides met outside the courtroom and agreed that all claims against Hauser, Jordan and Hart would be dropped and that Challenge would reimburse each man $250 for court costs within 10 days.

In addition, they agreed that claims against House would be dismissed unless Challenge could prove that House sold advertisements for H3 while still an employee of Challenge.

Court documents seem to back up Orellana's claims. As do Kern's notes of the agreement, which Kern and Gergory signed and which were entered into court records. Those records will be available to the public within two weeks.

Kern's notes read, in part: "All revenues, if any, to H3 derived from ad solicitations communicated to customers of Challenge by House before July 8, 2003, shall be deposited in an interest bearing bank savings account requiring signatures of Keith M. Gregory and Jospeh P. D. Kern as trustees for Challenge Pub. Inc., and H3 Pub. Inc., subject to withdrawal by H3 upon showing of necessity to cover business expenses at H3. Or order of court."

"All it does is require Dave House and H3 to put any monies from solicitations entering into contract before July 8 into an escrow account until the court can determine if the monies should go to House or Challenge," Orellana said. "It also allows Challenge the opportunity to prove that Dave solicited its customers before July 8. But there are no monies, because Dave waited until after July 17 to sell the magazine. Even if there were, H3 can access the money if it needs funding to operate," he added.

Bicycle Retailer and Industry News left a message on attorney Keith Gregory's answering machine requesting an interview. He did not return the call.