Ohio sues USA Baby stores

Ohio Attorney General Jim Petro has filed suit against the current and former owners of three Ohio USA Baby franchised stores charging that the stores violated the state's Consumer Sales Practices Act and Ohio's Layaway Arrangement Statute. Specifically the stores are charged with failure to deliver purchased merchandise, failure to provide refunds for undelivered items and providing substandard customer service.

Defendants named in the suit include current owner, Midwest Baby Group, LLC, and former owner James Lankey.

Midwest Baby Group, a separate entity from USA Baby, is a partnership between Scott Wallis, interim COO for USA Baby, Ron Eriksen, CEO USA Baby, and Jim Gullett, who resigned from the company in August.

"MBG took over the stores to get them back up to par," Wallis said. "We put Jim Gullett in as operations manager to oversee the day-to-day business."

According to Wallis, Eriksen is mistakenly named as a managing member of MBG in the suit because of an attorney error committed when the company was formed, which has since been rectified with the Illinois Attorney General's office, the state in which MBG is based.

"The documents that the Ohio court has are inaccurate from this standpoint," he said. "Also, Jim Gullett failed to fulfill the terms of his agreement with MBG and is no longer a member of the company."

Lankey owned the USA Baby franchised stores in Westlake, Cuyahoga Falls and Sylvania and in 2005 the state filed suit against him alleging violations of the Ohio Consumer Sales Practices Act. The Attorney General's office obtained a final judgment in April 2006 ordering Lankey to pay consumer restitution in the amount of $13,799.12 and a $400,000 fine.

Midwest Baby Group bought the stores back from Lankey in February/March 2006 and though court documents suggest MBG is responsible for assuming the customer deposit liabilities, including the liability of completing transactions or providing refunds to consumers purchasing goods or services from the former owner Lankey and including those consumers listed for restitution in the Lankey litigation, Wallis disagrees.

"Liability is still to be decided," he said. "I do not believe we are liable for another man's debt and we intend on proving this through our attorneys. I have no idea how the Attorney General can expect us to pay the restitution owed by Jim Lankey."

Wallis and Eriksen are silent partners in MBG but when Wallis became aware there were issues in the stores he started taking a more active role in the business, which increased in September after Gullett resigned.

"We are working hard to recover from some impossible situations in these stores; embezzlement, theft and associated problems," Wallis said. "Thankfully insurance will cover some of the problems but it doesn't make up for the loss of good will from our customers."

Petro filed charges on Dec. 11 and is asking the court to order the defendants to cease the alleged acts, stop doing business until a judgment is rendered and limit the amount of consumer deposits taken on ordered goods and require deposits to be placed in an escrow account pending delivery. He also is asking for the defendants in the previous Lankey case to reimburse all consumers, excluding those identified in the case, found to have been damaged up until the time MBD took over, for MBD to reimburse all consumers damaged since it assumed ownership and for $25,000 civil penalty fines for each violation described.