Defectors Agree to Pay $7 Million in Ad Agency Case

The advertising executives who caused an industry uproar 19 months ago when they defected from the Lord Geller Federico Einstein agency to set up their own shop have agreed to settle a legal dispute arising from the walkout by paying their former employer $7 million.

The agreement, reached Friday, brings to an abrupt and inconclusive end a series of legal claims and counterclaims, including accusations of business sabotage that had been closely watched by leaders in the advertising business.

“The settlement does not suggest admission of wrongdoing by any of the parties and is intended to avoid the expense and distraction that would accompany continued litigation,” the four firms involved in the case said in a brief statement announcing the settlement.

Those involved in the settlement are Lord Geller and its owner, WPP Group PLC of London, the new agency Lord Einstein O’Neill & Partners and its 49% partner, the ad agency Young & Rubicam.

Under terms of the settlement, Lord Einstein O’Neill & Partners will pay $7 million to WPP Group, the announcement said.

Six top Lord Geller executives, including agency founders Richard Lord and Arthur W. Einstein Jr., walked off the job unexpectedly on March 18, 1988, and promptly announced the creation of the new agency, Lord Einstein O’Neill & Partners. Young & Rubicam, a privately held agency, was their partner.

The defectors had been chafing under the management of WPP Group, which acquired Lord Geller only eight months earlier as part of its $566-million buyout of the advertising holding company JWT Group in July, 1987.

After the walkout, WPP filed suit against the defectors and their new agency, accusing them of trying to steal clients and employees from their old agency. A New York state court judge issued an order prohibiting such activity.

But Lord Geller lost a huge amount of business, as its billings shrank to $50 million from a pre-breakaway level of $212 million.

It lost several important clients, the biggest of which was the computer giant International Business Machines Corp. Lord Geller had established a reputation as a creative powerhouse largely because its work for IBM, including the campaign that used a Charlie Chaplin-like character using IBM office equipment to bring order to a chaotic business environment.

As of last March, Lord Geller executives insisted they had stabilized the agency, which employed about 100 people, down from 320 before the breakup.

Lord Einstein, on the other hand, had grown from nothing to an agency with about $75 million in billings and 82 employees after the first year.