By Ray Schultz
Housed in a former social services building, the U.S. Bankruptcy Court in Brooklyn, New York lacked ornamentation and anything describable as a courtroom. Still, it served for the drama that took place three days before Christmas in 1992. Lawyers gathered in a low-ceilinged room to decided who would get an asset that was depreciating in value even as the price was going up: A mailing list of 28 million American households, including intimate details on bodily functions.
Computerized Marketing Technologies had been the work of Barry Wolf, an affable man with a gravely voice. The son of an ex-prizefighter, himself the veteran of several club fights, Wolf never went higher than eighth grade in school. But he rose from a job as trucker in his home town of Los Angeles to an assistantship in the back room of an advertising agency, and finally to an executive position with Nielson, the surveying company. Then Wolf went into business for himself, building a nationwide network of penny saver newspapers and a private system that not only distributed the papers but also took on side jobs like delivering product samples for manufacturers. Then he realized something that had eluded the geniuses on Madison Avenue: That non-smokers resent having cigarettes dropped on their doorsteps. So Wolf devised the idea of putting little signs on houses the day before a big sample drop, asking them if they wanted the cigarettes.
By the early 80s, R.J. Reynolds was paying 50 cents for the name of each smoker. To find them—and dog owners—Barry relied on a home truth: that to find out the most personal details on people, you only have to ask.
In the fall of 1982, several hundred thousand housewives opened their Sunday newspapers to find a new insert packet called Select ‘N Save, filled with discount coupons. Wolf financed this with the proceeds from a real estate deal and the sale of his newspaper company. Those who rifled through the insert found a questionnaire, advising them that they could get free samples by answering a few simple questions. Roughly 20 percent of the people who got it filled out the form, and it apparently didn’t bother them that they had put on a stamp to pay for the return postage.
Soon, Wolf had enough names to start regular direct mailings. The mailings fed the surveys that fed the list that fed the mailings.
“Not only did we know who had a dog, we had it down to who had a Rottweiler,” bragged the late Bart Loring, the mailing list manager of CMT.
The list, which soon included 20-million families, was too valuable to be wasted on Select ‘N Save mailings. Wolf decided to see if they could make a buck through the traditional list rental channels, at first assigning management to Bob Castle, then bringing it in-house, under the trade name Behaviorbank.
The pharmaceutical houses wanted to reach these consumers, too but they needed to know more about them, so CMT started loading up the survey forms with medical questions. Soon, they had “suffer from” data on 15-million households, as in “suffer from heart disease, suffer from diabetes.” Some of the numbers were:
- Bladder control and incontinence—1.8-million
- High blood pressure—1.2-million…
- High cholesterol—2.7-million
- Heart disease—870,000
Unfortunately, the company started having cash-flow problems. To secure a berth in a Select ‘N Save package, even the biggest clients had to pay postage in advance, but CMT was not a good manager of such monies. Quaker Oats filed a lawsuit, alleging that “Quaker funds may have been converted to CMT’s own use and comingled with CMT’s own funds.”
CMT settled that suit for $844,000, and gave Quaker a security interest in 18-million of “the most recently added consumer names, with mailing addresses and appended demographic, psychographic and product usage data.” Then CMT decided it might as well do the same thing with its printer, Webcraft, to which it owed $1.4-million: it gave Webcraft printer a copy of the database. Webcraft filed suit, seeking to turn its physical possession of the database into full legal possession. Why not? It was paying storage charges on 97 tractor-trailers filled with tons of CMT circulars.
CMT could well argue that the people on the list had volunteered their family information. But those parties couldn’t have known that their data would be handed to Quaker and Webcraft.
At one point, CMT also owed $434,000 to Campbell’s Soup, $229,360 to Coca Cola, $491,800 to General Mills, $505,079 to General Goods.$321,950 to Philip Morris; $489,266 to Pillsbury and $558,233. Miles Inc. Quaker sued, claiming it had never gotten the survey responses it deserved. “The loss of data (totals) at least $1.50 per each respondent,” it said. “Quaker believes one-million respondents returned surveys, therefore Quaker is damaged to the extent of at least $1.5-million plus interest.”
The only option for CMT was bankruptcy. Albert Togut, the lawyer for the creditor’s committee, had to unravel it all, and there was little precedent to go on because the courts were not used to evaluating the value of databases. Fortunately, the CMT leaders were willing to assist in the setting of a price. They presented as an impartial expert, Donald W. Binns, who sent a resume to the court saying that “I possess the necessary skills and expertise which have developed over the last 15 years.”
There is no question that the charming, smooth-talking Arkansan Binns was an expert on CMT’s assets: He had, through his company Infomedia, placed millions of inserts in the Select ‘N Save packages on behalf of the mail order insurance company Colonial Penn. Binns was one the great hidden movers of Data Land. His resume stated he was responsible for “Development and construction and ownership of one of the first multi-source national consumer databases which totaled over 100-million consumers..” He worked for the Jimmy Carter campaign in 1976, and through his company DataTron did direct mail work for the Democratic National Committee and gubernatorial races in Louisiana and Florida.
In addition, Binns helped the National Rifle Association build its database. And he and a partner put together the JC Penney Age File, with exact dates of birth on 45-million people. JC Penney itself made crude use of this asset, sending a birthday mailing saying, “It’s your 41st birthday.”
Thus credentialed, Binns came up with a price for the CMT database $3.5-million. That price was tendered to the most likely buyer: Metromail. That company had been founded in 1947 by O..E. McIntyre. In a campaign for Reader’s Digest (““If thou hast two “If thou hast two pennies, spend one for bread, and with the other buy hyacinths for the soul”), the company had to acquire 100 million pennies and insert two each into the mailing pieces, and the sheer weight almost collapsed the floor of its Long Island plant.
In 1966, by which time the firm was being run by McIntyre’s sons, they were approached by John Kluge, the German-born founder of the Medtromeia TV network, who was trying to create a multi-media empire. They sold it to him, and he renamed it. Later, the company was spun off, and it was now eager to buy the remains of CMT at a good price. The $3.5 million deal had lucrative employment contracts thrown in for Wolf and Andrew Goldstein.
Togut objected, saying the offer was ” ridiculously low”—the creditors would take a “bath while the debtors’ principals had found the pot of gold,” he argued. By December, the Metromail offer was up to $5.6-million, and the company put up $600,000 as a down payment. It looked like a sale, and there was a holiday atmosphere in the court.
“What happened to you?” Togut asked Kelly Cornish, an attorney for Metromail.
“I lost my voice.”
“Oh, I hate that.”
But there was one party who wanted to disturb this joyous set piece: Leslie A. Plaskon, a lawyer for Metromail’s competitor Donnelley Marketing. Hilton sensed the minute she stood up that there was a problem.
“Do we have a buyer willing to buy and a seller willing to sell?” the judge demanded.
“We sure as hell did,” Togut said.
“What more do I have to hear?”
Plaskon tried to state her case. And yet even she could not say what was on her mind.
“I would rather not go into the details of the claim,” she said. “I think the debtor would rather I did not.”
“No, no, no, I have nothing before me regard to that claim. I have no pleadings,” the judge countered. “Nobody has witnesses.”
Donnelley was one of the three data compilers in 1992, the other one being R.L. Polk. Despite competing, the compilers cooperated with each other and there was a steady flow of data back and forth. For example, there was the Age Consortium, an arrangement through which the companies shared the costs of gathering age data from driver’s records–each firm took certain states, and all received the data. And they were forming the Children’s Consortium.
Donnelley had been around in some firm since 1917. It 1946, it published a demographic map of Philadelphia, in which the “colored” area was shown in brown.
Donnelley, aware that the sale CMT was going to give its arch-rival Metromail a database dimension it now lacked, started pondering a counter-offer for an asset it didn’t want. But it now had a more serious problem, and Plaskon finally got it out.
Donnelley had found, through an employee who had worked for Don Binns, that part of its own Share Force database had ended up in CMT’s database, and it now claimed an ownership stake in the asset being sold. The deal was coming apart at the seams.
The alarmed Metromail people countered that this claim could “cost this estate a substantial amount of money from a competitor who we believe would like nothing better than to, in my best French, screw up the sale.”
“That is not a resolution,” said the judge of the Donnelley claim. “That gives Donnelley a $6.2-million stick. I am not going to give anybody that size stick.”
He added that unless it could be resolved, the matter would have to be litigated. And the earliest possible date would be the following March.
“I am planning on being in hits courthouse about another hour and a half,” the judge added. “If you have a proposed order for me within that time I will be happy to consider it; if not I am simply going to adjourn this hearing.”
With millions riding on it, the parties recessed briefly to work it out. Donnelley, still convinced that its data was misused, was aware, of course, that some of angry creditors were clients or potential clients.
For his part, Togut had said, “We want their money, you bet.” He knew that the value of the CMT database was declining by the day—it had not been updated in two years. Cornish, too, hoarsely stated that she wanted to resolve it. So they brought Andrew Goldstein to the stand when court was resumed, and he was ready with answers.
“Did you obtain a file from Infomedia?” he was asked.
“We obtained a file containing names and addresses of consumers of about 40 to 50 million and we were told by the president of Infomedia, Don Binns, that this was a list that was compiled from many sources, including names from Share Force by Donnelley Marketing.
“Share Force was a database?”
“That database was owned by Donnelley Marketing?”
“Mr. Binns was in court this morning?”
“And Mr. Binns made these representations to you this morning; correct?”
“At the time you got the 40 or 50-million names from Infomedia it was over a period of time, wasn’t it?”
“No, we got the list basically all at one time.”
“Were there other so-called databases besides the Share Force database in those 40- to 50-million names?
“Have you returned all those copies of those computer tapes?”
“What did you use the information on the computer tapes for, and make the assumption that encompassed in the information as part of the Share Force database?”
“We took that database along with several other databases and used them for verification of names and addresses. The purpose being that if a name and address appeared on more than one list it was more likely to be a correct name and address.”
“Did Mr. Binns (or Infomedia) represent to the debtor that you had the right to use the tape — i.e., the database, the 40 or 50-million names, to do a verification of the names and addresses?”
“Did you use it for anything else?”
That one word settled it. Donnelley realized it had allowed its own data out the door—and it soon stopped doing so.
“Your honor, in consideration of the receipt of this testimony Donnelley Marketing Inc. hereby on behalf of Donnelley Marketing hereby relinquishes any and all claims against the assets being sold and withdraws its objections to the sale of assets so the assets maybe be sold free and clear of any and all claims,” the Donnelley lawyer stated.
That nailed it. Everyone thanked the court.
A data business insider referred to such shenanigans as “the Manhattan shufle,” although none of this took place in Manhattan. Binns continued in the trade: A few years later during a trade convention, an acquaintance commented, “He’s not down here on the floor, but I bet he’s in a room somewhere in this hotel, doing business.”
Metromail ran into trouble when a client named Aristotle Industries sued it for illegally using the voter registration lists Aristotle had hired Metromail to enhance.. As exposed by the Wall Street Journal, the company had incorporated voter information into its database from states that prohibited commercial use. Also, it lied to consumers during telephone calls, saying it was conducting a survey on ice cream preferences. There was no survey—this was strictly a way of confirming names and addresses. John Aristotle Phillips, the owner of Aristotle Industries, owned a few shares in Metromail and continued hectoring it as a shareholder. He also teamed up with the father of the murdered child Polly Klass, who claimed that lists such as Metromail’s helped fiends like his daughter’s killer find their victims. And Metromail utilized prison workers to call people at home, one of whom allegedly made suggestive comments to a female consumer. Metromail, its dirty underbelly exposed, was gobbled up by another company. But all that was a few years in the future.
As for CMT, the formal closing of the bankruptcy sale took place on Dec. 30, 1992 at Metromail’s offices outside of Chicago. Some $5.6-mllion was wire-transferred into a special interest-bearing account. On Jan. 26, 1993, several hundred magnetic tapes—the entire CMT database—were shipped to Metromail’s data facility in Lincoln, Nebraska. Later, they threw in CMT’s office furniture for $26,000.
Chapter 35: The Godfather Of Spam