Call it a big fight over tiny pictures.
Two entrepreneurs sue competitors, alleging bid-rigging, price-fixing and illegal monopolies. One federal lawsuit pits brother against brother. A grand jury subpoenas business records.
Sounds like a high-powered software dispute, but it isn't. It's a battle over 2-inch viewers containing beachside photos in Ocean City. The stakes? Rights to sell the slice of Ocean City kitsch that are worth hundreds of thousands of dollars.
In a lawsuit filed last month in U.S. District Court in Baltimore, Richard E. Wallace alleges that Gregory V. Ferrante and two of his relatives conspired in 1996 to capture the resort town's three four-year beach photography franchises.
"They took money out of my mouth and out of my pocket," said Wallace of North Potomac, who filed his lawsuit after learning of a similar one filed almost two years ago against Gregory Ferrante by his brother, Todd Ferrante.
Gregory Ferrante; his wife, Kathleen; and her brother Patrick O'Malley denied Todd Ferrante's charges in court filings. Messages left for the couple, and for a Patrick O'Malley in Ocean City, were not returned.
Robert Cary, Gregory Ferrante's lawyer, said it was his policy not to comment on pending litigation. Lawyers for Patrick O'Malley and Kathleen Ferrante did not return calls seeking comment.
The case could be getting more serious.
A grand jury subpoenaed records last June in Todd Ferrante's suit. In August, that case "was stayed pending the conclusion of related hearings," according to a judge's order.
On Tuesday, Ocean City officials will consider revoking the three franchises because the holders are each a month late with payments of more than $128,000.
In the lawsuit, Wallace said Gregory Ferrante, Kathleen Ferrante and Patrick O'Malley agreed to submit excessive bids between $642,000 and $648,900. To afford such bids, Wallace alleged, the three conspired to raise the prices of the telescope viewers by about 50 cents -- from $3.99 to $4.50 for up to two viewers and from $3.50 to $3.99 for three or more.
At the center of the debate is a little ritual that is as much Ocean City as Thrashers fries, Jesus sand sculptures and boardwalk trams.
Wally Wallace, a Baltimorean not related to Richard Wallace, started the telescope photograph industry in Ocean City more than 40 years ago.
"He was a desk clerk at a hotel in Miami when he picked up this telescope picture on the bar," said his widow, Ruth Wallace. "It was a picture of a naked woman. He thought, 'Why can't you take pictures on the beach and sell them?' "
Wally Wallace started his business by paying $750 for licenses for 10 college students to roam the beach, snap the photos and sell them later in telescopes for 75 cents apiece, she said.
Tourists hang the tiny telescopes from key chains and use them to mark summers past. But since Wally Wallace founded the business, it has grown huge.
The popularity of telescope photography grew so much that the mayor and City Council passed an ordinance more than 20 years ago requiring an auction for the franchises. The law allows each franchisee to put eight photographers on the beach.
In 1984, Gregory Ferrante and brothers Todd and Eric won all three franchises, bidding between $74,604 and $76,900. The next closest bid was $64,080. In 1988 and again in 1992, the franchises were awarded to Todd Ferrante, Gregory Ferrante and his wife, Kathleen. In 1996, Patrick O'Malley replaced Todd Ferrante as the third franchise holder.
In his lawsuit, Todd Ferrante argued that Gregory, the older brother, tried to exercise control over his business, grew jealous of Todd's profits -- $100,000 in 1995 -- and finally enlisted O'Malley to take Todd's place.
Todd Ferrante tried to fight back by shooting pictures for the telescopes in a boardwalk studio but, he says, Gregory Ferrante persuaded the manufacturer of the telescopes not to sell to him.
The Ferrantes' control of the franchises has long been suspicious to some Ocean City residents. A city councilman was quoted in 1984 as saying that he heard a local businessman brag about a "clean sweep" by him and the Ferrantes. That year, another person quoted Todd Ferrante, then a franchise holder, as saying, "Greg did it all."
Gregory Ferrante, 38, has denied any wrongdoing. In 1984, after Ocean City officials, suspicious of bid-rigging, tried to block him and his brothers from getting the franchises, the Ferrantes filed suit to keep the franchises and won.
Gregory Ferrante called the city's attempt unfair in an interview at the time. "What it amounted to was a personal attack against my brothers and myself," he told the Maryland Coast Dispatch.
He explained his high bid by saying that bids in prior years might have been artificially suppressed. On the relationship of the franchise holders, Gregory Ferrante told The Sun in 1993: "We are as competitive as we can be."
Peter Gunst, an attorney with the Baltimore firm of Astrachan, Gunst, Goldman & Thomas who represents Todd Ferrante, said he couldn't discuss the case because of confidentiality orders.
U.S. District Judge Marvin J. Garbis, who issued an order staying the suit in August after a grand jury subpoenaed records, wrote: "It appears that the parties to this case will be involved in related proceedings which will affect, and may resolve, the issues here presented."
Alan Barr, assistant attorney general and deputy chief of the antitrust division, said he could not comment on the case.
Richard Wallace said he learned of Todd Ferrante's lawsuit a few months ago. With a bid of $534,641, Todd Ferrante was the fourth-highest bidder. Wallace, whose bid of $417,503 made him fifth, is seeking $1 million in compensatory damages and $2 million in exemplary, or punitive, damages.
If not for collusion, Wallace said, he and Todd Ferrante would have the franchises. Wallace said someone he would not identify told him about Todd Ferrante's lawsuit about four months ago. "I was angry," he said, but not surprised.
Wallace's lawsuit alleges that the defendants violated Ocean City's ordinance prohibiting the use of "front" or "surrogate" operators.
He said all three franchises were operated "under defendant Gregory Ferrante's domination and control." The three business locations shared trademarks and shuffled employees, Wallace says.
Wallace alleged that the defendants exercised unfair restraint of trade and illegal monopolization under federal law and violated the state's antitrust laws.
"Tourists traveling to Ocean City from throughout the mid-Atlantic region have been charged excessive and fixed prices," the lawsuit says.
Guy Ayres, the resort town's attorney, said the city's meeting on Tuesday is not connected to any legal proceeding. Instead, he said, 1999 marks the first year in memory that franchise-holders failed to meet a Jan. 1 payment deadline.
Ayres said the city had followed developments in the case, but that officials had difficulty assessing the situation because key records were sealed.
"You could draw inferences from the fact that the successful bidders were related," he said. "But that in and of itself is insufficient to amount to proof of anything."
Pub Date: 2/04/99