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October 19, 2019Cart

Business

by Westchester County Business Journal
by WCBJ

Greenburgh’s Incentive Group sues USA Vape for $9M over canceled loyalty program

The Incentive Group Inc.’s loyalty program for USA Vape Lab has gone up in smoke.

Incentive sued Vape and owner Huy Nguyen for $9 million on Aug. 9 in White Plains federal court, alleging breach of contract.

The Greenburgh-based consulting firm alleged that Vape canceled a sales incentive program six weeks after it began on the pretext of impending regulation by the U.S. Food and Drug Administration.

Vape did not respond to a request for comment.

Vape, based in Huntington Beach, California, makes flavored e-liquids used in electronic cigarettes. Its popular Naked 100 line features blends of nicotine and fruity flavors with names such as “Amazing Mango” and “Lava Flow.”

Incentive has been developing business-to-business loyalty programs for 30 years for companies such as Apple, Dunkin’ Donuts and IBM.

A typical loyalty program awards points to employees, based on performance, that workers can then redeem for merchandise.

Incentive sells the reward points to the client and gets a monthly management fee. It also makes money on the merchandise, buying at discounted wholesale prices and redeeming at retail prices.

Vape hired Incentive in March to design a rewards program for 300 to 400 sales representatives at 100 retail locations, the complaint stated. It budgeted $6 million to $10 million for three years.

In April, Vape expanded the program to 2,500 sales representative and 400 stores and included store owners and managers. The monthly management fee increased from $4,000 to $12,500.

On May 8, six weeks after the program was launched, Vape “froze” the project. Seventy employees had signed up, but no points had been awarded yet.

Vape, according to the complaint, cited “the clear and identified risks we are facing due to the increased attention and regulation that the FDA is placing not only on our company, but on our industry as a whole.”

But Vape knew about FDA scrutiny when it agreed to the program, Incentive claimed. Last year, the FDA announced that it intends to develop product standards but expects manufacturers to continue marketing products during the review process. Enforcement would not begin until after Aug. 8, 2022.

Vape paid Incentive the initial $20,000 consulting fee, the complaint stated, but it has refused to pay fees totaling $862,500 for early cancellation.

Incentive is demanding either those unpaid fees or all lost profits over the three-year deal, estimated at $9 million.

Incentive is represented by Robert Laplaca and Kristen Rossetti of Verrill Dana LLP in  Westport, Connecticut.