Bill Hemrick, a wealthy conservative and founder of the Upper Deck baseball trading card company, filed the suit against Tea Party Nation leader Judson Phillips in Williamson County, Tenn., Fox News reported.
The suit, which seeks $500,000 in damages, comes nearly two months after the National Tea Party convention in Nashville.
Hemrick had loaned the group $50,000 toward the $100,000 speaking fee for former Alaska governor Sarah Palin, Fox said.
Hemrick's attorney, Phillip Jones, told The (Nashville) Tennessean, his client gave the loan to forge a long-term relationship with Phillips' Tea Party Nation.
"My client takes politics very seriously," Jones said. "And he thought they were going to be partners. But once he advanced the money, he found out that was not the case."
The loan has been repaid, Jones said, Fox reported.
The lawsuit alleges Phillips defamed Hemrick in an e-mail to supporters saying he was neither "reputable" nor "trustworthy," The Tennessean said.
Hemrick continues to support the Tea Party movement, Jones said, adding, "He does not want this to diminish the cause."
Fox News said Phillips did not return calls for comment but in a statement said: "If Mr. Hemrick truly cares about the Tea Party movement … perhaps he should be spending his money and his time in a more productive manner than filing a lawsuit which has no merit."
The convention broke even financially, the letter said.
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