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Try using Buddy API to validate your assumptions:
the applicationPath & "Documents\Contact.txt"
if baFileExists(tPath) then
importFileInto(member "Contact", tPath)
alert "File not found:" &RETURN& tPath
perhaps you should be using "the moviePath" instead of "the applicationPath". When you are in authoring mode, the applicationPath will point to the Director executable, not your dir file.
That was the issue! Thank you very much both Sean and Mike. Using "the moviePath &..." fixed it.