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When a Domain Partnership Goes Bad

April 26, 2010Domaining, Domainnamewire, escom llc, Policy & Law, sex.comComments Off on When a Domain Partnership Goes Bad disagreement isn’t sexy, but it is an important warning.

If you’ve ever formed a partnership or had a business partner in a venture, you know how contentious it can get. When you draft the legal documents, the lawyer wants a provision for every possible outcome under the sun. Everyone is on good terms at the time, so you don’t suspect there’s any reason for half of the provisions.

But when things do go wrong, it can really be a mess. In the case of owner Escom LLC, it appears that one major roadblock is that all Managers of the company have to agree to sell the domain name. That provision was certainly inserted into the agreement to protect all parties, but it is now a roadblock.

The following two paragraphs from a DOM Partners submission urging the bankruptcy court to appoint a trustee are typical of the challenges companies face.

5. All parties recognize that ESCOM must sell the Domain Name to satisfy the secure claims against it. The Managers, DOM and WTA, however, disagree on the manner and method of selling the Domain Name. Upon information and belief, this disagreement stems from WTA’s refusal to value the Domain Name at or near its true market value, instead claiming unrealistically high amounts be set as a reserve price in a private sale in an attempt either to protect the claim by iEntertainment, an entity that is controlled by WTA’s Chairman, Michael Mann, even though iEntertainment’s claim is junior to the claims held by WTA and DOM, or dissuade bidders from purchasing the Domain Name, and thereby retaining Mr. Mann’s control over it. WTA’s refusal to appropriately value the Domain Name has prevented WTA and DOM from agreeing on the parameters by which the Domain Name should be sold. In addition, DOM and WTA disagree as to whom shall act as auctioneer or broker for the sale of the Domain Name, how much of a commission to pay to the selling person or entity, the time frame needed to market and sell the Domain Name, and the order and amount of the distribution of sale proceeds. DOM has negotiated in good faith with WTA since at least January 2009 in an effort to come to an agreement on how to best sell the Domain Name. WTA has consistently impeded the sale of the Domain Name and continues to do so. DOM and WTA are hopelessly deadlocked on this issue.

6. Moreover, upon information and belief, WTA’s Chairnan, Mr. Mann, is affiliated with or has some interest in most if not all of the companies with which ESCOM does business, thereby providing Mr. Mann with an incentive to refuse to agree to sell, or otherwise delay the sale of, the Domain Name. For this reason, a trustee is needed to replace ESCOM’s management and vendors until the Domain Name can be sold.

© 2009.

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March 29, 2010Domaining, Domainnamewire, escom llc, Mike Mann, Policy & Law, sex.comComments Off on Dirt: Inside Details of What Went Wrong with

New dirt on exposed in court filings.

Documents filed in a bankruptcy case involving owner Escom, LLC, provide intriguing details into who actually owns and what went wrong with the company.

DOM Partners, a creditor and an investor in Escom, filed the papers in response to an involuntary bankruptcy filing initiated by Mike Mann against Escom to halt the auction of

In a motion to dismiss (pdf) the petition for bankruptcy, DOM alleges that Mann is “operating ESCOM” (the company that owns and “has been unable to repay DOM’s outstanding secured debt of $4,313,276.16″.

DOM Partners loaned $4.5 million to Escom in 2006, and also made an equity investment of $1 million. $1.5 million of the loan was later paid off by another investor — Nothin’ But Net, LLC — that received an equity stake in Escom. But the remaining $3 million loan became due on January 12, 2009 and was not paid. DOM gave notice of default on the loan the next day. It says it tried to negotiate to settle the debt, including the potential of buying Mann’s companies’ interests in Escom. It deposited $6 million in escrow for such a potential purchase.

When DOM made its initial loan to Escom in 2006, Mann’s Washington Technology Associates loaned Escom $5 million and invested $1 million as well.

Several other investors joined in, according to the filing: “Nuthin’ But Net, LLC”, which paid off $1.5M of DOM’s loan, “I95 Investment Group” invested $400,000 in equity, and iEntertainment has a $2.5 million junior secured loan.

According to the court filing, Escom is required to be managed by its three founding members — DOM, Washington Technology Associates, and Domain Name Acquisition Group — which must unanimously agree to file a voluntary bankruptcy petition. Domain Name Acquisition Group’s managers include Andrew Miller of Internet Real Estate Group and Built to Last, LLC, which is managed by Mike Zapolin, also with Internet Real Estate Group. Domain Name Acquisition Group invested $2,800 and “The Domain Name Rights” in return for 28 class A membership rights in Escom.

DOM claims that Mann’s Washington Technology Associates (WTA) manages Escom. Its CEO Del Anthony reports to WTA’s chairman, Mike Mann.

The filing states that Escom only has the domain name and “some cash” as assets. It has little income and just one employee, and no working capital to finance development of the domain name, according to DOM. In a declaration to the court (pdf), a lawyer representing DOM Partners claims it has been denied access to Escom’s books for the last year. A representative of Escom indicated the company has about $100,000 in cash.

By the time Mann filed the involuntary bankruptcy petition against Escom, several bidders had already been qualified for the auction that was to take place the next day, claims DOM. These bidders had deposited $1 million and flown to New York for the auction.

DOM is asking the court to dismiss the “bad faith” bankruptcy filing so an auction can go forward. DOM believes an auction will satisfy at least the secured debt owed by Escom.

Other interesting documents filed with the court:

-Original loan documents for Escom including interest rates and repayment terms

-Notice of default, sent to Andrew Miller, who is known in the industry an investor/founder of Internet Real Estate Group. He is a manager of Domain Name Acquisition Group, which owns part of Escom.

-Escom LLC’s formation/LLC documents part 1 and part 2 with signature lines for Andrew Miller, Mike Zapolin, and Robert Seaman (attorney for DOM Partners)

© 2009.

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