Spamroll visits Bankruptcy Court – Richter Files (cont’d)

I had the chance to stop by the US Bankruptcy Court yesterday, to observe the latest in the OptInRealBig and Scott Richter bankruptcy cases.

It was less than a packed courtroom, with roughly 15 people there including Judge Tallman and myself. Mr. Richter had no huge entourage – it was just he, two lawyers, his father, and one other. On the other side, we had an attorney representing the US, one for Microsoft, one for American Family Insurance, and one for Daniel Balsam (who flew in from California this morning). In addition, there were two other attorneys present as part of a potential creditors committee (not yet formed).

The hearing lasted about an hour, and all the talk was from the legal advisors and the judge.

First up, John Smiley, counsel for the company, advised on the status of the case, and summarized the legal actions against his client that forced the bankuptcy filing. Smiley declared that all litigation was related to “prior actions”, meaning OptInRealBig is supposedly in compliance with CAN-SPAM and various state laws on a go forward basis. That comment got a few smirks from the other side.

Smiley then pointed out that the idea was to file a plan of reorganization sometime this summer, and that he expected the company to continue as a going concern. Again, some faint chuckles from the opposition. He then stated that the company had obtained insurance coverage, and that professional fees related to the case would be difficult to estimate, based on the expectation that the case could be potentially “very litigious.” Everyone in the room breaks out in a smile.

Smiley closed by reiterating that the company was on solid ground, and expected to do roughly $40 million in profitable sales for the year.

Next up was Scott Richter’s counsel, Harvey Sender. He essentially agreed with everything Smiley said, and reiterated that Scott and the company would be able to pay their debts, including the legal judgments, out of the company’s operating cash flow on a go forward basis.

Now, the folks who want Richter and Co. wiped off the map take the stage.

First up was Leo Weiss, counsel for the US Trustee’s Office (part of the DOJ). Weiss was quick to point out that the magnitude of the Microsoft claim would essentially wipe Richter out, so Microsoft was essentially holding all the cards related to any vote on reorganization of the business. Weiss also questioned the sincerity of Smiley’s claim that OptIn and Richter were operating in compliance with the spam laws (and from the looks of the faces in the courtroom, so did everyone else), and noted that additional claims against the debtor were likely still accruing (due to non-compliance).

Next, the creditors’ counsels speak. Carl Ecklund (for Microsoft) states that this bankruptcy is a stall tactic, plain and simple. He says this case is about litigation – nothing more. Everyone nods partially in agreement, and partially as though Ecklund isn’t saying anything that everyone in the room doesn’t already know. Timothy Dalton, representing California litigant Daniel Balsam, says a few words, and then it is Judge Tallman’s turn.

The Judge cuts to the chase, pointing out that there are two significant issues needing to be addressed:

1) The Motion to Protect Confidential Information – meaning can the debtor keep the names, addresses and other “proprietary” information regarding their affiliate network away from prying eyes.

The significance of this is that many of those affiliate are contact points for the company and its proprietor. They provide products and lists, and may create marketing materials and do a lot of spamming themselves. Opening up these lists would open up a can of worms, with folks like Microsoft being a pack of birds ready to feast on them. Richter and Co. know that if this happens, the business is DEAD.

Note that Microsoft recently received a favorable ruling on a similar matter, as Brian McWilliams just reported over at his Spam Kings weblog.

Judge Tallman told John Smiley he had read the argument presented in response to the creditors’ motion to unseal this information, and suggested that Mr. Smiley submit a new response with some additional case facts and reference. Mr. Smiley agreed to do so, and the Judge set a date of May 27th to hear additional oral arguments, and make a decision.

2) Motion to employ Goodman and Richter as Special Counsel – meaning can the bankruptcy estates pay Steven Richter, Scott’s father, for legal services ancilliary to the case.

Microsoft and Co. probably thinks this is a way for the debtor to put some money in Scott’s father’s pocket. In addition, Steven Richter is general counsel to the company, and the creditors claim that he was once a member (owner) of, LLC. Some debate ensued in the courtroom, whereby Leo Weiss stated that the debtors disclosures in this regard were “inaccurate.”

Judge Tallman asked Steven Richter and John Smiley, point blank, if Steven Richter was a member, or had ever been a member, of, LLC. John Smiley declared absolutely not, and Steven Richter confirmed it. Judge Tallman stated he would review the matter, and make a decision in the afternoon, notifying both sides via conference call at roughly 2:30pm.

Immediately thereafter, the hearing was adjourned.

Interesting is the easiest (and most politically correct) way to describe this “spam king” legal case. With both sides, and the Judge, acknowledging that this is going to be a litigious ordeal, I suspect there is more fun close on the horizon.

As a side note, I believe the Richter’s are going to be playing some tunes for the press. When Richter’s lawyers arrived, John Smiley was quick to glance over to me, and say “There’s the press.” A few minutes later, Steven Richter approached me, inquiring whether I was from the media. I said no. Mid-way through the hearing, it was noted that one of Steven Richter’s proposed functions as Special Counsel would be to draft press releases. Interesting indeed.

Stay tuned..


Jeff says:

Looks like the judge ruled in Favor of Richter for using his dad as legal. About time, one for the good guys making money.

aqpatoq says:

“Sender” and “smiley” … are they making up these names?

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