Sex.com 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 Sex.com 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.