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Escom Creditors Continue Battle Over Sex.com

Escom Creditors Continue Battle Over Sex.com
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Dec 15, 2010 6:00 AM PST    Text size: 
WOODLAND HILLS, Calif. — The Sex.com domain may have been sold, but the legal battle between its creditors continues.

Washington Technology Associates and iEntertainment, who were part of a group of creditors fighting over Escom’s bankruptcy proceedings that lead to Sex.com’s downfall, filed a brief opposing Nuthin’ But Net’s motion saying it’s irrelevant and should be overruled.

Nuthin’ But Net's motion, filed in October, objects to the distribution of sale proceeds from Sex.com claimed by the secured lenders and seeks to throw out iEntertainment’s note because it was wrongfully obtained.

The opposition brief, filed by in U.S. Bankruptcy Court at Los Angeles, said that the managers of the company, including WTA and DOM Partners, fully complied with the operating agreement in effect and did not violate any fiduciary duty.

The brief said that the company entered into a website linking agreement and an option agreement with iEntertainment and that only DOM Partners, Domain Name Acquisition Group and WTA were the company’s sole managers.

“The website linking agreement was part of the original consideration that caused WTA and its member Michael Mann to make a $1 million capital contribution to Escom and make a $5 million contribution to the company,” the brief said.

“Nuthin’ But Net was not a member of the company at the time and cannot attempt to unwind the completed transactions, which were a fundamental part of the company’s foundation,” the brief said.

Nuthin’ But Net can’t claim that the company breached its fiduciary duty by approving the linking agreement because Nuthin’ But Net wasn’t even part of the company at the time of the agreement, according to the filing.

The brief also said that Nuthin’ But Net ratified the second operating agreement upon admission as a member of the company and cannot now complain about the terms of that agreement.

In 2006, according to the filing, Escom entered into the Playboy.com license and services and iEntertainment agreed to suspend the website linking agreement. When the Playboy.com agreement expired, iEntertainment agreed to continue the suspension, which became permanent in a third operating agreement.

The brief said Nuthin’ But Net claims that iEntertainment did nothing to maximize the value of the website linking agreement, and therefore, the agreement should be annulled. The creditors say NBN’s claim is wrong because iEntertainment not only expended significant resources in building a live video chat website, but it also had waived its linking rights.

The filing said neither WTA or DOM engaged in any inequitable conduct that would justify denial of their rights under their secured notes.

The creditors are asking the court to find that the iEntertainment note is valid and secured, that WTA and DOM should be paid in full, that NBN’s objection to the distribution should be overruled and motion to pursue estate causes of action be denied.

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