Opinion ID: 3062086
Heading Depth: 3
Heading Rank: 2

Heading: Paige Files for Bankruptcy

Text: In September 2005, after the failure of one of his credit-repair business endeavors, Paige filed for Chapter 7 bankruptcy. Id. at 891. Jubber was appointed trustee for the estate. Initially, Paige did not list the Domain Name as an asset, and he had no other assets of note. In December 2005, however, an anonymous tipster notified the Trustee that Paige might have an interest in the Domain Name. Id. at 896. 3. The Trustee Begins an Adversary Proceeding to Recover the Domain Name The Trustee determined that the Domain Name had been transferred several times after Paige had declared bankruptcy. Ultimately, Stephen May had purchased the 9 Domain Name in an online auction for $350,000. Id. at 898. He had then transferred the registration to SMDI, which licensed its use to another company May owned, Magnet Media, Inc. Id. at 899. Magnet Media quickly began to earn “significant daily revenues” using the Domain Name. Id. The Trustee asserted that any post-petition transfers of the Domain Name were void and demanded that May return it. When he refused, the Trustee began the Adversary Proceeding on behalf of Paige’s estate. Id. May, SMDI, and Magnet Media were among the defendants. 4. The Trustee Seeks to Sell the Estate’s Interest in the Domain Name Paige’s estate lacked resources to fund litigation of the AP. To raise money for this purpose and to pay the estate’s creditors, the Trustee sought to sell an interest in the AP and any rights to the Domain Name that the estate might acquire. See In re Paige, No. 05-34474, slip op. at 2 (Bankr. D. Utah Dec. 8, 2006). An auction was held in September 2006, at which the only bidders were SMDI and one of its competitors in the credit services industry, ConsumerInfo. ConsumerInfo prevailed with a bid of $1.5 million, but the parties apparently continued to submit bids after the auction closed. Id. at 2. While bidding and negotiations continued over the following months, several important developments took place. 5. Conversion to Chapter 11 First, the bankruptcy court granted a motion by Paige to convert the Chapter 7 case 10 to one under Chapter 11. Id. at 3. The Trustee filed a motion to reconvert the case, which the court denied. The court instead appointed the former Chapter 7 trustee, Gary Jubber, as trustee for the estate under Chapter 11. Id. 6. Communications Between ConsumerInfo and the Debtor Second, Paige engaged in various communications with ConsumerInfo’s counsel without the knowledge of Paige’s own attorney, Noel Hyde. In re Paige, 2007 WL 4143212, at –4 (Bankr. D. Utah Nov. 13, 2007). Paige had led SMDI to believe that he would propose a joint Chapter 11 plan with SMDI. Nonetheless, against Hyde’s advice and without his knowledge, Paige repeatedly contacted ConsumerInfo’s attorneys, apparently seeking money or some sort of consulting job with ConsumerInfo. Id. at . He also told ConsumerInfo that he was not represented, and ultimately convinced ConsumerInfo to pay $20,000 to obtain new counsel for him. Id. at . Meanwhile, he stopped communicating with Hyde or with SMDI. In early December 2006, Hyde withdrew as Paige’s counsel and a new attorney, paid by ConsumerInfo, took his place. Id. 7. ConsumerInfo and SMDI Acquire Claims Against the Estate Third, both SMDI and ConsumerInfo purchased claims against the estate in order to gain standing to propose Chapter 11 plans. Id. at , 4. SMDI also acquired Paige’s “residual interest in his bankruptcy estate consisting of any money or property that is returned, distributed, or abandoned to him through the administration of the case.” Conf. App., Aplt. App’x at 146. 11 8. The Trustee Moves for Court Approval of a Sale to ConsumerInfo On November 14, 2006, the bankruptcy court held a hearing on the Trustee’s motion to sell ConsumerInfo the estate’s rights to the Domain Name and a co-interest in the AP for $1.9 million. Paige, No. 05-34474, slip op. at 4. Although SMDI had counteroffered to settle the AP with the estate for $1.9 million, the Trustee stated that he preferred ConsumerInfo’s offer because ConsumerInfo was able to pay the full sum immediately. Id. SMDI, by contrast, could only pay $1.2 million up front and wished to pay the remaining $700,000 over several months. Id. The Trustee expressed uncertainty that SMDI would be able to make these payments. Id. The APA that ConsumerInfo proposed included the following key terms:
ConsumerInfo agreed to contribute two sums of money to the estate. First, it would immediately pay $1.9 million into the estate (the Funds). APA § 1.4. Second, it would contribute up to $200,000 “on an as incurred basis” toward the Trustee’s “reasonable costs and expenses” in litigating the AP. APA § 1.6.
In exchange, ConsumerInfo received “a co-interest in the Pending Adversary.” APA § 1.1. The estate agreed that the Trustee would “prosecute the Pending Adversary in good faith.” APA § 1.5; see also APA § 1.6 (stating that Trustee agreed to “diligently prosecute the Pending Adversary . . . where he believes he has a good faith basis for doing so”). The Trustee further agreed that he would “reasonably consult with 12 [ConsumerInfo] regarding prosecution of the Pending Adversary.” APA § 1.5. The APA allowed that the “Trustee in his reasonable business discretion can settle or otherwise compromise the Pending Adversary,” but before settling, the Trustee had to (1) consult with ConsumerInfo; (2) obtain bankruptcy court approval for any settlement; and (3) give ConsumerInfo the opportunity to object to or overbid any settlement. APA § 1.5. If the Trustee did settle, he agreed that the estate would immediately refund $1,825,000 of the $1.9 million to ConsumerInfo. The estate would keep the remaining $75,000. APA § 1.5.
The estate agreed to sell ConsumerInfo “all of [the estate’s] right, title and interest, if any, in and to, and relating in any way to, the Domain Name, whether now owned or acquired at any [later] time.” APA § 1.1. In addition, the estate agreed that if it recovered money damages in the Adversary Proceeding or any action relating to the Domain Name, it would pay 25% of those recoveries to ConsumerInfo. APA § 1.1(d).
The APA contemplated two closings. At an “Initial Closing,” ConsumerInfo would deliver the $1.9 million to the estate and would receive a co-interest in the Adversary Proceeding and a 25% interest in the monetary recoveries. APA § 8.2(a). At a “Subsequent Closing,” the estate was to transfer the Domain Name to ConsumerInfo for no further consideration. APA § 8.2(b). The Subsequent Closing was to occur within ten business days following a “final and nonappealable order” determining that the estate 13 owned the Domain Name. The APA allowed ConsumerInfo to waive this provision and accelerate the closing “so long as there is no stay pending appeal in effect at the time.” APA § 8.1.
Finally, the Trustee agreed in the APA to file a liquidating Chapter 11 plan consistent with the APA and to oppose any plan inconsistent with the APA if he could do so in good faith. APA § 1.7. 9. Following a Hearing, the Bankruptcy Court Approves the APA in the Sale