How iPayment CEO impedes $300 million charge for fraud? Files for bankruptcy

On May 11, 2009 Los Angeles Superior Court jury awarded $300 million in compensatory damages to Douglas Shooker, a California businessman who had tried to purchase Nashville-based iPayment Inc. in 2000, when it was an early-stage venture. On May 11, 2009, after a four month trial, the jury in the State Court action returned a verdict that found Greg Daily, CEO of iPayment liable for fraud, interference with existing contract, and interference with prospective economic advantage.

According to the court documents the State Court action arises from Daily’s interference in late 2000 with two written contracts entered into between Auerbach Acquisition Associates, Inc. ("Auerbach"), whose sole officer and director is Douglas Shooker, and a credit card processing company then known as creditcards.com (which eventually changed its name to iPayment Technologies, Inc.). These contracts between Auerbach and creditcards.com gave Auerbach the option to purchase a 57% ownership interest in creditcards.com for an investment of $26 million.

Later in 2000, although Auerbach subsequently exercised its option to purchase control of creditcards.com, Auerbach was not permitted to close the transaction and make its investment in creditcards.com. As Auerbach proved at trial in the State Court action, Daily (among other things) tortiously interfered with the April 2000 Contracts, causing creditcards.com to breach its obligations under the April 2000 Contracts. Thereafter, in early 2001, Daily installed himself as Chief Executive Officer and Chairman of the Board of Directors of creditcards.com, which by that time was known as iPayment Technologies. Inc. (hereinafter, "iPayment").

The document further reports that subsequently, on or about March 31, 2001, pursuant to the dispute resolution provisions contained in the April 2000 Agreements, an arbitration proceeding pursuant to the rules of the American Arbitration Association was initiated between Auerbach and iPayment. In early October 2001, just before the scheduled hearing in that arbitration proceeding, iPayment settled the arbitration proceeding with Auerbach; however, as part of that settlement, Auerbach specifically reserved its rights to sue Daily and all other third parties.

Shooker filed suit in 2002, alleging that Daily schemed to deny him a majority stake in iPayment after he had furnished the company with information about his plans to develop a system to process online payments.

Now after seven years of trial when the jury ruled in favor of Shooker, Greg Daily filed for bankruptcy protection in Nashville's U.S. Bankruptcy Court. Shooker called Daily’s action "a bad faith filing" intended to keep the Los Angeles Superior Court from proceeding with a hearing on punitive damages set for later this week.

Nashville attorney Bob Mendes, representing plaintiff Douglas Shooker, filed a motion this afternoon to exempt Shooker from the automatic protection against litigation that comes into effect when a bankruptcy case is filed. Mendes asked the court to hold a hearing on the request no later than 9 a.m. Thursday so that the jury in the L.A. case can get on with the punitive damage phase of its deliberations. 

Without such permission from the bankruptcy court, the punitive phase cannot proceed, Mendes argues. As a result, "the entire State Court action, which commenced nearly seven years ago, may be entirely re-litigated in bankruptcy court," according to today's motion. And the jurors – who have endured a four-month trial – might trigger a mistrial by refusing to show up again, Mendes says.