Bankruptcy Judge Lambastes Scour's Attorney for Owning Shares in Site's Suitor
Peter Kiefer and Ben Berkowitz
11/14/2000 19:19

Attorneys for Scour incurred the wrath of a federal bankruptcy judge Tuesday when they revealed in open court that their firm owns $270,000 worth of shares in Listen.com, which is negotiating to buy the defunct file-sharing site's assets.

U.S. Bankruptcy Court Judge Kathleen P. March castigated attorneys at the firm of Perkins Coie LLP, citing what she called a distressing ''conflict of interest.'' She said: ''In 10 years on the bench, I've never seen this sort of professional irresponsibility.''

The firm had acquired the stock after negotiating the acquisition of Wired Planet -- a provider of streaming entertainment -- by Listen in September. March said the attorneys would receive no fee for their involvement in the sale of Scour's assets.

Also decided upon was a Thursday morning deadline for the shutdown of Scour Exchange, the highly controversial peer-to-peer network that faces copyright infringement lawsuits from the RIAA and the MPAA. Judge March ruled that Scour's assets will be sold in a court-supervised auction in Los Angeles at 11 a.m. Dec. 12, and that any party able to pony up the $500,000 deposit and prove financial credibility can participate in the auction. Bidding will start at $200,000 with all bids thereafter increasing by at least $50,000.

The hearing also threw into question Scour's previously announced plan to sell its assets to Listen, a digital music directory and search engine whose minority owners include all the major record labels, for $5 million plus stock.

A competing bidder, CenterSpan (a publicly traded Portland, Ore.-based company partially owned by Intel), challenged that plan. CenterSpan plans to make a serious run at Scour's assets, more precisely its exchange, which it would integrate into its ''next generation peer-to-peer network'' now under development. Listen will receive a $200,000 breakup fee, if another company ends up with Scour's assets (to recoup costs already incurred in its attempted purchase).

Perkins Coie is no stranger to the wrath of Judge March, having been excoriated by her last month over a separate piece of conflicted business. The firm represents Fox on a pending discrimination suit that is expected to go to the Supreme Court, and also does election law work for Disney in Washington, D.C. Fox in particular filed an opposition motion to Perkins Coie representing Scour, arguing that the firm's defense was predicated on badmouthing the studios.

After much wrangling at a hearing on Nov. 1, Fox and Disney granted the firm a temporary conflict-of-interest waiver, only to let Perkins Coie represent Scour in the Listen deal. Judge March agreed to continue the firm's application to serve as counsel based on the studios' granting that waiver, though she gave no indication that she intended to approve it. During that hearing, she blasted Perkins Coie for what she felt was an obvious conflict, and questioned the firm's behavior.

As part of its deal to represent Scour, Perkins Coie has already received two retainers totaling $250,000. The firm's representation was also challenged by studios and labels in another action, which cited an escape clause allowing it to cease representation if Scour received adverse rulings in the entertainment industry's copyright infringement suit against the site. Scour has estimated its potential liability in that suit at $250 billion -- a massive liability that led to the request for bankruptcy protection.

On hand for Scour at Tuesday's hearing were Mike Todd (vice president of technology), Kevin Smilak (chief technology officer) and Travis Kalnick (vice president of strategy), and while they would not comment on whom they preferred as a potential buyer, a Scour representative did say after the meeting that his company was aware of, and not troubled by, its law firm's interest in Listen.