PurchasePro estate fighting in court to recover assets

Kevin Rademacher

Friday, March 12, 2004 | 11:18 a.m.

Legal actions swirling around the estate of the bankrupt Las Vegas e-commerce company PurchasePro.com are again heating up.

Depositions begin Tuesday in a lawsuit alleging collusion that the PurchasePro estate filed last year against Birch Street Systems related to a January 2003 sale of the Las Vegas company's operating assets.

California-based Perfect Commerce bought the operating assets of PurchasePro for $2.3 million in January 2003. The company once had a stock value of more than $3 billion.

Gregory Garman, an attorney representing PurchasePro, said Birch Street struck an illegal agreement with Perfect Commerce to withhold a competitive bid in exchange for other consideration.

"They interfered with that process and injured creditors," Garman said. "We just can't roll over and let them undermine the bankruptcy process and auction process with impunity."

Garman said no dollar value has been placed on the action. "That will be determined in court," he said.

Birch Street executives and attorneys could not immediately be reached for comment.

The suit is one of several actions the estate has filed in an effort to boost the recovery of assets for creditors.

Garman said there are currently $200 million in claims against the estate, but he added that a "claims objection" process is under way. He said he expects the bankruptcy court will ultimately allow less than $20 million in claims to stand.

That should leave open the possibility for former shareholders to see some repayment once the claims are settled.

"We are optimistic about that," Garman said. "Certainly there are no assurances, but we have some significant claims out there."

Garman said three current actions could result in "significant recovery" for creditors. Those include a summer trial in a case against Office Depot. That case claims that Office Depot executives on the PurchasePro board of directors made questionable trades of restricted stock, Garman said, adding that several millions of dollars could be at stake in the action.

Mandatory mediation in that case will begin March 31.

He also said significant recovery could be seen in federal and state court actions against former PurchasePro officers and directors.

The estate also filed this month a breach of contract lawsuit against the computer maker Gateway Companies Inc.

Garman said the computer builder received $35 million in consideration from PurchasePro but failed to hold up its end of a deal to provide marketing training support for PurchasePro's online procurement system. Contract documents contained in court filings show that Gateway was expected to provide services worth $40 million to PurchasePro.

Garman indicated that additional lawsuits could filed against additional defendants, including some related to an ongoing Securities and Exchange Commission investigation into the company's failure.