Jarrett (jarrett) wrote,

SacWeb foreclosure zaps clients

From the Sacramento Business Journal

Mark Larson Staff Writer
The death of SacWeb Inc., a Sacramento Web development company, has left a gnarly legacy of claims and counterclaims over who owns which parts of the Web sites the company used to host.

At least some of SacWeb's old clients say they own the sites. They resent being told they need to pay money or sign licensing agreements to keep using Web sites they already paid to have developed.

But Jel Productions, the company that bought SacWeb's assets out of a bank foreclosure sale late last year, says it is simply trying to prevent people from walking away with proprietary software it now owns. And the company is trying to do the best it can with the outcome of a "quick, desperate sale."

About 400 clients, ranging from the state Lottery Commission to small e-commerce sites, were affected when SacWeb stopped paying its bills last October and Union Bank foreclosed on its assets.

Jel bought those assets for $50,000.

The dispute has delayed Web-site owners from retrieving their sites and related data, leading some to wish they'd kept their Web sites more clearly in their own control.

The issues point out what can go wrong when a company's Web-site host closes down -- a familiar event since the tech wreck began nearly two years ago.

SacWeb's case is now in Chapter 7 bankruptcy proceedings, with a court hearing set for Monday.

Trouble brewed

SacWeb's flagship software was GoTechnology, engineered by chief technology officer, co-founder and part-owner Ed Williams. That software provides content, communication and e-commerce management systems.

Clients included the Lottery Commission, Big O Tires Direct, Century 21 Real Estate and Quest.

At the end of 2000, SacWeb had 27 employees. Then last year the payroll dwindled to 18, then 11, as the gloomy effects of the technology slump spread.

"It was a challenging year," said president Michael Nelson, "but we were still holding on."

Then came the terrorist attacks of Sept. 11, chilling the U.S. economy. "That just knocked it over," Nelson said. The six-year-old company could no longer pay its expenses.

On Oct. 4, SacWeb laid off its remaining staff.

Nelson saw that Union Bank was going to foreclose on the company's assets, and said he wanted the smoothest transition possible for SacWeb's clients. He picked Jel, a growing, 9-year-old Sacramento Web-site developer and host, to take his clients.

Nelson e-mailed SacWeb's clients on Oct. 5 to tell them the company was being sold. He assured customers that their sites were being maintained, and wrote that Jel was "responsive, professional and on top of emerging technologies."

He e-mailed clients another notice on Oct. 10 confirming the "acquisition." He helped Jel with the transition in October.

There was more than met the eye in the sale, however. Union Bank had foreclosed on SacWeb's assets. And on Oct. 8, Jel bought SacWeb's assets from the bank for $50,000, essentially acquiring assets -- the Web sites of its clients and their attendant hardware, software and intellectual property -- and no liabilities.

"I tried to ensure a smooth transition," Nelson said on Tuesday. "I could have tried to pull together investors and refinance, but the bank wasn't too keen on that. What Jel did was protect the clients."

66 creditors, $50,000 in assets

On Nov. 20, SacWeb filed for liquidation under Chapter 7 of the U.S. Bankruptcy Code. The company listed 66 creditors, and $381,393 in debts against only $50,000 in assets.

Secured creditors are owed $199,000, according to the filing, while unsecured priority creditors are owed $5,200. Unsecured non-priority creditors are owed $177,000. Creditors include Wells Fargo, Pacific Bell Yellow Pages, the Sacramento Business Journal and DWB Janitorial of Sacramento.

The federal bankruptcy court held a SacWeb creditors' meeting on Jan. 7. Another meeting is scheduled for Monday, said bankruptcy trustee Tom Aceituno.

Aceituno has already heard arguments from SacWeb customers that the foreclosure sale included property that didn't belong to SacWeb, but he said it isn't his job to decide. All he does is make sure the company is fully liquidated.

As of this week, Aceituno said he's not sure there's any more property to be liquidated. "Apparently," he said, "everything went in the foreclosure."

The fallout

Williams said he could see SacWeb was failing. He transferred most of his software out of the company before the sale. He said owners of e-commerce sites hosted by SacWeb were concerned about a changeover, and he estimates that 35 wanted to get their sites out of SacWeb.

Williams left to start his own Web development company, American Web Services, taking former programmers and his chief technology officer from SacWeb.

SacWeb clients have retrieved Web sites from Jel, Williams said, but some haven't gotten their data files returned.

Williams, who said he was voted off the company board early in 2001, blamed its demise on management.

"I suppose it was a case of spending money faster than making it," he said. Jel, meanwhile, has "got to do what's right for their best interest."

Some former SacWeb clients have opted to leave Jel for Williams' new company. Meanwhile, he added, "I believe about 20 percent of SacWeb clients don't know it is in bankruptcy."

Lessons learned by clients

Manny Cabranes is general manager of Mendocino-based WineCountryGourmet.com, whose Web site was hosted by SacWeb.

Jel, he said, "refused to release our site, which we owned." After waiting more than a month, he agreed to pay $1,000 to get his Web site back.

He said he was told he had to pay the charge because he owed money to SacWeb, but he disputes the claim and is bitter about his experience.

"They took it as gospel that we owed SacWeb," he said.

Cabaranes said his service was never interrupted, but he did wait to get customer data back. His advice to anyone in a similar situation: Make sure you control what you own when someone else hosts your Web site.

Brent Kelley is part of PowerOn Computer Services, a national mail-order company for refurbished computers in Roseville. He doesn't understand why SacWeb clients such as him -- who spent several thousand dollars to get their sites put up -- must now sign agreements with Jel promising not to sell GoTechnology.

"It's a debate over intellectual property, really," Kelley said.

Kelley said he has asked for his site to be transferred, and was still waiting for it to happen this week. As far as he knows, he has lost statistics for his sites. Time spent on the phone trying to retrieve his Web site has taken him away from his job. That, he said, "costs me money."

"Make sure to back up your files on a regular basis," he said. "You might have to pay an extra $10 a week, but that way you're very portable. And make sure any technology anyone builds for you is your own."

Rebuilding from scratch

James Barker, another co-founder of SacWeb, said he has seen "millions of dollars of programming" transferred to Jel and "I still haven't got my stuff back."

He has an e-commerce site called Tourvision.com. That site and another "went down" in the transfer to Jel in October, he said, and when he couldn't get back data needed for the Web site, "we had to rebuild it to the tune of $100,000."

To get his site back, Barker said, "They gave me a license agreement for my own technology (saying) that we can't continue to develop the site, that they own it. It was in our best interest to rebuild it."

Barker said he had $100,000 worth of intellectual property with SacWeb, and claimed he's also owed $20,000 as a creditor. He also said he owned 10 percent of the company.

Derek Kimble, systems administrator for Source One Direct, a Rancho Cordova printer, said he'd had a site with SacWeb since 1998 to allow online ordering of manuals that the company prints.

"We never had any trouble with SacWeb. They were really good to us," he said. "Then one day out of the blue, boom, they moved on."

Kimble said the deal with Jel "didn't give me a lot of choice" as to who would host his Web site. He was sent a new licensing agreement to sign.

"I already paid for it," he said of his Web site. "It's like Microsoft sending out a letter saying `sorry, but we need you to sign another agreement with us before you can use software you already purchased.' "

Before the sale, "we were able to make changes (to the site); we could customize it for the client," Kimble said. "We can't do any of that now."

He remains in a stalemate over the issue.

Mike Baddley, whose company hosted Web sites separately at SacWeb, said he can't get Web sites returned because of the October asset transfer.

"I've got proprietary intellectual property that they will not return," he said. "They've asked me to sign a new license agreement and I won't do that."

Jel's side of the story

Jel won't release a Web site for transfer if the owner owes money, said Jel president Jon Lee. Paying the debt, he said, releases the site.

As for the licensing agreement his company wants for GoTechnology, Lee said the point is to prevent the reselling of software it acquired when it bought SacWeb's assets.

"Some people feel they had agreements with SacWeb," Lee said. "We need to make sure we're covered."

Of the fallout since October, he added, "Sure, a few clients complained due to having a new provider. It's kind of a messy thing right now."

Jel acquired SacWeb's computers and "all the assets which happen to have people's Web sites." Lee said Jel now also owns the design of the SacWeb sites, he contends, but the company wants new licenses only for proprietary programming.

Lee said Web-site owners appear to be "misinformed" about being able to take their sites back without signing any agreement. Unless Jel claims rights to the proprietary software, Lee said, the company would lose it to the first person who claimed it -- and would then owe that person money.

SacWeb was on the verge of being closed in October because of unpaid bills, Lee said, and the Web sites it hosted were about to be shut down.

"We rushed in there very quickly and took it all over" and paid bills, Lee said. "It allowed us time to figure out how to get everything out of the SacWeb building."

The result of the move, he said, is that SacWeb clients "now they have something they can get back." The building's landlord could have cleared the place out, and then all could have been lost.

The transition, he said, "hasn't been super smooth, but that's part of the reason why. It was a quick, desperate sale on Michael's part. To have everybody's Web site down would not have been good for him."

The legal view

"There may be some rights under the original agreements (between clients and SacWeb) that perhaps have survived the bankruptcy," said Scott Pink, a Sacramento attorney specializing in intellectual property issues.

If their rights don't hold up in a transfer, the Web-site holders would essentially have to sign a license agreement with Jel. If the rights do hold up, Pink said, the question is the extent of the rights.

The clients giving testimony in bankruptcy court, he said, are likely to argue that their original agreements remain valid.

  • A Piano Medley of 9 More JoCo Songs*

    Cross-posted from SpaceParanoids.net. Please leave your comments there. (*plus one Paul and Storm song) It’s been more than a year since…

  • Ethan vs Pacman

    Cross-posted from SpaceParanoids.net. Please leave your comments there.

  • When You Go

    Cross-posted from SpaceParanoids.net. Please leave your comments there. As always, right-click here to download the mp3. Of you can download…

  • Post a new comment


    default userpic

    Your reply will be screened

    Your IP address will be recorded 

    When you submit the form an invisible reCAPTCHA check will be performed.
    You must follow the Privacy Policy and Google Terms of use.
  • 1 comment