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Outfit Sued by 3 Brothers' Anaheim Company Declares Bankruptcy

October 23, 2003|Claire Luna | Times Staff Writer

The punitive-damage phase of a lawsuit by an Anaheim Internet advertising company owned by three young brothers was postponed Wednesday because the defendant, a Seattle-based electronics firm, declared bankruptcy.

An Orange County Superior Court jury had previously ordered X10 Wireless Technology to pay $4.3 million in compensatory damages to Advertisement, for stealing the smaller company's technology, money and clients.

The penalty phase of the litigation was scheduled to start Wednesday but will now begin Nov. 18 if X10 cannot prove its bankruptcy in court.

"I suspect this was done for strategic purposes to avoid today's proceedings," Judge Gerald G. Johnston told X10's lawyer, Sean P. O'Connor, before the jury entered the Santa Ana courtroom.

Bankruptcy would jeopardize X10's ability to pay damages to the Anaheim company, launched by three brothers from their childhood home in Yorba Linda five years ago.

The brothers Vanderhook -- Tim, now 22; Chris, 25; and Russell, 26 -- contend that X10 did not pay the $564,000 in advertising commission the trio was due for a July 2001 business contract. Furthermore, they said, X10 used that money along with Advertisement's proprietary technology and business model to steal some of their clients and start its own Internet advertising business.

Michael Fitzgerald, attorney for Advertisement, asked the judge to tell the jury that it was not the brothers' fault that X10 filed bankruptcy and that financial mismanagement over the past two years had prompted the declaration.

O'Connor told the judge that he learned at 5:05 p.m. Tuesday that his client had declared bankruptcy and informed Advertisement's attorneys 15 minutes later.

"I was absolutely flabbergasted," O'Connor told Johnston. When he called the other lawyers, "my voice was still trembling, I was so emotionally rattled."

Further financial information about X10, which sells home surveillance equipment and whose ads feature tiny cameras trained on scantily clad women, was not available. The judge ordered the tax documents X10 had turned over for the punitive proceedings to be sealed until the process resumes.

Johnston issued a gag order barring the lawyers witnesses and other trial participants from talking to the news media about the case.

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