Roger P. Pitkin

OCR transcription for search; preserved printed pages are authoritative

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For The Northern District Of California
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UNITED STATES BANKRUPTCY COURT

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AUTHENTICATE
U.S. GOVERNME
INFORMATION

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Entered on Docket
April 17, 2007

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

2 2097

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re Case No. 04-55963 ASW

ROGER P. PITKIN, Chapter 13

Debtor.

MEMORANDUM DECISION
SUSTAINING DEBTOR’S OBJECTION
TO CLATM OF ROBIN SCHNEYER

Before the Court, in the above-captioned Chapter 13 case, is
Roger P. Pitkin’s (“Debtor”) objection to the filed claim of Robin
Schneyer (“Creditor”). This matter was briefed and an evidentiary
hearing was conducted on January 16, 17, and 19, 2007. The matter
has been submitted for decision.

At trial, Creditor called Jiaxin “Anthony” Chen, Debtor and
himself as witnesses. Debtor called himself as witness. Debtor is
represented by Gregory D. McDonald, Esq. Creditor is pro se.

At the start of the evidentiary hearing, the oarties agreed
that the only possible liability Debtor may have to Creditor is

through alleged fraudulent acts of Debtor. Credizor waived any

MEMORANDUM DECISION SUSTAINING DEBTOR'S
OBJECTION TO CLAIM OF ROBIN SCHNEYER

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liability based on alter ego or breach of contract:. The parties
agreed that the Court would try the issue of Debtor’s liability
first and, if necessary, the question of damages.

This Memorandum Decision constitutes the Cour:z’s findings of
fact and conclusions of law, pursuant to Rule 7052 of the Federal

Rules of Bankruptcy Procedure.

I.

STATEMENT OF FACTS

On September 23, 2004, Debtor filed a voluntary petition under
Chapter 13 of the United States Bankruptcy Code. On February 3,
2005, Creditor filed a proof of claim against Debtor’s estate
(“Claim”) asserting that Debtor owed him $721,993.73 based on a
pre-petition state court action filed by Creditor on January 29,
2002 (the “Action”). The Action alleged breach 0:3 contract and
fraud arising from Creditor’s employment as the Director of
Technology at MediaBop.com (“MediaBop”). On March 9, 2005, Debtor
filed an Objection to Claim; Notice of Opportunit:, for Hearing;
Certificate of Service Claimant: Robin Schneyer, objecting to the
entirety of Creditor’s Claim.

A. Background

Debtor holds a bachelor of arts degree in economics from the
University of California at Berkeley. Debtor’s college education
was interrupted for four years while Debtor served in the U.S. Navy
as a carrier pilot. Debtor completed all of the course work for a
Master of Business Administration degree at Peppe:-dine University.
However, Debtor did not complete his thesis, and did not receive
that degree.

MEMORANDUM DECISION SUSTAINING DEBTOR‘S
OBJECTION TO CLAIM OF ROBIN SCHNEYER 2

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After Debtor’s service in the Navy and his studies, Debtor
worked in sales for Sylvania and Motorola corporations during the
late 1960s and early 1970s. Debtor worked with Motorola for
approximately seven years. Debtor sold semi-conductors at Motorola
and did not work in the technical side of business. Debtor later
worked in sales at Signetics, which was later acquired by Phillips.
Debtor met Jing Lu “Jimmy” Gu (“Gu”) in the late 1980s. Debtor and
Gu started a vending machine business in 1991 that was intended to
evolve into other technical products. That business shut down in
1992 and Debtor and Gu worked separately.

In late 1997, Debtor started working at Gu’s company, Vostech
Corporation (“Vostech”). Gu was the sole shareholder of Vostech.
Gu started Vostech several years prior to Debtor joining it.

Debtor testified that Vostech was very successful in the consumer
industry. Vostech had developed a sports talking card where
consumers would place a photo of a sports figure on a card and
press a button and the sports figure would talk to the consumer.
Vostech sold this product to large retailers all over the country.
Debtor was the vice president and chief operating officer of
Vostech. Debtor’s primary responsibility was sales and
administrative functions at Vostech. Debtor had no involvement in
the financial side of Vostech.

Creditor graduated from the University of Michigan with a
bachelor of arts degree in mathematics. Creditor worked for
Lockheed and attended evening courses at Lockheed to become a
computer programmer. While at Lockheed, Creditor spent six years
in intensive training as a software engineer and caught the same
training courses for two years.

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Creditor first met Gu in 1990 or 1991. Gu and Creditor
developed a quasi-business relationship based on writing two
patents together. Creditor had a scheme to develop a telephone
answering system that Creditor wanted to develop into a patent, but
Creditor is a software engineer and needed a hardware engineer. Gu
is a hardware engineer and Creditor and Gu developed the machine in
1994 or 1995. The machine was not marketed. The second patent
involved a self-correcting clock that was patented around 1997,
although no product was produced. Creditor testified that Creditor
believed that Creditor and Gu were friends. Creditor saw Gu
socially on about five occasions during this time period.

B. MediaBop

In November 1999, Gu offered Creditor employment at Gu'’s newly
formed corporation, MediaBop, but Creditor declined. MediaBop was
a subsidiary of Vostech and Vostech and MediaBop shared the same
offices. Creditor turned Gu’s offer down in part because Creditor
was pursuing making a movie at the time.

In mid-May 2000, Gu renewed his efforts to rezruit Creditor to
work for MediaBop. Gu invited Creditor to MediaBop’s offices.
Creditor testified that Creditor and Gu met three or four times in
the last two weeks of May 2000. Creditor testified that at one of
these meetings, either Gu or Debtor provided Creditor with a copy
of MediaBop’s business plan (“Business Plan”). Debtor was employed
by MediaBop as vice president at the time. Part of Debtor’s
responsibilities at MediaBop were to provide strazegic planning and
to position MediaBop for an independent public offering. Debtor
was also involved in marketing for MediaBop and managed the
MediaBop sales personnel.

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5.

1. The Business Plan

The Business Plan was a collaboration between Gu and Debtor.

Gu and Debtor met several times to develop the Business Plan. Gu
provided Debtor with information in several meetings about how
MediaBop’s products were being developed and how they were going to
be developed in the future and the marketing potential. Gu
provided the facts and told Debtor how the specific products should
be described and edited, what pictures should be in color, where
the charts should go, and how the potential business prospects
would be listed. Debtor drafted the English text. Both Debtor and
Creditor testified that Gu’s first language is Chinese and Gu had
aifficulty writing and speaking English.

Debtor believed that Gu had a genius in both technical and
marketing knowledge. Debtor testified that the ideas for
MediaBop'’s products were entirely Gu’s. Gu had a technical
background and had successfully developed new products in China.

In Debtor's opinion, Gu was a top creator of technical products --
that was one of the reasons Debtor was with Vostech and MediaBop.
Debtor had confidence in what Gu saw for the future of MediaBop.
Gu explained logically to Debtor how Gu saw the internet and the
internet explosion that was about to happen. Debzor believed that
Gu correctly viewed the internet trends and could anticipate the
kind of products that were beneficial to the consumers.

Debtor believed that the Business Plan was a very strong
representation of the possibilities and products of MediaBop.
Debtor really believed in MediaBop. The Business Plan discussed
certain transfers of technology from Vostech to MsdiaBop. Debtor
believed that if Gu said that certain transfers of technology or

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OBJECTION TO CLAIM OF ROBIN SCHNEYER 5

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money would take place from Vostech to MediaBop, those transfers
would take place, since Gu completely controlled Vostech.

Gu went over every last detail of the Business Plan after
Debtor completed it and Gu was extremely diligent about looking at
all aspects of the Business Plan. Debtor testified that Debtor
believed that MediaBop had a reasonable prospect of attaining the
goals set forth in the Business Plan. Debtor had known Gu for some
time and Debtor knew how good Gu was at developing new products.
Debtor knew Gu had patents. Debtor saw the success of Vostech and
the income that Gu told Debtor Vostech had generatted and Debtor
believed that MediaBop would expand that horizon. Debtor testified
credibly that Debtor did not intentionally place any erroneous
information in the Business Plan.

2. Creditor’s Employment at MediaBop

Creditor testified that Gu, Creditor and Debtor were present
for most of the meetings where Creditor’s future employment at
MediaBop was discussed. Creditor testified that there was a great
deal of discussion about what the future would be for MediaBop and
the discussion often included millions of dollars to be transferred
from parent Vostech to the new company MediaBop -- and millions, if
not billions, in expected revenue for MediaBop. Creditor also
testified that one reason Creditor agreed to work at MediaBop was
that Creditor found the MediaBop product ideas inzeresting and
Creditor likes to work on such projects. Creditor also testified
that Creditor thought that Gu was a hyper-optimist and exaggerated
all of the time -- that was Gu’s way and Creditor knew that.

Debtor testified that Debtor had one meeting with Creditor
before Creditor joined MediaBop. Debtor specifically recalls a

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OBJECTION TO CLAIM OF ROBIN SCHNEYER 6

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meeting that took place in Gu’s office because Gu asked Debtor to
come into the office and tell Creditor what Debtor thought of
MediaBop and its prospects. Debtor told Creditor that Debtor
believed that MediaBop’s prospects were terrific, that the internet
was really a timely situation and that MediaBop was going to be a
really good company. Debtor did not sit and negotiate any terms of
Creditor’s contract. Debtor testified that Debtor came into the
room for a period of time and then left. Debtor did not make any
promises to Creditor to try to induce Creditor to work at MediaBop.

Gu offered Creditor many incentives to have C:reditor join
MediaBop. Creditor testified that on May 28, 2000, at a meeting
with Gu, Creditor and Debtor held in Debtor’s off:.ce at MediaBop,
Creditor dictated the terms of Creditor’s employment contract.
Creditor agreed to become MediaBop’s Director of Technology for a
salary of $10,000 per month plus 50,000 shares of MediaBop stock.
Creditor explained that Gu personally promised to buy the 50,000
shares of MediaBop stock back from Creditor for $100,000 after
eighteen months if Creditor provided eighteen months of continuous
service at MediaBop. Creditor testified that Creditor was trying
to accumulate funds to make a movie. The $100,000 buy-back
guarantee was approximately the amount of funds C:reditor needed to
make his movie. Creditor nearly had the amount p:tior to working
for MediaBop, but those funds were lost in the stock market
downturn. Creditor was concerned about the risks of working for a
start-up from past experience and that is one of the reasons
Creditor demanded the guaranteed buy-back. Creditor was not going
to risk any investment of time in MediaBop. Creditor believed that
Gu had the means to pay the $100,000 buy-back gua:rantee because

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Creditor believed that Gu was wealthy. Creditor :ntended the buy-
back to be solely Gu’s responsibility.

Creditor testified that he asked that the terms of the oral
agreement be written down so the parties could sign it. Creditor
testified that Debtor told Creditor that the lawyer was busy with
start up activities and Creditor would have to wa:.t for the
contract to be written down.

Creditor started work at MediaBop on June 1, 2000. Both Debtor
and Creditor testified that Gu directed the engineers. Creditor
testified that Gu directed the engineers in their projects and
Creditor did not know when engineers were hired or fired. Most of
the communication between Gu and the engineers was conducted in
Chinese. Creditor testified that he does not speak Chinese and the
engineers spoke limited English at best. Creditor testified that
Gu’s management style was to have control over the engineers.
Debtor testified that Gu’s management style was that Gu wanted to
run everything himself. Gu wanted to be in on al. of the decisions
and wanted to make sure that things were going the way Gu wanted
them to go. Gu was a hard-charging, high-ego type of executive.

Gu made the decisions about the products and the process for
MediaBop and entirely ran all of the technical aspects of MediaBop.

3. The Promissory Note

Around October 4, 2000, Creditor completed the first
demonstration version of a video sampling device and was awarded an
additional 20,000 shares of options for MediaBop stock. Creditor
asked that 10,000 of his option shares be distributed among five of
the engineers working for Creditor. Creditor testified that
Creditor gave a list of the engineers and amounts of shares to be

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distributed to Debtor and assumed that Debtor took all steps
necessary to provide for that distribution.

Creditor also testified that this is when Creditor first
discovered that Gu interpreted the original 50,000 shares as
options, not stock. Creditor testified that a shouting match
ensued between Gu and Creditor at which time Cred:tor accepted that
the original 50,000 stock shares were stock options. Creditor
insisted that the promise be written down or Cred:.tor would resign
immediately. Debtor testified that Gu delegated to Debtor the task
of drafting the agreement for the purchase of the stock between Gu
and Creditor. On October 4, 2000, Debtor showed Creditor a
document entitled “promissary note” [sic] (“Note”’ that Debtor
prepared without any legal help. The Note states:

MediaBop has issued a stock option effective 6/1/00 to

Robin Schneyer for 50,000 shares of MediaBop common stock.

MediaBop will guarantee to repurchase the rights to these

50,000 shares for a net amount of $100,000 from the stock

to be paid to Robin Schneyer on 11/30/01, at his option.

MediaBop has also issued an additional option for 10,000

shares to Robin Schneyer not as a part of this promissary

[sic] note.

Debtor handwrote the last sentence and made other handwritten
revisions to that sentence. Debtor signed the Note on behalf of
MediaBop. Creditor initialed the handwritten changes

In January 2001, Debtor asked Creditor if Med:.aBop could defer
Creditor’s monthly salary for February. Creditor agreed and
received no salary in February 2001. Half of Creditor’s deferred
salary was paid on August 1, 2001, and the rest was paid after
Creditor resigned.

In mid-February 2001, Creditor approached Debt:or about a

written employment contract since Creditor remembered he had not

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seen one. Creditor testified that Debtor promised to prod the
lawyer again about the employment agreement. Creditor accepted
Debtor’s statement, however Creditor testified that Creditor was
worried because there was no written employment agreement.

Creditor noticed that MediaBop was getting smaller and Creditor
was having difficulty getting along with Gu as Creditor’s boss. In
April 2001, Creditor announced that he was leaving MediaBop, even
though to do so meant giving up the buy-back guarantee. Creditor
believed that Creditor could make sufficient monev consulting to
make up for the loss. Creditor had a discussion with Gu that day.
Creditor testified that Gu said that Creditor could take his stock
options with him anyway and Gu seemed friendly again. Gu asked
Creditor to stay until the end of April and work on another
project. Creditor found working on the new project so much fun
that Creditor stayed beyond the end of April.

Creditor testified that around September 1, 2001, while Gu was
in China, another MediaBop engineer related something to Creditor
that caused Creditor to worry that Gu may not honor the buy-back
guarantee. Creditor went to Debtor and asked for a copy of the
Note signed in October 2000. In reviewing the Not:e, Creditor told
Debtor that the buy-back guarantee was incorrectly written because
Gu personally guaranteed the repurchase of the shares, not
MediaBop. Creditor testified that Debtor replied, “It doesn’t make
any difference. They are the same thing. Jimmy and I won’t let
this company die.”

Around September 7, 2001, Debtor told Creditor that due to
economic conditions, Creditor’s salary was going t:o be reduced to
$100,000 per year, in line with the reduction in salary of other

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top managers. Creditor asked if this was a deferment or reduction
and was told it was a reduction. Debtor testified that Creditor
became upset and said he wanted to resign. Creditor testified that
Creditor sought legal advice on September 19, 200:., and wrote a
novation (“Novation”) setting forth the terms of his previously
oral employment agreement. The Novation incorporated a reduction
of Creditor’s monthly salary to $8,000. Creditor believed that
MediaBop’s request to reduce Creditor’s salary was a breach of the
original oral employment agreement and the Novation was a brand new
agreement.

4. Creditor’s Resignation

Gu returned from China and, on September 21, 2001, Creditor
went to see Gu. At first Gu refused to see Creditor. Creditor
gave the Novation ~-- signed by Creditor -- to Debt:ior to deliver to
Gu. Debtor delivered the Novation to Gu and then Gu and Creditor
had a discussion in Gu’s office. Creditor testified that Gu did
not deny the validity of the prior oral agreement. Gu requested
that the $100,000 buy-back guarantee be apportioned in monthly
installments over a year. Creditor accepted that revision. Gu
then requested that Creditor increase Creditor’s employment
guarantee by a year, which Creditor refused to do. Creditor
countered with an offer to stay until March 2002. Gu refused to
sign the Novation and made it clear to Creditor that Creditor would
not be paid on the $100,000 buy-back guarantee. Creditor resigned
his employment immediately.

Creditor testified that he left Gu’s office angry and
depressed. Creditor collected his things from his: desk and stopped
by Debtor’s office to find out when Creditor would receive his

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final checks. In a brief meeting, Debtor told Creditor that there
was also a stock option agreement for Creditor and Debtor would try
to get that agreement for Creditor if Creditor wanted it. Creditor
said yes. Creditor testified that there was no other conversation
at that meeting except perhaps goodbyes. Credito: testified that
Debtor said nothing whatsoever about the Note or Creditor staying
on for two more months or any such thing.

Debtor testified that Debtor’s September 21, 2001 meeting with
Creditor took place in Debtor’s office. Debtor sat at his desk and
Creditor sat in the chair next to the desk. Debtor distinctly
recalls the meeting because Gu asked Debtor to trv to get Creditor
to stay with MediaBop. Debtor believed that Cred:.tor was a key
part of the technical expertise of MediaBop. Debtor testified that
at the meeting, Debtor told Creditor that Debtor wanted Creditor to
stay. Creditor stated that one reason Creditor was leaving was the
salary reduction and Creditor would not stand for it. Debtor told
Creditor that the salaries of all of the managers were being
reduced by the same percentage. Debtor testified that Debtor
specifically told Creditor that if Creditor resigned, Creditor
would not receive the benefits of the buy-back guarantee. Creditor
said that he did not care because Creditor could get a job anywhere
for more money.

Debtor testified that he prepared a memo reflecting what
transpired at the exit interview a couple of days after the
interview took place (“Exit Memo”). Creditor disputes that the
Exit Memo accurately reflects what transpired at the exit

interview. Creditor testified that with the possible exception of

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the first sentence that Creditor would get anothe: job, nothing in
the Exit Memo is accurate.

Creditor testified that one week later, around October 2, 2001,
Creditor returned to MediaBop to pick up his last check and sign
the stock option agreement, but learned there was no such
agreement. The only document signed by both parties relating to
Creditor’s employment at MediaBop was the Note.

5. Creditor’s Collection Action

Creditor noticed that the Note did not reflec: the eighteen
month work requirement and decided to write an invoice for payment
on the Note. On November 29, 2001, Creditor hand--delivered to
MediaBop an invoice for the $100,000 repurchase o: the 50,000
option shares. MediaBop did not respond to the invoice.

On January 29, 2002, Creditor sued Gu, Debtor, Vostech and
MediaBop jointly for breach of contract and fraud. All defendants
were defaulted pre-petition in the Action and all answers were
stricken for discovery abuse.’ Debtor’s bankruptcy case was filed
on the eve of Creditor’s prove-up hearing required by the state
court before it would impose a judgment by defauli:.

Debtor testified that after Creditor left MediaBop, Debtor had
to demonstrate MediaBop’s product that Creditor had been working
on, but the product would not work consistently. No employee of
MediaBop at the time knew how Creditor had written the software.

It took almost six months before the software was entirely debugged

’ Debtor explained that there were no funds to employ counsel to defend MediaBop in the
Action and thus, MediaBop could not appear in the Action. Debtor erroneously understood at the
time that since MediaBop could not appear in the Action, Debtor also cou.d not appear and Debtor
did not defend himself in the Action.

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and the product was functional. Debtor testified that the delay in
the release of the product meant that the window of potential
customers closed and the product was not as successful as Debtor
believed it could have been.

MediaBop stopped paying Debtor’s salary in 20)2. Debtor stayed
an additional year with MediaBop without getting paid because
Debtor believed that Debtor could save the company in some fashion,
bring it back to a beginning level again and go forward. Gu went
back to China to try and save MediaBop with new p:oducts and new
investors. Eventually MediaBop shut down. Today Debtor sells

high-end, all-season sunrooms.

IT.
ANALYSIS

Pursuant to Bankruptcy Code § 502(a),* a proof of claim is
deemed allowed unless a party in interest objects to it. Rule
3001(f) of the Federal Rule of Bankruptcy Procedure, provides that,
“[a] proof of claim executed and filed in accordance with these
rules shall constitute prima facie evidence of the validity and
amount of the claim.” Fed. R. Bankr. P. 3001(f). If there is an
objection to a filed claim, the objecting party “:.s then called
upon to produce evidence and show facts tending to defeat the claim
by probative force equal to that of the allegations of the proofs
of claim themselves. But the ultimate burden of persuasion is

always on the claimant.” Wright v. Holm, 931 F.2d 620, 623 (9th

Cir. 1991); In re Pugh, 157 B.R. 898, 901 (9th Cir. BAP 1993).

* Title 11, United States Code, as it existed when Debtor filed his bankruptcy case.

MEMORANDUM DECISION SUSTAINING DEBTOR’S
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behalf.

In this case, Creditor filed his Claim asserting that Debtor
owed him $721,993.73 resulting from fraud in conn2ction with
Creditor’s employment as the Director of Technoloyy at MediaBop.
Debtor objected to Creditor’s Claim on the grounds that the claim

is without merit and, inter alia, seeks to recover from Debtor as

an individual for damages resulting from the alleged actions of a
corporation.
Under California law, “[d]irectors and officers of a

corporation are liable for torts committed by them on its

However, directors or officers do not incur personal

liability for corporate torts merely because of their official
position unless they participate in the wrong or authorize or

direct that it be done.” 5 Witkin, Summary of California Law,

Torts § 33 (10th ed. 2005) (emphasis in original). Thus, for
Creditor to have a claim against Debtor, Debtor must have

participated in, or authorized, or directed some fraudulent act.

It is well established in California and other

jurisdictions that a person who has been induced by
fraudulent misrepresentations to enter into a contract or
to make a conveyance may have the contract or conveyance
set aside and secure a restitution of those benefits lost
to him by the transaction. A fraudulent misrepresentation
is one made with the knowledge that it is or may be untrue,
and with the intention that the person to whom it is made
act in reliance thereon. It must appear, however, not only
that the plaintiff acted in reliance on the
misrepresentation but that he was justified in his
reliance. He may not justifiably rely upon mere statements
of opinion, including legal conclusions drawn from a true
statement of facts, unless the person express:.ng the
opinion purports to have expert knowledge concerning the
matter or occupies a position of confidence and trust.

Seeger v. Odell, 18 Cal. 2d 409, 414 (1941) (citations omitted).

=).

Creditor asserts Debtor committed fraud towards Creditor through

alleged misrepresentations made in the Business Plan, the Note and

MEMORANDUM DECISION SUSTAINING DEBTOR’S
OBJECTION TO CLAIM OF ROBIN SCHNEYER 15

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UNITED STATES BANKRUPTCY COURT

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\O ioe) ~ On wr . es) N —_

No i) No No No No i) bo NO — — — — ee — = — — —
(oe) ~ fon) wa - Ww iS) — fa) \O oe) ~l nN oA) oN Ww bo — Qo

fab

Debtor's representations that there would be a written employment
agreement. Debtor asserts there was no fraud. Tnis Court agrees
with Debtor. Creditor has not meet his burden of proving by a
preponderance of the evidence that Debtor made any
misrepresentation with knowledge that the misrepr2sentation was
untrue and with the intent that Creditor rely on the
misrepresentation and that Creditor in fact justifiably relied on
the misrepresentation to Creditor’s detriment.
A. The Business Plan

Creditor first asserts that Debtor is liable to Creditor for
alleged misrepresentations made in the Business Plan. Creditor has
failed to meet his burden of proof. First, the evidence shows that
the Business Plan was a collaborative effort on the part of Gu and
Debtor and that Gu dictated the contents of the Business Plan, and
Debtor essentially drafted the text -- all the in“ormation in the
Business Plan was placed in it at the instruction of Gu. Even if
there was some misrepresentation, Debtor credibly testified that he
did not intentionally place any erroneous informat:ion in the
Business Plan. Debtor also testified and Creditor did not dispute
that Gu thoroughly reviewed the Business Plan after Debtor finished
with the final draft and Gu made additional corrections. Debtor
also testified credibly that Debtor believed that the Business Plan
accurately reflected the business prospects for MediaBop.

Alternatively, even if Creditor had demonstrated that Debtor
knew there were misrepresentations in the Business Plan, the
evidence does not support a finding that Creditor justifiably
relied on the Business Plan in accepting his employment at
MediaBop. Creditor testified that Creditor knew Gu was a hyper-

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OBJECTION TO CLAIM OF ROBIN SCHNEYER 16

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UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

\o Co ~] ON al - io) N =

bo bo i) No bo nN No bo iw) —_ ee = = — — = —_ _ —
(ore) ~] lon n aN ie) N —_ —) \o co ~] an wn as Ww NO —_ oO

optimist and that Gu exaggerated extensively. Creditor was so
concerned with working for a start-up company that Creditor
negotiated a guaranteed repurchase of his stock snares upon
Creditor completing eighteen months of continuous employment. The
evidence supports a finding that Creditor was wary of start-ups and
knew that Gu could be overly optimistic in his presentation of
facts. Creditor did not justifiably rely on the 3usiness Plan in
accepting employment at MediaBop.
B. The Note

Creditor next asserts that Debtor is liable to Creditor for
Debtor’s execution of the Note. Again Creditor has failed to meet
his burden of proof. First, in order for Creditor to prevail,
Creditor would need to show that when Debtor executed the Note on
behalf of MediaBop and at Gu’s request, that Debtor knew in October
2000 that Gu did not intend to honor the Note. The evidence is to
the contrary. Debtor had no reason to believe that Gu would not
honor the Note. Creditor himself testified that when Creditor told
Gu that Creditor was going to resign April 2001, Gu proposed to
honor the buy-back guarantee even though Creditor had not worked
the full eighteen months as originally agreed. Thus, Gu apparently
intended to honor the Note in April 2001. Creditor also testified
that when Creditor had his meeting with Gu on September 21, 2001,
Gu initially agreed to honor the oral employment agreement and Gu
and Creditor negotiated some amendments to that agreement. Thus,
Gu intended to honor the Note in September 2001. There is no
evidence that Gu intended not to honor the Note when Debtor
presented it to Creditor in October 2000, and there is no evidence
that Debtor fraudulently misrepresented the Note.

MEMORANDUM DECISION SUSTAINING DEBTOR'S
OBJECTION TO CLAIM OF ROBIN SCHNEYER 17

OQ
Oo)

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UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

Ke) oe) ~ nN wa os Oo N om

bo bo do i) iw) NO No bo No — — — = _ — — _ —_ —
ioe) ~] nN wa oS Ww i) —_ (>) \o oo ~~ nN ms -& ios) i) = a)

C. Representations Regarding a Written Employment Agreement

Finally, Creditor asserts Debtor committed fraud when Debtor
represented to Creditor on several occasions that the oral
employment agreement would be reduced to writing. Again, in order
for Creditor to prevail, Creditor would need to snow that when
Debtor made the different statements regarding the status of a
written employment contract that Debtor knew that those statements
were false and intended for Creditor to rely on tie statements.
There is nothing in the record to indicate that Dabtor knew any
such statements were false when the alleged statements were made to
Creditor. Moreover, the evidence shows that Gu intended to honor
Creditor’s employment contract terms even without a written
agreement in April 2001 and September 2001. There is no evidence
that Debtor fraudulently misrepresented the status of the written
employment contract to Creditor.

Finally, the Court notes that under any of the above scenarios,
in order to prove fraud, Creditor must show damages that resulted
from any misrepresentation that Debtor gave that Debtor knew was
false at the time Debtor gave it, on which Creditor justifiably
relied. Creditor bases his damages claim on the failure of Gu to
pay the $100,000 buy-back guarantee. However, Creditor testified
that the $100,000 buy-back guarantee was based on Creditor
providing eighteen months of continuous service at: MediaBop and
Creditor resigned after only sixteen months of employment. Thus,
Creditor was not entitled to the $100,000 buy-back guarantee under
the terms of Creditor’s employment contract with MediaBop, so

Creditor did not suffer any damages.

MEMORANDUM DECISION SUSTAINING DEBTOR'S
OBJECTION TO CLAIM OF ROBIN SCHNEYER 18

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Ifl.

CONCLUSION

For the reasons stated above Debtor’s objection to Creditor’s
Claim is sustained and such Claim is disallowed in its entirety.
Counsel for Debtor shall submit a form of order so providing,

after review by Creditor as to form.

ARTHUR S. WEISS'3RODT
UNITED STATES BANKRUPTCY JUDGE

MEMORANDUM DECISION SUSTAINING DEBTOR’S
OBJECTION TO CLAIM OF ROBIN SCHNEYER 19

—).

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Court Service List

Roger P. Pitkin
1281 Shanghai Ct.
San Jose, CA 95131

Gregory D. McDonald, Esq.

Law Offices of Gregory D. McDonald
Old Bank of America Bldg.

12S Ist St. #417

San Jose, CA 95113

Robin Schneyer
3470 Brookdale Drive
Santa Clara, CA 95051

Devin Derham-Burk
P.O. Box 50013
San Jose, CA 95150-0013

U.S. Trustee

Office of the U.S. Trustee
U.S. Federal Bldg.

280 S Ist St. #268

San Jose, CA 95113-3004

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