Kohnke v. Perpetual - The Opening Round
How a new civil case hints at the real story behind Perpetual Entertainment's moves in recent months and the demise of Gods & Heroes: Rome Rising.
by Jeff "Ethec" Woleslagle
December 11, 2007 - Details surrounding Perpetual Entertainment's dealings subsequent to the cancellation of Gods & Heroes are coming to light as Ten Ton Hammer uncovered court documents of a new complaint just submitted to California's Superior Court last week. The allegation: the San Francisco-based developer fraudulently transferred valuable assets (like the Star Trek Online license) to an insider-owned corporation at a loss, leaving those with a financial stake in the now-defunct MMORPG Gods & Heroes: Rome Rising without hope of payment save legal recourse.
Court documents reveal
According to documents received last Friday in California's Superior Court for the County of San Francisco, public relations firm Kohnke Communications, Inc. – best known for promoting the efforts of numerous MMORPG developers like EA Mythic, Red 5, Turbine, and NetDevil – is suing Perpetual Entertainment, Inc. for breach of contract, fraudulent transfer, fraud, and various other charges for damages between $80,000 and $290,000, perhaps much more in terms of punitive or exemplary damages.
The complaints stem from allegations that Perpetual sold valuable assets like the Star Trek Online (STO) license to P2 Entertainment, Inc., a thinly veiled yet separate corporate entity, before executing the Perpetual ABC or "Assignment for the Benefit of Creditors" (a liquidation mechanism allowed by states like California as a less expensive alternative to the extensive litigation surrounding bankruptcy). The case could have drastic implications for future of the pre-alpha Star Trek Online title.
Pushing the Corporate "Reset Button"?
The problem was in Perpetual's valuation of transferred assets and the timing of the disclosure, or apparent lack of disclosure, of P2 and the ABC. While the ABC was executed on October 10th, 2007 and the sale of select Perpetual assets at less than market value allegedly took place prior to that date, Kohnke and other creditors had not been informed about the ABC's execution more than a month and a half later. The transfer of assets left Perpetual financially destitute while Perpetual representatives continued to promote an image of calm in the wake of the cancellation of Gods & Heroes: Rome Rising. This, according to the complaint, constitutes a breach of Perpetual's contract with Kohnke with intent to defraud and a violation of the California Uniform Fraudulent Transfers Act.
To quote the complaint, which in itself reads like a courtroom drama: "Star Trek Online Executive Producer Daron Stinnett published comments on November 28, 2007 at startrek-online.net, flatly denying that Perpetual was in the process of liquidating and representing that Perpetual was still an ongoing concern: 'There was also a report about PE liquidating our assets. That report relates to a transaction that took place a while back. And while I can't go into details right now, I want to assure the community that the entire Star Trek team is still here working hard…'
"Just one day later, the story changed dramatically. On November 29, 2007, Keene [Joseph Keene, an officer of both Perpetual and P2 with a 'significant equity stake in the company'] confirmed to counsel for Kohnke that Perpetual had executed the ABC, and that all of Perpetual's assets were in the hands of Perpetual ABC. However, Keene also admitted that, prior to executing the ABC, Perpetual transferred certain assets to P2.
"On information and belief, the assets transferred to P2 include Perpetual Entertainment trademarks and copyrights, the perpetual.com domain name, and assets related to Star Trek Online, including code and the license… Perpetual received less than market value for the assets it transferred to P2, and the transfer made Perpetual insolvent (or worsened Perpetual's existing insolvency)."
>> Continue >> to see why Kohnke believes
Perpetual canceled Gods & Heroes in part to
intentionally escape contractual obligations
and continue work on Star Trek Online.