ound one in the complicated case of a bankruptcy trustee vs. iPayment Inc., its principals and several other defendants has gone to the plaintiff.

On Dec. 5, 2004, the judge now overseeing proceedings ordered iPayment's attorneys to be removed as counsel immediately.

This is the first decision regarding allegations in the suit filed in July 2004 against iPayment, of Nashville, Tenn.; its Chairman Greg Daily; Chief Executive Officer Carl Grimstad; Chief Financial Officer Robert Torino and other individuals and companies, including law and accounting firms.

One of the first motions filed in the proceedings went in favor of Howard M. Ehrenberg, the appointed Chapter 7 bankruptcy trustee representing the estate of ITSV Inc. and its creditors and shareholders. (see "iPayment Inc. Sued by Bankruptcy Trustee," The Green Sheet, Sept. 13, 2004, issue 04:09:01.)

Judge Vincent Zurzolo, U.S. Bankruptcy Court, Central District, Los Angeles, allowed the Motion to Disqualify filed by Ehrenberg's attorneys and ruled that iPayment's attorneys were disqualified from further representation, saying their conduct violated attorney professional codes of ethics.

Zurzolo agreed with the motion filed by attorneys from the Los Angeles-based firm Pratter & Young, who are serving as special counsel to trustee Ehrenberg.

Zurzolo said that attorneys from the law firm Greenberg & Bass LLP of Encino, Calif. violated the Rules of Professional Responsibility and the California Business and Professions Code by representing iPayment after they had previously served as counsel for adverse party ITSV.

Attorneys from Greenberg & Bass have served as iPayment's long-time counsel and were representing iPayment in the bankruptcy case.

iPayment issued a statement in response to the judge's decision indicating it has retained the firm White & Case as counsel of record; attorneys with this firm, which has offices around the world, have been advising iPayment in this matter up to this point.

Ehrenberg's complaint alleges that iPayment and the other named defendants committed fraud, fraudulent transfer and conspiracy to defraud and violated California's Business and Professions Code.

Ehrenberg is seeking damages totaling more than $200 million.

Robert J. Young, principal of Pratter & Young, said this initial victory "is but the first step toward the eventual defeat and exposure of iPayment's fraudulent activities.

"We are confident of our case and its eventual successful resolution ... iPayment's entire foundation could very well be at stake if we are successful."

In its statement on the court's ruling, iPayment reiterated that it believes that the "complaint and underlying allegations are without merit and intends to vigorously defend against them."

All other motions in the case were continued until Jan. 14, 2005 to give the new legal team time to prepare.