Judge Rules for Ousted Registerfly CEO

Former CEO Kevin Medina has regained control of the domain name registrar, which has less than a week to straighten out accounts with ICANN

In a legal decision that stunned even the lawyers for the victor, a U.S. District Court judge on Mar. 8 handed over the embattled Web registrar Registerfly.com to the executive who was running it when it began to founder. Judge Peter Sheridan ruled in favor of defendant Kevin Medina, who had been chief executive of the parent company, Unifiednames, before he was fired by two other board members on Feb. 12.

It wasn't immediately clear what impact the ruling would have on the company's future and the more than 200,000 Web site owners who have registered their domain names through Registerfly.com. Concerns over the company have arisen in recent months amid complaints from customers who said they weren't receiving services they'd paid for and a brewing battle for control among owners. Domain-name registrars such as Registerfly.com receive fees for registering Web site names and ensuring they remain current.

"Back in the Driver's Seat"

Medina retook control of the company immediately, but, as of late Mar. 8, the Web site still featured a notice, placed by John Naruszewicz, Medina's longtime business partner and successor as CEO. The statement includes an apology to customers for recent turmoil and assurances that management is "taking every necessary measure to address the problem at its source."

Eugenie Temmler, Medina's attorney, of the Upper Montclair (N.J.) firm of Rabner, Allcorn, Baumgart & Ben-Asher, says Medina "is confident he will be able to correct the problems caused by Mr. Naruszewicz's attempt to take over the company." Interviewed in a Newark (N.J.) courtroom after the ruling, Medina was pleased: "This decision puts me back in the driver's seat," he said. "I believe I have built a lot of customers that will weather the storm."

Naruszewicz, one of the two who had fired Medina and taken control of the company, doesn't plan to appeal the judge's decision. "We lost and it's all over," he says. "The company will implode in days and 1 million domain names are going to be lost. It's a damned shame." Current and former customers reacted with shock on Web forums and e-mails: "This is very bad. Registerfly will be shut down soon," predicts Justin Kulhawick, a former customer who last year set up a Web site, Registerflies.com, to call attention to the company's failings. Among the company's customers are the government of Thailand, the Easter Seals charity, and pop star Michael Jackson.

ICANN Accreditation at Risk

If Medina is able to keep the cash-strapped company running, he will have to deal with the International Corporation for Assigned Names & Numbers, the organization that accredits domain name registrars. On Feb. 21, ICANN filed notice with Registerfly.com that it would remove accreditation if it didn't straighten out accounts. The company has until Mar. 14 to comply. "The company still has to cure the breaches. If they don't, we'll take their accreditation away," says Paul Levins, ICANN's vice-president for corporate affairs. Those breaches of contract include failing to provide ICANN with records of who owns accounts, proof that it is paying the keepers of domain name registries for its customers' names, and replacing customers' names with Medina's name.

Medina had been the company's chief executive from its launch in 2000 until three weeks ago. ICANN had been hearing complaints about poor customer service from Registerfly.com's customers for a year, but learned of what it termed "serious breaches" three months ago. Registerfly.com's Web site shut down abruptly on Mar. 6. after Naruszewicz wrested control from Medina. It was back online late on Mar. 7.

The two men had sued each other on a wide array of claims and counterclaims (see BusinessWeek.com, 3/8/07, "Allegations Fly at Registerfly"). In a suit filed Feb. 12, Naruszewicz alleged that Medina had been stealing money from the company since the middle of last year to pay for two Cadillac Escalades, a penthouse apartment in Miami's South Beach, an escort service, and liposuction. In a phone interview, Naruszewicz said Medina used company funds to pay for loads of private expenses. Also, he said Medina was taking customers' money in online transactions and then failing to register the domain names they had paid for. Medina denied misusing company funds and accused Naruszewicz of using fraud to take control of the company.

After listening to about 45 minutes of testimony and spending 40 minutes reviewing documents, Judge Sheriden ruled that Medina owned the company. He declared stock certificates held by Naruszewicz null and void. Even before the ruling, ICANN had taken action to prevent Registerfly.com customers from losing their domain names. It convinced four companies that have overall control of the majority of domain names not to let Registerfly.com customers' names expire. If that happened, other individuals or companies could claim the names. Already, about 75,000 Registerfly.com customers have lost access to their own Web sites.