Psystar's legal costs in Apple fight push it into bankruptcy

Psystar, the Mac clone maker battling with Apple that filed for bankruptcy last week, owes the bulk of its outstanding debt to the California law firm that's represented it for almost a year, court documents show.

The Florida-based company, which filed for Chapter 11 protection May 21, owes Carr & Ferrell LLC more than $88,000, and a court-mandated mediator nearly $7,000, according to the bankruptcy petition.

Psystar hired Palo Alto, Calif.-based Carr & Ferrell, a firm noted for its intellectual property expertise, last July, after Apple sued the company over its practice of installing Mac OS X on generic Intel-powered computers.

The money Psystar owes its legal team amounts to 34% of the $259,000 listed as debts to its top 20 creditors. Only a $120,000 loan to the company made by Rudy Pedraza, Psystar's CEO and co-founder, accounts for a larger percentage of the debt. If Pedraza's loan is factored out of the equation -- reducing the "outside" debt to $139,000 -- Carr & Ferrell's bill represents a whopping 63% of the total money owed.

Colby Springer, the lead Carr & Ferrell attorney on the Psystar case, did not respond to questions today, including whether the firm would continue to represent the clone builder.

Psystar also owes $6,800 to the mediation firm Judicial Arbitration and Mediation Services (JAMS). Last October, a federal judge ordered both Psystar and Apple to enter what's called Alternative Dispute Resolution (ADR), a legal process that can include mediation, in an attempt to work out their differences.

Together, the JAMS and Carr & Ferrell debts amount to 37% of Psystar's total debt, and 68% of the money owned to outsiders.

Other creditors include the IRS -- Psystar owes nearly $12,000 in taxes -- and the DHL and FedEx delivery services ($12,700 and $8,000, respectively). But in its bankruptcy petition, Psystar didn't even mention its legal bills. Instead, it blamed the "weakened economy" and "the decrease in consumer spending" for its financial problems. It also said it was making less profit per sale because its suppliers, beset with their own money troubles, were unable to provide necessary parts, "[thus] forcing Debtor to pay higher prices for parts in order to fulfill customer orders in a timely manner."

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