Here are six good reasons for why hiring a business lawyer is money well spent: 6 Reasons Why Hiring A Business Lawyer Is Not That Expensive. As someone who litigates disputes, I can say that litigation is much more expensive than doing it right in the first place.
TechCrunch founder Michael Arrington recently announced that the CrunchPad project blew up on the eve of the CrunchPad’s launch. (See, The End of the CrunchPad) I’m not that interested in the tech or the details of the dispute between TechCrunch and Fusion Garage. No, what I think is worth writing about are the lessons that the average businessperson can learn from this. There are several lessons here.
Lesson 1: Don’t Do Business With Anyone You Wouldn’t Do Business With On A Handshake
In this post, Arrington mentions the “unsavory investors, borderline loansharks” that Fusion Garage raised money from. He also alleges that Fusion Garage is a financial mess. That sounds like a recipe for disaster. When you’re doing business with a company, you’re indirectly doing business with their investors, shareholders, and associates too. That is especially true if, as seems to be the case with the CrunchPad, the relationship is essentially a partnership. Arrington makes Fusion Garage sound desperate. The desperate turn into the greedy and the greedy will screw you.
Lesson 2: Get The Deal In Writing!
You want to do business with someone who you’d do business with on a handshake, because written contracts can be broken. In fact, you have the right to break a contract but you must be prepared to pay the damages caused to the other party. Therefore, the other person’s integrity matters even with a written contract. As the saying goes — trust but verify.
The CrunchPad project appears to be riddled with uncertainty as to the precise role of each party, and who owns what. The contract should clearly state who pays what expenses and when, how the parties are reimbursed from income, and the profit split. It is noteworthy that TechCrunch and Fusion Garage apparently had no written contract. This is surprising because Arrington is a lawyer. The lack of a written contract is likely to make for prolonged and extremely expensive litigation. (One-hundred and six paragraph twenty page complaints don’t come cheap and that is only the beginning.) Without a written contract, the details of the deal must be teased out from dozens or hundreds or even thousands of conversations, telephone calls, letters, and emails. That takes time and money — lots of both. All of that information (much of it transmitted without consideration as a contract term or for future litigation) will provide fodder for both sides to argue over.
Lesson 3: Know Who You’re Dealing With And Act Accordingly
See, Lesson 1 above. TechCrunch alleges that Fusion Garage and its founder “have shown a long-term pattern of deceit in their business dealings.” Just a few days earlier he was saying how much he admired the founder and what good friends they were. Perhaps TechCrunch is excused because Fusion Garage and its founder are in Singapore. They claim that Singapore government control of embarrassing news made it difficult to find out about the founder’s past. Certainly, a company with TechCrunch’s reach in the tech world had other contacts in the Singapore business community. Moreover, TechCrunch now says it discovered the unsavory nature of the Fusion Garage founder last summer. That would have been the time to quickly shorten the leash and to attempt to reduce the deal to writing. Frankly, the deal should already have been written, but this should have been a red flag to make an effort to clearly express the deal in writing.
I added the “and act accordingly” because I’ve had clients who actually did know negative information about business partners and investors and dealt with them anyway. They almost always rue the day they did so. When things blow up just like they should have known they would, they always say, “I knew better.” It is amazing what you can discover on Google these days, especially in the U.S.
Lesson 4: The Best Time To Get The Deal In Writing Is When You’ve Got Leverage
Early on TechCrunch had all the power and leverage and Fusion Garage had none. Fusion Garage probably still lacks leverage, but it doesn’t matter. Fusion Garage has made its desperate move to grab the prize for itself at the last-minute. Early on TechCrunch could have secured a written contract on favorable terms because Fusion Garage needed it more than it needed Fusion Garage. Now that TechCrunch has paid expenses, widely publicized the CrunchPad, used its connections, and otherwise moved the project along, Fusion Garage no longer feels a need to share the project with TechCrunch and can make its move. Often the greatest power a party has is the ability to walk away if the deal doesn’t suit them. If the other party needs you, but you don’t need them that is when you have the greatest leverage. Once the project is underway, you’ve already got a deal of some sort and its terms are inherently unclear.
Lesson 5: You May Have A Partnership Whether You Intend One Or Not
A partnership is one business relationship that requires no intent or effort to create. When two or more persons or companies enter into a joint venture together, they have a partnership relation whether they intend one or not. That means that without a written contract to define the relationship, rights, responsibilities, and obligations of the parties, the body of law concerning partnerships will apply. That can be messy.
Lesson 6: Be Very Careful About Trying Your Case On The Internet Or Any Public Forum
Already Arrington is locking himself into positions and making contradictory statements by trying his case on TechCrunch. Obviously, I’m not privy to all the emails and other information and I’m not interested in reviewing them all. However, I know from experience that with every additional word he posts that Arrington is getting locked in to positions, probably without the benefit of a careful review of what has been said before. Even a cursory review from one post to the next shows contradictory statements. On the one hand, the Fusion Garage founder “was the kind of young, determined entrepreneur that I admire. I thought we’d be friends for the rest of our lives.” On the other hand, Arrington says in the next post that he’d learned last summer that the founder is “not a good guy” and deceitful. Huh? If Arrington learned last summer that the Fusion Garage founder wasn’t a good guy and had previous bad business dealings, then how could he have just written what an admirable guy and friend for life he was? A skillful lawyer can do some damage with such contradictions.
I often warn clients that are starting new businesses that incorporating is not a perfect shield against personal liability. Most small businesses are run by their owners who work in them. People who personally engage in tortious conduct may be held liable even if they’re working for an incorporated business at the time. The example I often give clients is to assume that they’re driving a company owned vehicle when they run over an old lady in a crosswalk (i.e., liability is clear). The client gets sued as the driver and the company gets sued because it owns the vehicle and the client was on company business. Now assume the driver is another employee of the company, the driver gets sued and the company gets sued, but not the owner. In this case, the Fifth District Court of Appeal relied on this principle in ruling that a corporate officer may be held personally liable for violating the Florida Deceptive and Unfair Trade Practice Act (FDUTPA) if he participated personally in the decepitve or unfair practice.