Cruise settles legal case involving cofounder | Hacker News Reader

Cruise settles legal case involving cofounder

businessinsider.com

99 pointstaylorhou63 comments

To all new founders, get a legal agreement in place from day 1 with your collaborators. Here are some amazing free resources (vetted for Canada, a million times better than nothing in the US, pass it by a lawyer if you have the money):

http://wiki.velocity.uwaterloo.ca/Legal

@sama - could YC spearhead creating US versions of the founder IP agreements?

It's worth noting that Vogt is not a new founder. He was a cofounder of JustinTV, SocialCam, and Twitch before Cruise. It might have been an error due to lack of relevant experience, but the previously problematic situation isn't attributable to a rookie mistake.

Though I am not a lawyer, my understanding is that the claims and counter claims did not really revolve around IP. Take it out of the equation and the documents [as described on the internet] might still form the basis of a claim.

Those there companies are all the same company. Also while Kyle was a cofounder of Justin.tv he wasn't actually part of it until a little bit in when they needed someone to figure out the camera.

My intuition from a distance is a two dollar dollop of conceptual imprecision regarding meaty persons versus fictitious persons lies closer -- not further -- from the center of the recently settled issue.

Autodesk and Amazon did not buy the same company.

"two dollar dollop of conceptual imprecision regarding meaty persons versus fictitious persons" ... what?

Maybe I'm just slow today, but even as a native English speaker I cannot understand that sentence.

So Justin.tv was started, it ran for a while. People realized that it wasn't going as well as they wanted and they weren't going to be able to build it as far as they want.

So they started a couple of internal projects of potential ways they could go. One was Socialcam the other was Twitch.tv. Both of these were part of Justin.tv.

After running for a bit it was decided that Socialcam would be better off as a separate company so Michael Sibel split Socialcam off into a separate company. Kyle was not part of that split.

Twitch.tv started taking off so Emmett decided to focus on that and eventually that took off and Justin.tv was shuttered in favor. Kyle stuck around at Twitch for a while working on Justin.tv and eventually left to found cruise.

I wish a good, solid, but flexible founder agreement template existed. I have not found any that wasn't overly opinionated.

edit: in light of the Cruise fiasco, the agreement should probably contain language saying the organization is being formed without any ownership interest outside of the people listed.

As a lawyer I have to acknowledge legal agreements are important; however, they are not determinative. Cruise was acquired by GM for $1B, so it goes without saying they had their t's crossed and i's dotted...again it is not necessarily enough.

Besides written contacts (express), there are agreements created by the actions of the parties (implied).

I don't have the facts beyond the article, but at the point an application is submitted to YC naming someone a co-founder, its going to be difficult to argue there isn't an implied contract in place for anything the company (or even proposed company) does moving forward. Yes legally a company that doesn't even exist can be bound by the representations of its agents.

I wouldn't be to surprised to learn Cruise had a very strong case, which might have even included written resignations, stock transfers/assignments, etc... Again I don't know; nevertheless, one could see certainly see the practicality of just paying someone to go away even with a weak case so long as there is a modicum of truth to having started the company. There is nothing worse than a client who litigates out of principle instead of with their wallet.

I having been discussing contracts a lot on HN as of late especially in regards to what people dub smart contracts and I can't stress it enough, breach of contract cases usually never end at summary judgment and can usually always go to trial because whether or not there was a breach is a question of fact reserved for judge or jury at trial.

Well, that private settlement certainly clears it up for them. As for the rest of us, who sat on the sidelines and watched the slap-fighting, it doesn't offer a whole lot. Here's the crux I guess of the article:

>Cruise and its founder Kyle Vogt now acknowledge that Guillory was a cofounder of the company.

This is very much a sticking point that was extensively discussed in the prior hullabaloo regarding the YC-affiliated post on the matter. How this was agreed upon - the reasoning - being private isn't the most clarifying outcome for the public. I've no doubt this is on purpose for all the parties involved, and hope they are satisfied in private.

As a longtime observer of human behavior, my belief is this announcement will do nothing to quell outside speculation. If the parties involved don't want a bunch of randos-on-the-internet making up their own scenarios, there is an easy fix. Just share with the class what happened so we all may learn.

What is there to fix? They've settled it. Why should they care to satisfy your curiosity?

To answer your questions in order:

1. Public perception of a contentious disagreement where both sides levied serious accusations and reputations may be relevant in future business dealings.

2. Because if they don't want people making up their own theories they'll at least say something in unison other than "we aren't saying anything" as it pertains to Answer #1.

I'm not saying they owe any explanation - I'm just saying if they don't give one then they don't have room to bemoan idle speculation.

> 1. Public perception of a contentious disagreement where both sides levied serious accusations and reputations may be relevant in future business dealings.

That sounds exactly like why they said "we've reached a mutually-agreeable compromise." Now neither party will be negatively affected in future business dealings.

> If they don't want people making up their own theories they'll at least say something

Who cares? They have a billion dollars from General Motors. GM itself is a big enough company that opinions on HN don't matter and won't affect the sales of their final product.

They defused a difficult set of complaints in a mutually-agreeable fashion without involving the courts. That's good business. As outsiders, we are not in any involved with them, and probably shouldn't spend any time caring, except to take away one lesson: talk your differences over and reach an amicable agreement. Don't invent drama when none is required!

Well regarding your perspective I think you've got a contradiction in the reasoning used: Unlike you state, they did involve the courts, at least initially. Settling out of court enabled a level of privacy which, as I was getting at, leaves the mechanics of agreement undisclosed (agreeing to not say anything). As outsiders sure that doesn't mean squat, but, in a larger view, some high profile disputes employ "trial in the court of public opinion" tactics. That seemed relevant in this particular instance, and when it goes unaddressed, it simply - again, as an outsider - leaves an odd impression to me.

What people are saying is nobody really cares about "leaving an odd impression on an outsider". You're acting too serious about something that's really not your business.

I'm a writer so when a story has an inconclusive ending it gives me pause. Maybe you don't feel the same way and that's fine. I was simply commenting in the way I would about any other storyline I watch being played out. Caring is not particularly an accurate term, I'd say more like interest. I'm interested, and thus I've paid attention. I postulate, comment, and move on with life and store the data for later use.

All of your replies read like a bad attempt at prying into how much they paid to get this to go away. I have to agree with the others: it's none of your business, and no spinning of some reputation damage unless they do (?) will change that.

>Now neither party will be negatively affected in future business dealings.

Well I wouldn't do any deals with the so-called 'cofounder' because he appears extremely opportunistic and doesn't contribute anything useful.

There is almost certainly a clause in the settlement that limits what the parties can say about the terms and each other. ie: confidential terms, non-disparagement, and specific language that can be used in response to questions about the settlement. In this case it sounds like the things they have agreed to say are that Guillory was a co-founder and the settlement was mutually agreeable.

Wouldn't doubt what you mention; I attempted to allude as to such. In legally precise language, yes I get the statement is the agreed upon statement. In general, casual observational language the agreed upon statement offers little in content.

>This is very much a sticking point that was extensively discussed in the prior hullabaloo regarding the YC-affiliated post on the matter.

For all intents and purposes consider YC/Cruise/Vogt all one party. So it shouldn't be surprising that any YC post took a legal position consistent with Cruise/Vogt that: Guillory was not a co-founder and had no claim to ownership of Cruise.

>Cruise and its founder Kyle Vogt now acknowledge that Guillory was a cofounder of the company.

This is simply part of the terms of the Settlement Agreement, they didn't necessarily have to include this, but as a former commercial litigator I will give you my two cents...

Guillory demanded that, because without that he purely seems interested in money and not the credit. In a way it is part reputation (important) part ego (not important).

Nevertheless, the big arbitrator here (behind closed doors) is GM, cruise investors and $1B. GM is weighting the idea of no publicity is bad publicity with the fact they just bought a start up for $1B that doesn't have its shit together. Investors just captured their unicorn, and now have pending litigation, putting that in jeopardy for how many years. So at a certain point both GM and investors are going to put a lot of pressure on Cruise to settle the lawsuit ASAP, whatever it take, including give him credit as co-founder publicly.

Sam Altman posted on his views on his blog:

http://blog.samaltman.com/cruise

And the related HN comments:

https://news.ycombinator.com/item?id=11490188

So, I have a stupid, flamebait question: What precisely is wrong with Jeremy Guillory's case? I read those links but I also read this related BI piece [1] and it looks like Guillory has a solid claim: there is a document of them representing the company as half belonging to him, and no one's presenting any later agreement that says when his half was bought out or invalidated.

All that Vogt is going on, it seems, is "but you were just congratulating us when we raised more money!". What does that matter?

Altman's response, in turn, is that Guillory isn't being cool about this and taking (what he deems) a reasonable offer from Vogt. Well, why would he? If he was led to believe early on that he had a full 50% stake, why is it some moral transgression not to accept less [2]?

If you don't want a now-silent partner keeping equity, then buy them out. Don't wait until the company is worth something and then try to retroactively void the equity because you don't feel like they're part of the gang anymore.

[1] http://www.businessinsider.com/cruise-cofounder-fires-back-2...

[2] than the corresponding amount modulo later dilution

It sounds like the primary evidence supporting Guillory's claim is what they wrote on one question in their YC application (50:50 equity split). I don't know if that would represent a legally-binding contract if the case had gone to court, since it doesn't reference any shares, corporate entity etc.

The YC application isn't and doesn't need to be a contract. It was just another piece of evidence demonstrating the division of the company at the beginning. They also registered in Delaware as 50 / 50 split if I recall correctly and Guillory never signed any of the paperwork regarding limiting their shares.

IIRC they had registered in Delaware as a Kyle = 100% split, and then never signed any paperwork after that. That's a very different situation.

Yeah, the YC application is merely evidence of a contract rather than a contract itself, but it's pretty smoking gun evidence. Why would you write there is a 50-50 split on your YC application if it wasn't true?

What real company would continue to operate for years after someone with a 50% claim on the company had left after just a month or two of service?

Is it really unheard-of for an angel to hold such an equity stake and only advise for a month or so?

Yes, I believe so.

What's puzzling to me is how they thought about it enough to put down the split in the YC app, but it didn't come up when they split up.

What am I missing? This seems not at all complex. The two believed, when they applied, that they'd share fates. They were quite wrong. Like most people, they didn't do all the paperwork to safeguard against later bad-faith claims after they parted ways.

I'm sure that's what happened, and I'm projecting my own paranoia. But it seems like it was kind of an acrimonious break-up, which would prompt some ass-covering.

It says something about GM's due diligence skills (or their desperation to be seen as a player in self-driving cars) that they were even willing to talk to a company in this position.

Microsoft and Paul Allen? [1] (Not quite comparable, but similar. The consensus is that Allen leaving was good for Microsoft.)

[1] https://en.wikipedia.org/wiki/Paul_Allen#Microsoft

I'm with tptacek, Allen put in 2 years of sweat equity, was friends with bill gates, teed up the company and then had to take a backseat because of illness. How could cruise Possibly have raised money if half the cap-table was subscribed already. Also, typically there is like a 1 year cliff, so I am not sure how that would even be possible.

> Yeah, the YC application is merely evidence of a contract rather than a contract itself

Which is less of a distinction than one might think, since a signed contract document is just a very special piece of evidence (which invokes some special legal rules barring certain other evidence) of the existence and terms of a contract. A contract is a thing that exists in law as a result of particular interactions between the parties, anything you can present is, at best, evidence of the contract rather than the contract itself.

"Sufficiently advanced evidence of a contract is indistinguishable from the contract itself." :-p

The issue is that his ownership only existed as a technicality and he only received a favorable outcome due to to the inflexible nature of the legal system. He was not a 50% owner or anything near that. However, due to a lack of evidence otherwise, he was able to convince the court he was.

That depends: when someone approaches YC and lists equity stakes, is there an implicit understanding of a vesting schedule and cliff? If so, the YC submission wouldn't be enough to substantiate an ownership claim, esp if the assumed schedule is the standard 4-year/12-month cliff.

In the absence of documentation of how the equity dissipates, it would be assumed not to. In that case, I'm not sure it's dismissable as a technicality: if an early, vital partner has to leave, you have to weigh the costs of buying out their equity stake against current cash demands. When the future of the company is tenuous, the value is small and Guillory surely would have accepted a song for a buyout, just as Walter White took a $5000 buyout for his huge stake in Grey Matter (or the Apple guy); but they may also need that money very much.

If you take the approach of "well [in hindsight] OBVIOUSLY they didn't mean to leave him with that equity", you're effectively giving founders a free option on the shares of silent partners, unfair in its own way.

>Guillory never had equity, wrote code, nor invested in the company, although he was listed on the application to Y Combinator

They applied together to YC. They got accepted, but Guillory didn't go. Vogt said he didn't want to work together anymore. A business entity was later formed, in which Guillory had zero ownership of because he left the project before it even began and had nothing to do with it. The only basis for Guillory here is that they did at one point agree to work together.

This is like me saying to you, "Hey, do you want to go halfsies on a lottery ticket?" and then you responded, "Yes". Later, I tell you I no longer want to go halfsies, then go out to buy a ticket by myself and win. You then later sue me saying you get half of the winnings because we had previously agreed to go halfsies, despite the agreement later being revoked and you having never contributed and never planning to contribute anything to the cost of the ticket.

It isn't an issue of assuming a vesting schedule, it's an issue of someone deceitfully claiming ownership of something they never owned.

Well, it raises the question of whether it's legitimate to ask applicants to list the equity stakes in the first place.

Seems like YC is asking people to hold to that structure when it is in their interests, but ignore it when it is not.

To be clear, don't think this is terrible. Just, if you are going to claim the split means nothing, then why force applicants to create one in the first place?

It's an application, not a legal document for creating a legal entity. They're asking the question because it's valuable to them as an indicator. If you have two do-nothings that own 90% and a PhD researcher who's the brains of the operation who owns 10%, that would be a red flag. Additionally it's important because there's a minimum equity stake required to join them in CA and they don't want you making it up after the fact.

I think Alman's emotional arguments were a bit misplaced and while I disagreed with, at the time, how they were made, he seems to be fairly correct. Here is my interpretation of why:

> What precisely is wrong with Jeremy Guillory's case?

It isn't that there was anything wrong with it, but if you see Alman's post, they were in the preliminary stages of the company and I think jointly applied to YC. if IIRC they didn't even both do through YC together.

Let's say you and I talk about doing a lemonade stand. We apply to Techstars as Junicorn bespoke lemonade purveyors. Unfortunately, I want to use tensor flow & the latest stanford NLP techniques for our lemonade startup and build it on blockchain technology using go. You wanted to do some anachronistic throwback where the Lemonade POS system is built on nodeJS with gulp & browserfy having it be mobile-first, cloud based omnichannel.

So we have the break up.

Then I, and my new founders build an entire company based on Lemonade stands & blockchain technology. Going throug techstars with an entirely different group of people and taking the idea all the way from an idea into a product. Again for a timeline recap:

1. We both had the same idea independently.

2. Then we tried to combine our ideas.

3. Then we went our seperate ways to work on our own seperate implementation.

4. Then my team and I built Junicorn: Summer Lemonade and sold to MinuteMaid for our Concentration technology. (this is like thousands of steps you weren't part of)

5. Then you ask for some large number payoff because we both discussed starting a company but ultimately didn't.

However, depending on the legal structure and some of the other factors (e.g. massive leverage before a sale) he was probably able to make some money. He may have even contributed to the company in a way that entitled him to something. It was just pretty shitty to bring that up during a massive sale like this.

In the scenario that you describe, you muddied the waters of Junicorn without properly cleaning up your mess during the breakup. That opens you up to claims like these, which is probably why this happened at Cruise. As soon as you have an adverse relationship to a business partner, it's time to cut bait, get releases signed, or do something completely unrelated.

correct. The reason I believe that this was shitty was timing. The lawsuit coincided with the GM deal by all public accounts. Regardless of the legal structure, this was a shitty thing to do. Clearly, he cofounded Cruise and probably did contribute at least to the zeitgeist of the project.

Obviously, a cliff is standard for founders and kyle (based on the application) had posted a personal 100k convertible note. so if he fired Jeremy, that's fine. Jeremy probably would be entitled to something, and it should have been spelled out. However claiming 50% 2 years later to coincide with a 1B exit, seems fucked up. The approach to this, is what I have issues with.

If you read the legal documents, instead of Sam's attempt to try the case in the media, you'll see it's quite clear. There are signed documents stating Guillory owned half the equity. These documents were in YC's possession. Nothing ever voided them.

Instead of separating Guillory early and cleanly, they dropped the ball, and attempted to shame him, attempted to threaten him (Sam called Guillory dozens of times in a single weekend and told him to take a small buyout or he'd never work again), and then only as a final result did the thing they should've done out of the gate: negotiate a settlement.

If true, is this professional? No. However, OJ Simpson wasn't found guilty, using a technicality to escape justice. So while the legal system is helpful and i wouldn't consider it a total piece of shit, I think if I built a 1 billion dollar company and someone asked for $500M, because I forgot to file some paperwork due to the quickie shotgun starter-marriage we rushed into I would probably flip the fuck out.

Also, it's like in the social network where "Mark" says:

You know, you really don't need a forensics team to get to the bottom of this. If you guys were the inventors of Facebook, you'd have invented Facebook.

edit: I responded to SA from my account* and articulated why I thought he made a mistake. You created a novelty/new account called 's[am]alt[man]wrong'. Your point isn't that bad, Jeremy may deserve something (i'm not an insider on the story) but this is cowardly behavior, and downright harmful to your case due to how chldish this is. I respect Sam for taking a personal stance on this which ultimately could/might have slightly damaged him personally. So, in essence this was the point I was making here.

It isn't about the issue, but how it was handled. Coming out of the woodwork in the final hours of a massive deal to demand payment is shady and doesn't seem to be handled in a way that was particularly reasonable. Just as anonymously asserting insider info on here which is unverifiable because you are choosing to hide your identity...is also less than forthcoming. You and Jeremy may be correct, but I would allege that regardless how Sam and Kyle handled themselves, the burden of being reasonable rests on detractors, I mean Kyle doesn't need to prove he added a ton of value to Cruise because he fucking started Cruise and built the team that ended up building the product that was Cruise and turned into the company that was Cruise which then put together the sale of the company(Cruise) to GM.

* which is like >800 days old and pretty fucking tied to my real identity. I mean, there is a goddamn keybase public key attached to it...

So all of that drama, name calling, sam altman posts, etc. ended with them agreeing that he was indeed a co-founder? Honestly the only people who really know what happens between two people, are those two people.

Settling != agreeing the other party was right. Lots of times it makes financial sense to settle even if the other person was completely wrong.

e.g. When you have a legal issue holding up the close of your $1bn deal and you have to choose between paying up so you can get your deal closed, or dragging it out over 1-3 years in a protracted legal battle that risks never getting the deal done.

And sometimes Stettling == agreeing the other party was right. In the recent GoldiBlox suing the Beastie Boys which resulted in a swift counter-suit, the settlement to drop the lawsuits included a public statement by GoldiBlox. That statement accounted to an admission of guilt and explained that GoldiBlox was in the wrong. Sometimes financial sense can be dictated by legal standing as well.

So you are saying, without in-depth knowledge about the situation, that even though they settled and publicly agreed that he was indeed a cofounder, that he is lying and Cruise is wrong? I choose to believe the court record.

"co-founder" =/= "50% co-founder"

If Guillory has undiluted 50% ownership of Cruise - he surely must have made a bank. Anywhere from tens of millions to hundreds of millions.

Surprised I found this on Techmeme and not here. No matter what the outcome actually became, this was a shtfest, rollercoaster, HBO drama, discussion, and learning experience all in one.

Cheers.

Judging from the absence of a @sama blog post about the settlement it looks like things didn't work out too well for him and YC....

I almost feel like @sama's blog post helped Jeremy's case even before it became a case... at the very least, it raised suspicion and caused more conservative readers who don't take "things posted on the internet" at face value to at least think about the underlying reason/cause for his public post.

Agreed. Next time I guess he will probably check with lawyers rather than "saying something before the lawyers can stop me".

If you were to win a settlement and get what you wanted, would you immediately start running your mouth and riling up the other party? I don't think so. I'm sure this was fine for everyone.

Anyone want to speculate about how much YC & Vogt just lost? They acknowledged him as cofounder based on a document in which he's listed as 50% owner; such a concession sounds like a complete victory for Guillory, implying he still owns 50% of the initial equity, and Cruise was bought for $1b. But presumably as cofounder he would have been diluted equally by the YC and any other subsequent investments. YC only takes 1.5%, IIRC, which is fairly negligible, but Cruise did 4 rounds according to https://www.crunchbase.com/organization/cruise#/entity . So how much of that $1b did Vogt wind up getting? And does it come out of Guillory's share entirely? (That wouldn't make sense, since Guillory might not even have 50% left.)

It's almost certain the settlement wasn't for the equity he would have been entitled based on the document that implies he had 50% equity at the time. That is the disaster, worst-possible outcome from a trial so there would be absolutely no reason to settle for that amount. If you're willing to accept that outcome you would be willing to go to trial and hope for the chance that you're willing to win.

It would've been an amount that Guillory was happy to accept, and that Cruise was willing to part with in order to reduce the risk that the legal uncertainty would spoil their acquisition offer. I have no guess as to what this value was, other than to say it would need to be an amount far-below what you would get if you assumed Guillory received 50% equity.

Additionally, Guillory probably traded some amount of financial compensation for the public admission that he was a co-founder.

> That is the disaster, worst-possible outcome from a trial so there would be absolutely no reason to settle for that amount.

Not entirely true: the disaster, worst-possible outcome from the trial is that plus an order to pay the other sides costs, plus having racked up a bunch of your own costs.

Which is why one might, conceivably settle for that without the expense and delay of trial.

>If you're willing to accept that outcome you would be willing to go to trial and hope for the chance that you're willing to win.

No, you're forgetting that a long legal battle could have ruined the deal completely. It's very feasible that they settle for the almost worst-outcome of the trial to avoid killing the very deal that made it worth so much.

I would bet that they paid him off anywhere from a couple hundred thousand to a couple million, and agreed to acknowledge him as a cofounder. Just enough to get his next venture off the ground and make it look impressive to potential investors. That way, Kyle/Cruise/YC wins on everything important to them, Guillory wins on everything important to him, and any costs can be pushed off on unsuspecting investors who were not party to the agreement.

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