Arrington Is Denied Injunction Against Fusion Garage Over CrunchPad
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* FG seems to have claimed that any relationship they had with TC was in the nature of a "joint venture" and not a partnership. Doesn't matter, says the court: call it what you will, but there are fiduciary duties at play.
* FG claims they couldn't have had a real relationship because TC's Arrington made statements about both parties sharing profits, and both sides bearing its own losses. So what? asks the court: that's part of the definition of a partnership. Not to mention: TC already has shouldered some of FG's expenses.
* FG claims there's no partnership because a TC employee proposed actions that would have put TC in breach. But a "potential breach" (which TC management prevented) doesn't absolve FG of any duties.
* FG claims there couldn't have been a real partnership because TC had threatened to unilaterally dissolve the venture. So what? asks the court: as long as TC lives up to its obligations, it has that right.
* FG claims there's no evidence of co-ownership of the business. And? asks the court. It's the joint venture that created the fiduciary duties, not ownership.
* FG claims that no joint venture could have existed because TC was negotiating to buy FG. Be that as it may, whatever duties FG had to TC in collaborating on the CrunchPad remain.
* Finally, and probably most importantly, and this is worth quoting directly:
Fusion Garage argues that the terms of the parties joint venture were simply too uncertain and unsettled to be enforceable. While it may be true that the parties never reached a meeting of the minds on how the business would operate on an ongoing basis, their cooperative efforts in developing the product were sufficient to give rise to an obligation on both parties' part not to usurp the fruits of those efforts.
In other words, see you in court.
I'm actually not that interested in the TC/FG saga, since I think that product was D.O.A. But I'm very interested in the legal dynamics of joint ventures, because it's not crazy to think I might be involved in another one someday. Food for thought.
Concerning the joint-venture analysis, where two otherwise independent entities team up to pursue a business opportunity for profit, or to jointly develop a product for possible future commercial exploitation, they can readily satisfy the technical definition of a "general partnership" under the Revised Uniform Partnership (a joint venture being in essence one species of "general partnership," basically formed for a specific purpose instead of a broader collaboration). Under RUPA, the law can conclude that such a partnership has been legally formed whether or not the parties intended to form it and whether or not they sought to document it in writing.
Thus, given the critical elements - (1) a commercial teaming and (2) an intent to share profits - one can legally form a partnership or joint venture and incur the duties of a partner or joint venturer to the other party involved, quite without intending to embrace any such legal structure. This area of law can thus easily catch a party by surprise and lead to imposition of potential surprise legal liabilities. In effect, the profit-minded goals of the parties, combined with their statements and actions in teaming to further those goals, give rise to legal duties that they owe to one another even if they never intended to embrace a formal legal relationship. The greatest of these duties is that every partner (or joint venturer) owes a fiduciary duty to every other partner (or venturer) in the partnership or joint venture. A fiduciary duty is a far stricter one than is normally represented by arms-length dealing. It is, rather, a duty to act in the highest good-faith toward one's fellow partners and includes having to act in the best interests of the partnership in relating to the venture. This axiomatically means, of course, that one cannot appropriate for one's own use and profit the subject matter of the venture and at the very least cannot do so without compensating the other partners for the value of what is being taken.
Here, given the procedural context of a preliminary injunction application, the court was not required to, and did not, make any ultimate findings about whether these parties had in fact formed a joint venture. However, the court ruled that TC had made a credible showing that such a venture existed, not generally in the broader proposed business relationship that the parties had been continually negotiating and whose terms were probably wildly unclear but rather with respect to the product development itself. In other words, with TC having delivered specs for the product, as well as having contributed money and engineering resources to further its development, and with FG having gladly accepted all this and having done so while trumpeting the joint development efforts to the world, the court said that this likely amounted to a joint venture for the product development itself and, with that product constituting an asset of the joint venture, one venturer (FG) could not simply misappropriate that asset to its own use without breaching fiduciary duties owed to its fellow venturer (TC). The court said that it amounted to a breach of fiduciary duty for FG to do this without settling up with TC as its fellow venturer by compensating TC for the value of the anticipated business opportunity associated with such jointly developed product.
The rest of the TC case is theoretically far from over, even with the court's dismissal of its fraud claims and the like, but is nonetheless likely dead in practical terms. It seems clear from the court's discussion that the fraud theory is far too nebulous to be sustained.
It takes a great deal of time and money to take a legal action to a point such as this and, a motion for preliminary injunction being, in effect, like a mini-trial, TC and FG have very spent somewhere in the six-figure range already to go through this exercise. Given that it is pretty clear that TC is chasing after windmills in terms of what it hopes to get out of this core dispute over breach of fiduciary duty concerning the product itself, it would seem that any further extension of the case case at this point would be more ego-driven anything else. One would hope that the parties would simply put it to rest with some private settlement made in light of the court's ruling.
Is there a requirement for consent in such cases?
Parties can also try workarounds but, as the TC/FG case illustrates, something such as a joint product development ipso facto defines the subject the matter as the product itself and even a so-called independent-development effort doesn't give the party trying to walk away a clean way of doing so because the other party simply claims that it breaches fiduciary duties by doing so.
All in all, such situations usually result in an unholy mess. A good lesson here for documenting your relationships and for not too casually "partnering" up with people (this type of case also happens on occasion with founders and ill-documented relationships - even if one of them is not "on the papers," that person can often claim a "partnership" and, hence, a percentage of the enterprise supposedly promised to him in exchange for undocumented startup efforts).
By the time they get their egos and money grabs sorted out, it'll be just another (overpriced) me-too tablet in a sea of better competitors.
The smart move would be to call it a day and cut the losses, Arrington may have a legal case but it seems like he's throwing good money after bad as well. The joojoo isn't going anywhere, the 'profits' are non-existent and there won't be any in the future.
Maybe he wants it back as part of a settlement so the project can be sold to a third party?
On the off chance that FG turns it around and somehow does manage to take it to market successfully (which this suit will almost certainly impede,) then Arrington and company should get to reap the proceeds (if that is what the court finds.)