At My Wit’s End: Jason Calacanis Threatens To Sue Us

Timing is very important here.

In essence, Mr. Calacanis and TC had formed an LLC to run the TC50 conference, were therefore co-members (i.e., partners) and equal owners of that LLC, and had reached a point in 2009 where they had serious tensions between them concerning the venture. Whatever the true story, it appears that they entered into a formal settlement agreement, with global releases granted to one another, earlier this year by which the LLC was dissolved and the parties were allowed to go their separate ways without either of them being able to make legal claims against the other.

That in theory ends it all and should eliminate all future legal claims relating to the venture. Indeed, it is almost certain that the releases included the standard provision found in all California releases by which all parties would have agreed to release all claims, known and unknown and by which each party would have agreed and acknowledged to accept the risk of giving a full release even if later events revealed facts that might have materially altered that person's decision to grant the release in the first place.

So what happened?

AOL agrees to acquire TC, signs a definitive agreement to do so, and enters into an escrow/due diligence period preceding the closing during which TC and Mr. Arrington must warrant and represent, among other things, that the stock/assets being transferred are free of legal claims or liabilities that might affect AOL as buyer in the deal or, if not, that such claims are disclosed and accepted by the buyer.

If serious legal claims arise during this period, (1) the deal might be killed if the prospective acquirer decides that the existence of such claims materially impairs the value of what is being acquired, or (2) the selling parties must agree to indemnify the acquirer from all such claims and (almost invariably) an amount is reserved and held back at the closing to serve as a fund by which to satisfy such liabilities following the closing. While I have no idea about details, this might mean in, say, a $60M deal, that AOL might insist on a hold-back amount of as much as a third of the purchase price to cover this sort of risk (if the value of the TC50 conference is a major part of what it is acquiring in relation to the other TC assets, this percentage could be higher).

So what about the legal releases signed by Mr. Calacanis? Shouldn't this end the possibility of legal claims?

Yes and no. Yes, in that a court would find that all such claims have been released unless the settlement agreement can be rescinded on some lawfully cognizable ground. But no, in that any agreement can be set aside if it was entered into based upon fraudulent misrepresentations, mutual mistake and a few other grounds justifying rescission.

And that is what Mr. Calacanis is asserting here: that he would never have entered into the settlement had he known the material facts concerning the impending AOL acquisition, which he claims were not disclosed to him in connection with the settlement. He takes this a step further by asserting that Mr. Arrington and TC had fiduciary duties under laws pertaining to LLCs to disclose whatever material facts they knew about that impending acquisition. In other words, this was not a mere arms-length negotiation by which each party could go for maximum advantage by employing any sharp tactics available to it. When fiduciary duties apply, one party is deemed to repose trust in another and that other party has a duty not to abuse that trust. Put all this together and Mr. Calacanis is basically claiming that he was taken advantage of and misled into signing the settlement document, that he has a right to rescind it, and that it is therefore open season on his right to file a lawsuit over the whole mess.

I don't believe, in this context, that Mr. Arrington is publicizing this in order to get hits for his site or simply because he is a "drama queen." I believe he sees this sort of claim, timed in this way, as something that can have a large impact on his potential for closing the AOL deal or at least for closing it on favorable terms and, therefore, his tactic seems to be to attempt to portray it as a shakedown suit and to use that to gain leverage for his position.

Mr. Arrington is a fighter and I'm sure means it when he says he intends, in effect, to take this to the mat. He might be undercut in this effort, though, if AOL uses this as a reason to pull or modify its offer. This is where the true drama lies in this matter, in my view. I believe this puts Mr. Arrington under enormous pressure and probably explains why the claim is being asserted in this context. If it threatens to disrupt the deal, it might take a significant sum of money to make it go away.

By the way, the law firm asserting this claim on behalf of Mr. Calacanis is a first-class firm. If this does get filed, it will be seen as a legal threat that must be taken seriously by AOL if it is to go through with this deal.

While the rest of the U.S. is consumed with mid-term election results, World Series celebrations, fantasy football, Survivor, and Justin Bieber thinking he can dance with 5th graders, we hackers pay little attention and keep on working.

Then you guys come along with fresh hacker-friendly drama. Thank you! It's been 3 weeks since Angelgate, and things were beginning to get monotonous alt-tabbing between my IDE, my debugger, my test runs, email, and hacker news.

</sarcasm>

Now that the sarcasm tag has been lifted, let me say what I really think:

Why is it that those of you who have so much spend so much energy being drama queens? We hackers struggle every day, sometimes for years, building stuff, but if we fart wrong during a pitch, you send us on our way as if nothing we ever did matters. Anyone who comes to this board can bitch and moan about a million different things, but most of us don't; we just keep on working.

Why don't you all just STFU and do the same. There's already too much drama and too much work to be done. When Silicon Valley turns into Hollywood or Washington, D.C., we should all start worrying.

1) Don't do business with Jason Calcanis. This is not the first time I've heard Calcanis-related drama, won't be the last. Not that I ever was going to do business with him, nor him with me mind.

2) Don't do business with Michael Arrington. He washes his dirty laundry on a very public blog without regard for his business associates (in this case, AOL).

Drama never leads to good business practice.

We are a community of Hackers. We set out to change the world, create things, build value. Why then should we be interested in petty clashes of Silicon Valley drama queens? What difference does it make who hates whom and who sues whom? How does it influence my new startup?

Before upvoting something, consider: does reading this story make me a better hacker?

That said, my opinion of Arrington isn't much better.

Calacanis should have counted himself lucky to make a few million dollars and then moved on. Arrington offering him 10% (of TC stock?) for walking away was more than generous.

Calacanis just got greedy. If he was truly convinced he was such a big part of the conference he wouldn't have anything to cry about. He could start his own conference and it would be just as popular and lucrative as TC50. Of course his won't be nearly as popular or lucrative though, and he knows it.

Things like Musk's marital problems, Arrington's latest enemy of the week, etc.... it's just all such a ridiculous waste of time when there far more important things to concern oneself with!

Calacanis hooks up with Arrington to launch TC50. Arrington cuts Calacanis out and goes ahead with his own version titled TCDisrupt. Calacanis theatens to sue Arrington.

Karma's a bitch no?

Edit: Yes, I know there are some subtle but important differences b/w the two scenarios, but couldn't help noticing the similarity. And for the record, this makes them both look bad.

WordNet: # S: (n) friend (a person you know well and regard with affection and trust) "he was my best friend at the university"

They are not friends. They both need to get over this and move on.

I tried to take a screenshot using extensions in both Chrome and Firefox, but got various issues with parts of the page being missing or the extension giving me an error, so I made an MHT archive using Opera. Perhaps someone with better luck with the screenshot extensions can use the UnMHT extension to open the file in Firefox, take a screenshot, and post it.

http://www.cforcoding.com/2010/10/did-michael-arrington-scre...

In putting together the timeline there was in my opinion a real stink surrounding Arrington's actions. It all just seemed too convenient and coincidental and unsurprisingly to MA's benefit.

I read this post and there is a similar stink. Mike is just too much playing the hapless victim of a tyrannical ogre to be credible.

TC might have done q lot but Jason brought a lot to the table. Compare and contrast with the far less exciting Disrupt conference.

Frankly this sob story has for me made jason's version of events far more credible.

EDIT: sigh, and so the down voting just for my opinion begins...

Update: Bring on the down votes, as I'm sure many of you worship these guys. I won't hold back my opinions with thoughts of losing karma. These guys are having little fits that so many startups have, but using their notoriety to get attention over it. Don't feed into it!