What I learned in Jury Dury (or “How looking at the debris of a failed deal reminds me of the importance of a few things”)

April 12, 2011

I just had four days of jury duty.  It was a civil case, a real estate deal turned sour.

One thing I always enjoy about jury duty is the jury itself, how a diverse cross section of the population looks at an issue and how they often all come to the same logical conclusion.  Gratifyingly, that happened here.

In this trial, I also received the benefit of some continuing business education about mistakes that can come back to haunt you in a deal.  Specifically, it reminded me that, in any agreement, partnership, or other legal relationship, you should:

Work for the best relationship but plan for disaster. Just because you trust someone now does not mean that you won’t be at war in the future (even the bitterest divorce was preceded by a happy wedding).  All those things your lawyer does “just in case things go south” are really necessary.  When the relationship sours, emotion takes over; one or both sides want to destroy the other, often at the risk of mutual destruction.  Good business “partners” should recognize that they need thoughtful agreements in place in the pre-nuptual stage of their relationship.  If paying the attorney fees now seems like a lot of money, just wait until you have to deal with the cost in time and money of a bitter lawsuit.  Also, that huge stack of documents your lawyer drafts really is necessary but, if the dispute gets in front of a jury, nothing beats also having clear, easy to understand language in letters and correspondence.

Only sign important documents after having someone else, with an attention to detail, read them. For instance, in this case, there was a document providing for a 3-year, $500K plus, consulting agreement described in 3 sentences. Nothing about expected performance, termination clauses, etc.  A good lawyer or CFO would have caught this.

Let the other party know when they deviate from an agreement and you expect performance. Even though a contract might say that failure to demand your rights does not mean you waive right, a jury expects reasonable behavior.  In this trial, both parties complained about actions not performed or payments not made 5 years ago.  Neither side sent a single letter or email to the other side saying “hey, you are not doing what you said you would do.”

Worry about perception and err on the side of more (documented) disclosure. In this case, the plaintiff tried to make hay with the fact that he signed an agreement with an entity that the defendant dissolved a few weeks later.  It looks bad but the defense argued that it didn’t change any of the rights of the plaintiff and was done for tax purposes, something that the defendant, IMHO, was within his rights to do.  What the defendant should have done is also to have sent the plaintiff a plainly worded letter, telling him about the entity change and assigning the old agreement to the new entity.

Avoid using the term “partner” incorrectly. I’ve seen this in three different disputes …where one party claims, retroactively, that he was in a legal partnership (and therefore due a higher fiduciary duty from the other party).  We all often say things like “this is my partner” when what we really mean is that we are working closely with this person on a company or project.  A Partnership is a legal concept where, among other things, a higher fiduciary duty is required than what would exist between two companies or individuals with a contractual agreement to work together.  When you come to the bitter divorce, one party will find it advantageous to cast the relationship as a partnership.  So, be careful about using the term partner when it is incorrect.

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