The voices of bitter experience: ActiveRain’s petition against Move, Inc., is a heart-breaking sob story with no legal merit

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

I’ve read ActiveRain’s lawsuit against Move, Inc., twice now. I had thought that I might parse the document, to show its fundamental weaknesses, but this isn’t necessary. It’s so weak that we can knock the whole thing down in a few paragraphs.

The gist of the document is an extended sob story of how ActiveRain wuz done wrong. This might seem meaningful in a newspaper story or a dinner party anecdote, but it don’t mean squat to a judge. In a courtroom, every story is a sob story. Everyone, it turns out, is ‘left in a maimed and disadvantaged position’ — doomed to a grubby, grungy, loveless life in a wheelchair, begging for quarters down at the bus station.

Here’s a summary of the thing. People so much want to judge issues of fact by their emotions, but this is a fair — if comical — run down of the actual facts, take them for what you will.

Notable omissions

AR petitioned for a jury trial, but their best possible outcome would be either a bench ruling or a directed verdict. Legal pleadings are written for judges, not casual readers, newspaper reporters or dinner party conversants. In fact, many lawsuit petitions take this form, just enough to get to court with the case to come later. But if AR really had a slam dunk case against Move, I would expect to see some evidence of it. The attorneys do, however, try to hold Move accountable for violations of a Washington State statute in paragraphs 67 through 74. I think the actual purpose of this is well-poisoning, to make a number of smarmy assertions about the behavior of past Move, Inc., executives.*

The complaint itself

This is the essence of the complaint:

• Upon verbal overtures from Move, ActiveRain agreed to sell all its assets to Move
• Move and ActiveRain executed a Non-Disclosure Agreement, in consideration for which AR revealed confidential business information so that Move could do its due diligence on the acquisition
• Subsequently, Move provided AR with a Letter of Intent to purchase the company, specifying the price and detailing other terms and conditions
• The NDA and the Letter of Intent are the only acquisition documents cited in the complaint
• ActiveRain voluntarily supplied Move with every bit of information Move sought from it
• Move’s requests for information were spaced over a fairly significant span of time
• As a part of the acquisition process — it is unclear if these terms were made in writing — Move apparently asked AR to curtail its development and investment activities, to not compete directly against Move, and to not seek other potential suitors
• ActiveRain complied with all of these requests voluntarily
• In response to or at least subsequent to ActiveRain’s disclosures, Move, Inc., cancelled the planned acquisition
• ActiveRain claims first that Move never actually intended to acquire it, that it sought the disclosure items in order to unfairly compete against AR, and that Move is now deploying AR’s confidential information in its own multi-user blogging platform
• ActiveRain seeks injunctive and compensatory relief, the latter in the amount of $33 million

What’s wrong with this picture?

• A verbal agreement isn’t worth the paper its printed on
• A non-disclosure agreement is the next best thing to toilet paper
• A Letter of Intent is not a purchase contract
• By its own admission, AR was flying by the seat of its pants, possibly revealing confidential business information in advance of any written agreements, relying for its protection on documents that must be very brief and vague, and releasing greater and more detailed quantities of information without any additional contingencies or written assurances
• My surmise is that once AR coughed up the true facts about its user base, detailed in paragraphs 26 and 27 of the complaint, some drunk at Move accidentally fell on his calculator and discovered that Move was about to spend $30 million to buy an empty store
• There is no evidence — nor does AR cite any — that Move is using AR’s confidential information in its business
• The specific claim that Move’s multi-user blogging platform is based on ActiveRain technology is patently false; Move is using WordPress Multi-User, which it has been using at various sites in its network for more than a year
• Ultimately, the ActiveRain lament is this: Even thought Move swore it really loved us, it really wanted to marry an heiress; when it found out we’re just the girl next door, it dumped us

I am not a lawyer, but I don’t see anything actionable in ActiveRain’s petition. It acted with a girl-next-doors’s naivete, to be sure, but this is not Move, Inc.’s fault. If Move is making some nefarious use of AR’s confidential information, there is no obvious evidence of it, nor does AR cite any evidence of it, nor is there any indication that, if Move were using that information, that it would be doing so in violation of either the NDA or the Letter of intent.

What really happened in that ActiveRain believed in the idea of negotiation as portrayed in the movies, as opposed the idea of negotiation mandated by the Statute of Frauds. The owners of ActiveRain cast themselves in the starring roles in a morality play about the foolhardiness of verbal contracts. My guess is they didn’t read ahead to the third act of that drama.

A better way

We’re Realtors. We write contracts every day. We write contracts because we know that the memory is faulty even when people have the best of intentions. We write contracts because, even though everyone loves each other now, the love might not last through the home inspection. We write contracts so that we won’t have to write sob stories to judges who have heard it all before a hundred times. We write contracts because we have brains, a business asset apparently unavailable at ActiveRain HQ.

So: If we were representing ActiveRain in a potential acquisition by Move, Inc., what might we do?

• How about a real purchase contract for one thing, specifying everything down to the last tittle and jot?
• I like a non-refundable earnest deposit of, say, 10% in a circumstance like this; it’s understood that, if the acquisition were not to go through, AR would be shop-worn; it deserves to be compensated for taking that risk
• The DNA of an NDA is maybe three chromosomes, total; what AR needed was a detailed non-compete agreement: You want to dance with us, you agree to hang up your dancing shoes for three years; this would have brought the acquisition price down, but the chances for a successful buy-out would have soared
• The amount of data to be disclosed should have been specified in detail, with no voluntary exceptions on AR’s part
• The closing date should have been fixed at a date certain, with the deal canceling and AR retaining the earnest deposit if Move had not performed by that date

This is not hard, which is why I think ActiveRain’s best lawsuit is against whomever advised them on the acquisition process. I’m sure people reading this can come up with other, better terms — and just think what a professional Mergers and Acquisitions attorney might draft.

Would Move, Inc., agree to all of these terms? Maybe not. But, at a minimum, ActiveRain could have done a great deal more to protect its interests and future marketability. And, even better, it might have discovered early in the process that it was bargaining with corporate sleazoids, people not to be trusted under any circumstances.

(Question for the house: Who doesn’t know that Move, Inc., is run by pond scum?)

So: Was ActiveRain actively trying to cheat the cheaters? I don’t believe it. I think they were just wide-eyed and stupid.

I don’t think their legal petition has any merit, but I do think the NAR should pay them a ton of money to star in its commercials. Like this:

HEATON: I’m Matt Heaton

WASHBURN: And I’m Jonathan Washburn

HEATON: We’re the voices of bitter experience

WASHBURN: Reminding you

HEATON: To NEVER, EVER

WASHBURN: Negotiate ANYTHING

HEATON: Without representation

WASHBURN: You could lose a lot more than your house…

As always, nothing would please me more than to be wrong about this. But I don’t think I am…

 
*I edited my original text in this section to pull the teeth from specious straw-man arguments in the comments below.
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