Speak to MY Lawyer! - Be Sure Your Interests Are Represented Before You Sign.
Updated: Jan 24
My two high school aged sons recently sat down and watched The Social Network, a movie based on the start of Facebook, for the umpteenth time on Netflix. Their interest this time, they said, was in watching it now that they were older and somewhat further along in formulating their own entrepreneurial ambitions.
I walked into the room during the scene when Eduardo Saverin (played by Andrew Garfield) is confronted with the prospect that he had just been effectively diluted out of Facebook. Mr. Saverin had been asked if he ever realized that, in signing documents put in front of him in better times and what appeared to be better circumstances, he was signing his own death certificate. He answers “no” then continues by saying:
"It was insanely stupid for me not to have my own lawyers look over all the . . . the uh . . . In all honesty, I thought they were my lawyers.”
He was referring to the smiling lawyer in the board room when he signed the documents ... a lawyer I presume was well known to him ... perhaps even considered a friend ... but was not his lawyer (likely either Mark Zuckerberg’s or Facebook’s lawyer).
The movie scene and scripted statement are likely highly fictionalized (and Mr. Saverin eventually did very well financially for himself in terms of Facebook), however the legal situation Mr. Saverin found himself in is all too common (while the eventual financial outcome, unfortunately, is all too uncommon).
Individuals sign documents that create, diminish or eliminate legal rights and obligations every day. It is, perhaps due to the fear of litigation or the efforts of generations of lawyers, part of our social interaction in a modern society. However, those involved in commercial pursuits as business owners, founders, managers, employees or investors (in particular) sign documents that can have substantial personal and financial consequences as a matter of course including but not limited to employment agreements, termination settlements, leases with personal covenants, investment agreements, personal guarantees, shareholder agreements, loan agreements, releases and indemnities. All too often these individuals sign or commit without the benefit of a lawyer obligated to consider their interests, and only their interests, in the circumstances.
I suspect this could be the product of any of confidence, trust, timing, necessity, some degree of duress or even the perceived cost of obtaining advice. My experience tends to suggest in many cases it is a simple matter that the individual, albeit surrounded by lawyers related to a particular business or investment, has not considered it necessary to that point to have his or her own lawyer. When and if a circumstance arises where, finally, the individual does see the need to seek some legal counsel his or her efforts are often compromised by turning to a familiar but otherwise conflicted lawyer; seeking instant legal expertise contained in an article or blog found on the internet; seeking an informal opinion from a friend or acquaintance informally at a lunch or social gathering; or seeking an answer to a wholly inadequate question via a quick aside during a telephone call to a friend or acquaintance. Worse, the intention to obtain formal legal advice is often abandoned once either the efforts to find a suitable lawyer by referral becomes a nightmare of unanswered telephone calls or disinterested responses due to the short term nature of the engagement; or, if a lawyer is finally retained, the accumulated cost of getting that lawyer up to speed on the relevant background and circumstances overcomes the perceived value of getting the advice.
It is, as Mr. Saverin may have put it, insanely stupid to sign certain documents without having your own legal counsel review them. My experience tells me that Mr. Saverin is not alone as, over the course of many years, I have received desperate calls from:
managers who signed employment agreements or termination settlements far short of what they were entitled to or that imposed obligations upon them far in excess of any financial compensation they were to receive;
investors who found themselves, despite making a substantial financial investment, without any reasonable insight or input into the business and affairs of the entity they financed or otherwise unable to voluntarily exit their investment or forced to exit their investment on terms less than optimal to the particular investor;
founders who, on the basis of promises or the reputation of a third party, provided control or a source for eventual control to that third party which ultimately resulted in the ejection of the founder from, or the impending insolvency of, the undertaking;
family-owned business patriarchs or matriarchs who, after giving one or more of their offspring the proverbial keys to the family business, now face financial ruin or the impending sale and break-up of the family business due to the unfettered decisions of such offspring or the court ordered outcome of a family dispute; and
business co-owners who found themselves facing demands to underwrite liabilities, or make good on their obligations, of their business partner or business endeavour far in excess or any interest or financial benefit they had or were to receive from that partner`s effort or their interest in the business endeavour.
The advice is simple. Assuming your business, your employer or your proposed investment target has a lawyer; does, can or should that lawyer represent you. If the answer is "no" to any of these questions, then take the time to select and develop a suitable relationship with a lawyer who is there to represent you personally when and if needed. Having a go-to lawyer retained to represent you and only you; that knows about you, your personal circumstances and your business endeavours; and that you trust to advise you or, if needed, find others with the expertise your circumstances require; will not just provide you with some peace of mind, it will most likely avoid costly mistakes far in excess or any fees eventually paid.