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The Deflategate Drama Offers a Few Lessons in Leadership- Monster.com
Category: Publications | Monday, September 21st, 2015 | Comments Off on The Deflategate Drama Offers a Few Lessons in Leadership- Monster.com
Bryan Sullivan was recently quoted in John Rossheim’s Monster.com article “The Deflategate Drama Offers a Few Lessons in Leadership.” The article highlights the shortcomings in the NFL’s handling of the 2014 American Football Conference Game football tampering scandal, and provides effective leadership strategies for employers.
The full article can be viewed here.
Crowdfunding Your Way to Success
Category: Publications | Tuesday, September 15th, 2015 | Comments Off on Crowdfunding Your Way to Success
Bryan Sullivan’s article “Crowdfunding Your Way to Success” was recently published on VC-List, a website that provides professional commentary on venture funding. In the article, Bryan shares tips and advice on building and executing a successful crowdfunding campaign, and explores common misconceptions companies and individuals have when attempting to crowdfund for the first time.
The full article can be found here.
Devin McRae Named in The Best Lawyers in America 2016 for Intellectual Property Litigation
Category: Awards, News, Publications, Results | Tuesday, August 18th, 2015 | Comments Off on Devin McRae Named in The Best Lawyers in America 2016 for Intellectual Property Litigation
Early Sullivan Partner Devin McRae was recently selected by his peers for inclusion in the 2016 edition of The Best Lawyers in America in Litigation – Intellectual Property. Best Lawyers® is one of the oldest and most respected guides to the legal industry. Inclusion is exclusive, based on a comprehensive peer-review process designed to capture the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. Corporate Counsel magazine has called The Best Lawyers in America “the most respected referral list of attorneys in practice.”
Early Sullivan Wright Gizer & McRae LLP Named “Business Litigation Law Firm of the Year – California” by Corporate LiveWire
Category: Awards, Press, Publications | Wednesday, May 27th, 2015 | Comments Off on Early Sullivan Wright Gizer & McRae LLP Named “Business Litigation Law Firm of the Year – California” by Corporate LiveWire
Early Sullivan Wright Gizer & McRae LLP (“Early Sullivan”) is proud to announce that it has been named “Business Litigation Law Firm of the Year – California” by Corporate LiveWire, which honors law firms demonstrating excellence in the corporate finance world and those that have consistently shown best practices and innovation in their work. Nominated by the world’s leading business professionals and corporate finance experts, the Corporate LiveWire awards evaluate a law firm’s performance when deciding the winners of its “Best Law Firm” awards. Candidates are selected by Corporate LiveWire by taking several factors into consideration, including recent significant deals and cases along with firm-produced content demonstrating thought leadership in a particular area of the law.
The Corporate LiveWire Awards represent the pinnacle of business achievement, championing the best in their respective fields. The awards cover the most important sectors of business, from finance to funding to law. The culmination of the awards is the Global Award guide, covering businesses of every type that have proven their excellence throughout the year and years past. The resource offers regular, up-to-date content on various subject areas including business litigation, legislative changes, corporate transactions, international markets and business trends. Early Sullivan’s honor can be seen in the Global Award guide here.
Early Sullivan is a premiere boutique law firm based in Los Angeles, California which handles high stakes business litigation and trials throughout the United States.
Stephen Ma Quoted in Alfred Lee’s Los Angeles Business Journal Piece on “Swagbucks”
Category: Press, Publications | Wednesday, July 2nd, 2014 | Comments Off on Stephen Ma Quoted in Alfred Lee’s Los Angeles Business Journal Piece on “Swagbucks”
Stephen Ma was quoted in Alfred Lee’s article titled “Link to Website Windfall Splits Lawyers,” which appeared in the Los Angeles Business Journal. The full article can be found below:
Few L.A. companies in recent years have grown as quickly as Swagbucks.
The El Segundo consumer rewards website saw revenues rocket more than 4,000 percent in five years, to $53 million last year – before taking on a single outside investor.
And its sudden rise hasn’t just benefited its founders. Enjoying an unexpected windfall is the company’s law firm, Davis Shapiro Lewit Grabel Leven Granderson & Blake.
While Swagbucks’ sales took off, its outside attorneys held on to a 10 percent stake in its parent company, Prodege. The stake was granted in exchange for legal services during its early days, when cash was tight. Ten percent wasn’t worth much then, but now could be valued at more than $12 million.
Taking equity instead of fees is a practice that has come into vogue in Los Angeles with the emergence of the tech sector. Pioneered by Silicon Valley law firms decades ago, equity as compensation has been attractive to firms here looking to find the next Apple or Google.
But it also has led to problems. Davis Shapiro’s increasingly lucrative stake in its client has been the subject of internal wrangling at the firm, leading to the ouster of its managing partner and years of fighting over which attorneys get to share in the profit.
Daniel Hayes, an L.A. attorney and former managing partner who departed the Beverly Hills office of the New York firm in 2012, claims he was the attorney who originally brought Swagbucks to the firm. Two years later, he remains locked in a fight over his claims that the 10 percent stake should be his.
Peter Zeughauser, a Newport Beach law firm consultant, said that despite the practice’s rising popularity in Los Angeles, only a handful of firms have mastered the tricky art of making equity stakes pay off – and doling them out properly.
“A lot of the firms that have done them wouldn’t do them again if they were starting over,” he said. “These things are not so simple to administer. … The likelihood of success of having a startup exit strategy that pays out is small and there are a lot of spats over who should get how much.”
Prodege declined comment. Representatives of Hayes and Davis Shapiro did not provide comment.
Growing company
Prodege was co-founded in 2006 by entrepreneur Josef Gorowitz and concert photographer Scott Dudelson. The two met through mutual friends and launched a company that provided custom search engines for non-profit organizations, which could then raise money every time someone used the search engine.
“I had previously co-founded a honey export business out of Argentina and realized that while I was worrying about the movement of physical commodities from one location to another, companies like Google were making money simply on clicks,” Gorowitz told the Business Journal in 2011.
In 2008, Prodege launched Swagbucks. Users can collect reward points – known as swag bucks – for watching Internet videos or playing games, then redeem them for gift cards, prizes and discounts. Swagbucks earns a small referral fee when people use its site to search online, make a purchase or other actions. It also sells targeted advertising on its site.
Swagbucks generated $1.2 million in revenue in its first year, and has exploded since then. Revenue grew roughly tenfold in its first two years; executives have said that the company has been profitable since 2010. It has placed on the Business Journal’s annual ranking of fastest-growing private companies in Los Angeles in each of the last three years, peaking at third in 2011. Today, the company has about 110 employees in its El Segundo office.
Its success has drawn the attention of investors. Last month, Swagbucks announced a $60 million investment by Palo Alto’s Technology Crossover Ventures for a “significant minority stake.” Chuck Davis, a venture partner at Technology Crossover, replaced Gorowitz as chief executive. The deal valued the company at more than $120 million and marked the first time Gorowitz and Dudelson said they had taken an outside investment.
But quietly holding a stake all along was Davis Shapiro, then known as Davis Shapiro Lewit & Hayes. The New York entertainment boutique, founded by Fred Davis, son of music mogul Clive Davis, is known for representing startup clients including Spotify and MySpace Music. It has also occasionally taken equity stakes in clients, according to court documents.
The practice was popularized by Silicon Valley firms such as Cooley and Wilson Sonsini Goodrich & Rosati, which reaped big gains cashing out on stakes in clients including Google Inc. and VA Linux. Not everyone was a winner: Silicon Valley firm Brobeck Phleger & Harrison declared bankruptcy following the dot-com bust, which destroyed the value of the stakes it had taken in clients.
In Los Angeles, the practice has caught on amid the recent tech boom. Cooley opened a Santa Monica office in 2012 and invests in clients through partnerships that are formed annually by partners who choose to participate in a given year.
In general, firms have taken the lessons of the dot-com bust to heart and are less likely to do deals that are purely equity in lieu of fees. More common is a hybrid arrangement in which a firm might accept a small retainer fee or defer fees for the first year and take a smaller percentage of equity.
West L.A.’s Manatt Phelps & Phillips has gone as far as launching a digital ventures arm distinct from its law practice. The firm declined to comment, but told the Business Journal in April that it has made investments ranging from $25,000 to $500,000 in about 10 companies, including Encino YouTube network DanceOn and MovieLaLa, a social network for movie fans.
Dispute
Davis Shapiro’s stake in Prodege dates back to at least 2008. The firm received equity in lieu of fees, though it’s unclear whether it received other compensation. Hayes, then a partner in the firm’s Beverly Hills office, claims he brought the client in.
In 2008, a simple trip with the client bumped up the firm’s ownership by 5 percent.
“Thanks in large part to Peter (Lewit’s) offer to go to London with this client, we have increased our equity stake from 5 percent to 10 percent,” Hayes wrote in an email, included in court documents, to his partners that year. “They are really gaining momentum and we can help push it over the top.”
Davis left the firm in late 2009 to start an investment bank and Hayes took over as managing partner. But as the company grew, the relationship between Hayes and his partners frayed. In 2012, friction arose when a third party expressed interest in a potential acquisition of Prodege that valued the company at around $60 million, according to court documents.
“What appears to have fundamentally altered the relationship among these three partners was the prospect that a sale of Prodege might occur and that a 10 percent ownership interest could produce compensation dwarfing what any one of the partners had previously generated,” William F. Cavanaugh Jr., an arbitration judge who heard the case, wrote in a court filing.
Hayes’ former partners, Steven Shapiro and Peter Lewit, claim that a dispute broke out in 2012 when they asserted that the Prodege stake was a partnership stake and not Hayes’ alone, ultimately resulting in them terminating him as partner in November 2012.
In an affidavit, Hayes attributed the dispute instead to his refusal to issue advance payments to partners due to the firm’s dwindling finances, as revenues had dropped by more than half between 2008 and 2012; Shapiro and Lewit denied the claims.
The fight entered arbitration. In April, a panel ruled in favor of Davis Shapiro, granting the firm the 10 percent stake and ordering Hayes to pay his old firm $59,000 unrelated to the Swagbucks stake.
But the arbitration didn’t bring an end to the dispute. On May 30, Hayes wrote a letter again demanding rights to the Prodege interest, prompting Davis Shapiro to sue him in Los Angeles Superior Court this month. It is unclear if the stake was sold off or not in early May as part of the investment by Technology Crossover.
Stephen Ma, an attorney who reviewed the case for the Business Journal, said a 10 percent equity stake in a legal client is on the high side, as percentage stakes have been trending lower. Wilson Sonsini, for example, doesn’t take stakes larger than 1 percent these days. He added that he expected a settlement could be reached and that the case would hinge on the particulars of the contract.
“It’s ultimately a contract case. What does the contract say and how did the parties intend it?” he said.
Source: Los Angeles Business Journal
Stephen Ma Pens Article on Crowdfunding Success Story Oculus VR
Category: Press, Publications | Friday, April 18th, 2014 | Comments Off on Stephen Ma Pens Article on Crowdfunding Success Story Oculus VR
Early Sullivan partner Stephen Ma was invited to write an article titled “Can crowdfunding handle success?” by The Los Angeles Daily Journal. Ma’s article appears in the paper on April 3, 2014.
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Can crowdfunding handle success?
By Stephen Ma, Early Sullivan Wright Gizer & McRae LLP
Oculus VR, recently acquired by Facebook for $2 billion, is arguably the biggest success story in crowdfunding’s short history. Oculus is a virtual reality company, based in Southern California, which raised over $2.4 million in 2012 via Kickstarter. The $2.4 million came from thousands of supporters pledging from $10 to $5,000, or more. The individuals pledging funds received a variety of items, including Oculus posters (for a $15 pledge), T-Shirts (for $25), prototype products (for $275), and visits to Oculus’ headquarters (for $5,000).
One might think that Oculus’ supporters would be tickled pink when learning about the $2 billion acquisition by Facebook. The positive reactions to the acquisition, however, were countered by a significant amount of negative feedback from Oculus supporters objecting to the deal:
- “I feel used. So frustrated right now. That is uncalled for…”
- “I think I would have rather bought a few shares of Oculus rather than my now worthless $300 obsolete VR headset.”
- “This is not what I backed this project for.”
- “So Oculus, I backed the original Kickstarter for $10… I’d like my $8200 (.00041%) of that $2 billion Facebook deal now, please.”
- “I was extremely optimistic for the future of this product and the company behind it, and this is how I’m repaid for my investment? Incredibly disappointing.”
There does not seem to be any dispute that these pledges were donations to Oculus, rather than equity or loans. But many of those objecting to the $2 billion acquisition contend that it was somehow unfair to Oculus’ Kickstarter backers, despite the fact that these backers did not have any ownership rights or contribute to Oculus’ operations or management in any way. As a lawyer who has been involved with both start-up companies and securities litigation, I suspect that some enterprising lawyers are now investigating possible ways to bring a lawsuit against Oculus and/or Kickstarter. Regrettably, recent news reports have even confirmed that Oculus employees have received death threats.
What exactly is the cause of all this controversy? President John F. Kennedy once said: “Success has many fathers, while failure is an orphan.” Despite disclosures by Oculus and Kickstarter that these pledges are donations only, many of these backers apparently view themselves as Oculus “investors,” who deserve to be compensated. Perhaps many of these early supporters now realize how much money (e.g., billions) is involved with recent acquisitions such as Oculus ($2 billion), Nest Labs ($3.2 billion) and WhatsApp ($19 billion).
The problem is that many supporters of crowdfunding apparently do not realize (or refuse to acknowledge) that the so-called “New Economy” is still governed by wellestablished legal authority. For example, Kickstarter backers cannot sue for breach of contract when there is no written or oral agreement to provide ownership or other rights to the company. They cannot sue for breach of fiduciary duty when the company has made clear that the Kickstarter backers are not fiduciaries. They cannot sue for securities fraud or any other type of fraud absent a showing of, among other things, fraudulent intent, material misrepresentations, or material omissions.
Another problem is that some of these early backers seem to equate their emotional “investment” in the company with some legal or equitable stake. In the course of my work, clients often ask me why lawyers insist on written documentation when there is “no way” anyone could misunderstand or dispute the terms of an agreement, a transaction, or the management of a company. Typical questions include: Why do we need an operating agreement when the founders of the company can make decisions as we go forward? Why do we have termination provisions when we just started this company? Why do we need to make all of these disclosures when everyone understands that these are only donations?
The answer is simple: Money changes everything.
Stephen Ma is a partner with Early Sullivan Wright Gizer & McRae LLP.
Source: Los Angeles Daily Journal
Sophia Lau Provides Expert Advice in July 2013 California Lawyer
Category: News, Press, Publications | Sunday, July 7th, 2013 | Comments Off on Sophia Lau Provides Expert Advice in July 2013 California Lawyer
Sophia Lau is featured in the July 2013 edition of California Lawyer. Her article “Duty To Cooperate” discusses McGrory v. Applied Signal Tech., Inc., 212 Cal. App. 4th 1510 (2013), the recent California appellate decision which says an employee is obligated to assist his or her employer in the investigation of another employee’s discrimination claim.
The Ten Commandments Of Crowdfunding
Category: News, Press, Publications | Thursday, May 16th, 2013 | Comments Off on The Ten Commandments Of Crowdfunding
Forbes recently published “The Ten Commandments of Crowdfunding” by Bryan Sullivan and Stephen Ma.
With the success of the Veronica Mars and Garden State-sequel Kickstarter campaigns, it appears that the crowdfunding business model has made its way to mainstream Hollywood. While crowdfunding certainly has advantages, including giving filmmakers more creative control over their projects, this business model is open to potential claims of fraud, misappropriation, conversion and embezzlement, which lead to the risk of financial exposure in the form of adverse judgments and the cost of litigation, and can potentially stop the project. In order to minimize risk, people using the crowdfunding business model should first consult an attorney, and follow what Sullivan & Ma have coined as the “Ten Commandments of Crowdfunding.”
Read the full article here.
Audit Trend Puts Movie Studios Up In Lights
Category: Publications | Wednesday, January 9th, 2013 | Comments Off on Audit Trend Puts Movie Studios Up In Lights
Bryan Sullivan’s article “Audit Trend Puts Movie Studios Up In Lights” recently appeared in Law 360. The article addresses a recent entertainment industry trend, which has seen profit participants, or “talent,” aggressively auditing and suing major movie and television studios to force them to properly account for the profit participants’ back-end royalty payouts.
Crowdfunding: Potential Legal Disaster Waiting To Happen
Category: News, Publications | Monday, October 29th, 2012 | Comments Off on Crowdfunding: Potential Legal Disaster Waiting To Happen
Bryan Sullivan and Stephen Ma’s article titled “Crowdfunding: Potential Legal Disaster Waiting To Happen” appeared in Forbes on October 22, 2012. The article can be found here.