Partnership Dissolution w/no Written Agreement

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djyohimbe

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I was hired by a sole proprietor as a consultant in September, to help him take a business concept and develop it into a start-up. He had me sign an NDA before he released any details, and before my consulting began, I had him sign a consulting agreement, which included language that stated all previous agreements would be null and void. By October, I was asked to become a partner. I was told I would not need to make any commitments--this would be a "spare opportunity" for me, according to him. So I accepted and several times asked for a partnership agreement. I even sent him drafts. He never signed but agreed over email in principal.

It became clear to me that he was basically using my skills to turn his concept into a website, a business plan and even 2 patents. At the same time he was a complete jerk and by December I had decided it was stupid for me to subject myself to his abuse and, having spent 3 months doing the vast majority of the work, I copied all of the files on the website and started a similar business for myself.

Now he wants to take me to court for stealing his ideas. However, he simply had a concept, which I developed into something actually tangible and functional while a partner. I had new enhancements to his basic concepts which I brought to the business. He was literally lost without me.

So do either of the agreements signed for my consulting hold any legal water after my status changed from consultant to partner? As a partner, don't I have equal rights to the intellectual property held by the company, or are my rights based on what I produced?
 
This is very fuzzy and largely dependent upon the facts and circumstances. I don't know if an NDA would qualify as "all prior agreements" in the way it was used in the consulting agreement.

It seems like he never wanted to give you a partnership. Agreeing in principle but not going forward might not be sufficient. Additionally, the work you did for him prior was as a consultant. You may have done great work but why do you expect to be compensated beyond that agreement as an independent contractor?
 
I don't expect to be compensated. He's threatening to take me to court for deciding to compete with him.

The actions of each of us were indicative of a partnership, as per the Ca. Code. So how was I an independent contractor when I was acting as a partner. It's not like I was volunteering my time, and I never billed him, so clearly I was a partner. So how could the NDA still stand?
 
An NDA is not a non-compete. In addition, I don't know whether what you did would qualify as a breach of the NDA because you are talking about competition, not disclosure, about information that is supposedly confidential.

I'm confused - you were hired, right? Does this mean you were an employee? If you were, that might make it even more difficult for you. If you weren't compensated, why did you perform the hard work - what was the pay off? With regard to an NDA, not billing him doesn't mean the NDA isn't valid. Why do you think it should be?
 
I was originally hired as a consultant, but after 3 weeks asked to be a partner, which I agreed to. At that point I was no longer a consultant. As a partner, I never received any compensation. I was told I would own a portion of the company, based on my time input. This was agreed to in principal by both of us, though nothing was signed. The pay off would come once we received funding, which has yet to occur.

I think the NDA is invalid, since the consulting agreement was made after I signed the NDA, and it specified that all previous agreements were null and void.

My question is: does he have any right to sue?
 
There is no easy answer to this question. It is difficult to say what you agreed to. If he sues you he's also got a difficult problem - he accepted your work in exchange for a partnership. He allowed you to perform for months without you getting the benefit of the bargain. Exactly what was he expecting? There was an agreement of some kind.

He certainly has a case to sue which is questionable as to whether he will win. The challenge he has that you can use to your advantage is that he seems to clearly owe you something with regard to equity in the business or other compensation. It's difficult for him to deny this and claim he's coming to court with clean hands.

My guess is that it's best to remind him of this issue and make him think that you'll countersue for equity in the company and he has a weak defense for his taking your labor and not providing compensation which seems to have been clearly agreed in principle in some fashion. This could be a messy litigation if it goes that far and it will be costly.
 
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