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

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.
 


Our story so far: Trying to keep up with developments in the ActiveRain/Move saga? These are all the BloodhoundBlog posts to date:

Technorati Tags: , ,

Related posts:
  • Activerain.com and HouseValues.com- The Ultimate Irony
  • You can view or download mirrored copies of ActiveRain’s complaint and Move, Inc.’s response at BloodhoundBlog
  • An open letter to the owners of ActiveRain: Show us the contracts

  • 27 comments

    27 Comments so far

    1. Dave G September 29th, 2007 10:43 am

      Greg, this is the kind of post on this subject I would have expected from you in the first place. Excellent analysis.

    2. Jeff Brown September 29th, 2007 11:26 am

      Thanks a bunch, Greg. Now I gotta put on a new pair of boxers. :)

    3. Derek Burress September 29th, 2007 11:28 am

      A verbal agreement isn’t worth the paper its printed on.

      Well maybe it is worth a little if its on paper.

    4. Russell Shaw September 29th, 2007 12:46 pm

      Pure genius! I laughed out loud (alone in the room) several times. Nice nice work, sir.

    5. Cari McGee September 29th, 2007 1:39 pm

      I am having flashbacks to college, when I operated with a great deal of girl-next-door naivete. This totally hot guy asked to borrow my rather extensive cache of notes for our Romantic Poetry course, because he’d missed a few classes. He returned the notes a couple days before the final, so I had plenty of time to study. No harm, no foul, right? The final exam was an essay question that we knew beforehand, and we were to write the essay during the exam period. The bell rang, the students began writing, and Hot Guy waltzed in and handed his pre-written essay to the professor. I knew in that moment, and as I read more about the AR/Move fiasco, I am being reminded constantly, that when someone dangles something attractive in front of you, don’t give up what you got!!!!!

    6. Joe Zekas September 29th, 2007 1:44 pm

      Legal complaints don’t cite case law. Their purpose is to state the basic facts that grant the court jurisdiction over the matter and add up to a common law or statutory cause of action.

      You may be right on the merits of your argument, but you lose all credibility with folks like me when you start pronouncing above your level of knowledge.

    7. Brian Brady September 29th, 2007 1:59 pm

      The boys have brains, Greg- they lack street smarts.

      I think they are about to learn those street smarts really fast.

    8. Sock Puppet September 29th, 2007 1:59 pm

      Well they couldn’t ask for a realtors help because they were planning to get the money into the getaway car and to the airport and just blog about the sale after it happened. Any knowing realtor would have blown the story.

      >>some drunk at Move accidentally fell on his calculator and discovered that Move was about to spend $30 million to buy an empty store

      I suspect that Dustin played a part in the red flag waving.

      -Athol

      -Athol

    9. Joel Burslem September 29th, 2007 2:15 pm

      ActiveRain has pulled down the link you reference in your post Greg.

      You can still see the original document here:

      http://www.scribd.com/doc/338255/activerain-complaint

    10. Greg Swann September 29th, 2007 3:04 pm

      > ActiveRain has pulled down the link you reference in your post Greg.

      I just mirrored them here, as well.

      Is there a link to AR announcing that they were taking the docs down?

    11. Random Thoughts | The XBroker September 29th, 2007 3:17 pm

      [...] There is plenty of speculation out there regarding it’s merit, likelihood of success, practical economics of it all, ramifications towards members… [...]

    12. Kevin September 29th, 2007 3:18 pm

      Greg,
      Being in real estate I can understand why Move.com would want to purchase ActiveRain. Here is why:

      1. Realtor.com is losing its relavancy faster than the sinking real estate market.

      2. Realtor.com needs the support of real estate agents which it doesn’t have; ActiveRain has it.

      I have never, ever paid $.01 to ActiveRain and have received a whole heck of a lot more from AR than Realtor.com– considering that I have given them literally thousands of dollars a year, that says a lot.

      I would never give my money to any firm associated with David Lereah.

    13. [...] Greg Swann digs into the legalize and discovers Active Rain didn’t even have a written contract. If only someone at Active Rain knew a good realtor I guess. Duh. [...]

    14. Jonathan Washburn September 29th, 2007 4:17 pm

      I was not aware the links to the complaint and response were broken. We put up a new build last night and that must have broken the links somehow. I will fix them asap.

      This is the page you all are referencing right?
      http://activerain.com/blogsview/218498/Regarding-Today-s-Inman

    15. Greg Swann September 29th, 2007 4:34 pm

      > This is the page you all are referencing right?

      Check. The links were acting healthy but hit a 404 page.

    16. Yolanda September 29th, 2007 8:41 pm

      Greg, I wonder if you’re aware that WA is under the jurisdiction of 9th Circuit US District Courts, based in LA. It makes sense that it’s filed in CA, doesn’t it?

      FYI, as Joe Zekas pointed out, there’s a big difference between statues and statutes.

      I don’t think you hate AR, but it sounds like you’ve already made up your mind based on scant evidence.

      And yes, I’m an AR member but I read this blog.

    17. Jeff Brown September 29th, 2007 9:05 pm

      Yolanda – Is a remark about a misspelled word all you have? All I have to say is, weak, very weak.

      You’re coming to a gunfight with a rubber knife.

      Both AR and Move, Inc have had their virtual pants pulled down.

      If you’re pickin’ a fight with Mr. Swann, I beg you – please reconsider.

    18. items for 09.29.2007 « Tzetze Fly September 30th, 2007 10:10 am

      [...] The voices of bitter experience: ActiveRain’s petition against Move, Inc., is a heart-breaking sob story with no legal merit – BloodhoundBlogI’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 last part of this is hysterical. [...]

    19. 360Digest » Lessons from the tribe October 1st, 2007 12:40 am

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

    20. Erion Shehaj October 1st, 2007 11:11 am

      Greg

      If I remember correctly, you were singing quite a different tune when you felt that Bloodhound Blog “wuz robbed” by Zillow’s GeekEstate Blog.

      http://www.bloodhoundrealty.com/BloodhoundBlog/?p=1718

      Active Rain has value in that it enables its members to make money from simply blogging there. There are very few, if any, other “platforms” that can make that claim. One can very well argue that some of the best bloggers on Active Rain (you must take the bad with the good), would have had a much harder time to generate the popularity and/or business that they have generated via Active Rain on their own.

      I think that in order to create the kind of value that can be purchased, Active Rain has plenty of work to do in defining what it is. The dot com era when companies that don’t make squat were being purchased for millions is over. But Active Rain definitely has a formula that can be converted into much more money than they are trying to make with this lawsuit. If only they define themselves…

    21. [...] The voices of bitter experience: ActiveRain’s petition against Move, Inc., is a heart-breaking sob… [...]

    22. David Saks March 23rd, 2008 8:24 pm

      Greg,
      How much for the dog?

    23. Eric Badgley April 5th, 2008 7:50 pm

      I first heard of this last year. Do You know how any of this panned out?

    24. C.J. Johnson September 28th, 2008 7:55 pm

      Greg: What a lot of drama over nothing. AR was sold to me as a social network and Realtor.com was sold to me as an advertising venue. Yeah the big guys have gone to blows but who, with the current state of the economy and our business, really gives a rip. If AR wants to sell, sell, if Move wants to buy them, then buy them, in writing with real money not Monopoly Money which is what the American Public bought their houses and re-fis with the last 5 years.

    25. Tony Sena November 30th, 2008 12:21 am

      Any update on the sob story?

    26. Greg Swann November 30th, 2008 7:57 am

      > Any update on the sob story?

      Not from me. I’d love to hear what’s up, though.

    27. Real Estate SEO December 13th, 2008 10:09 am

      Greg,

      I actually ran across this article when I was doing some research and analysis on Active Rain. I did hear about this story a few months ago. Out of all of it, the most hilarious thing I got was ” The specific claim that Move’s multi-user blogging platform is based on ActiveRain technology”

      Since when did either one of them invent WordPress? All Active Rain is in my opinion is a very saturated WannaBe Social Network that tried to hop on to the Myspace and FaceBook revolution a little too late. Sure it had a Real Estate Niche to it, but when you are working along the side of your competitors, why do Realtors buy into this?

      Oh well, Ive heard it all from Realtors. Why do you use Active Rain? ” Oh its a friendly environment.” “I met a lot of great friends” “I get to blog about vacation, my family, and so forth”

      Apparently some, if not all, do not understand the power in time management, blogging, and professionalism. Do you know how long it takes me to prepare an article, keyword it, and then hope it gets searched for? The last thing Im thinking about is blogging about something that is meaningless to my business.

      Great write Greg, always looking for guests over at AB’s.