

Losing A Lawsuit In The Philippines - anthony_franco
http://empireflippers.com/losing-a-lawsuit/

======
jacquesm
When in Rome...

Dealing with the institutions in a country where you have no knowledge of how
things are done and where who you know is as important (or even more so) as
what the law says means you have to be vigilant from day one.

The biggest error in this case was that they did alright on the 'trust' bit
but they failed the 'verify' bit right from day one.

If there had never been so much room for maneuvering in the first place then
this would have likely never happened. It's sad but in situations like this
you're setting yourself up for long term trouble if you do not actively seek
to control things right from day one.

I have a couple of cases quite comparable to this one in my immediate
surroundings and some of it sounds eerily familiar.

The OP is in good company, big corporations fall for things like this and
usually it costs a lot more than it did here. Chalk it up to your educational
fund.

If anybody is in a position to attempt to replicate this experiment you may
want to do the following:

\- incorporate through a lawyers office and if local law requires a resident
or national as a director make sure they are accountable

\- prepare to go there when incorporating and get yourself educated with
respect to the local situation (corruption, graft, how foreign companies
usually get plucked)

\- be prepared to spend a lot of time in the target country from the moment
that you incorporate

\- get your ducks in a row, don't put the responsibility of doing that in the
hands of someone at arms length.

\- if you want to keep things simple do not create a subsidiary, instead aid
someone else in creating a company and hire them for a service they provide.
This makes departures so much easier to deal with. It removes all of the
responsibility from your end but you keep control at the level of the
customer. Not happy? Then deal with someone else.

\- spread the responsibilities over several people, make sure they check up on
each other and report to you.

\- trust but verify, repeatedly, continuously

This is not meant as a 'Philippine people can't be trusted' line, or even a
'foreigners can't be trusted' one. The sad fact is that if you, a rich western
company lands to do business unprepared in a foreign country you are simply a
very fat goose waiting to be plucked. So you need to be aware of that and act
accordingly.

As these lessons come this one was remarkably cheap.

I've had something similar happen and I wished I could take my own advice
above retroactively, my lesson was a lot more expensive than the one detailed
here:

[http://jacquesmattheij.com/stick-to-what-you-know-a-tale-
of-...](http://jacquesmattheij.com/stick-to-what-you-know-a-tale-of-an-
investment-gone-wrong)

~~~
justincooke
Thanks for sharing your thoughts on this.

I think you're right - we got off relatively cheap here. Much more than that
and we likely would have just shut down the Philippines corp and would have
run it from the US side.

We ended up having our ducks in a row on all later hires, but we were SO early
with her that things were messy from the start. (As they often are) We should
have cleaned up that paperwork and documentation as soon as we were able to do
so.

------
rayiner
There's two business lessons here, and neither are specific to doing business
in the Philippines:

1) Don't be sloppy (and don't get emotional, because that'll make you sloppy);

2) Whenever you're dealing with a counter-party, try to understand where
they're coming from.

There was clearly a mismatch between how the author saw Karen's position and
how Karen saw it, one that was undoubtedly aggravated by the lack of
documentation. Look at the situation from Karen's side. She started out
running the business in the Philippines. Joe came in a year later and took
over, effectively demoting her. After discussing the situation, the owners
proposed an 80% pay-cut and 4-month leave of absence, something most
reasonable people would interpret as a signal that they were being pushed out.
Depending on Philippine law, this could have qualified as wrongful termination
(most countries are not as employer-friendly with regards to terminations as
the U.S.) When Karen sued, the author assumed it must have been some sort of
shakedown, because he couldn't see how it could be a legitimate grievance.
This established the paranoia that ultimately led them to ignoring calls from
their own attorney.

If the authors had tried to empathize with Karen in the first place: 1) they
could've taken actions to avoid the lawsuit; 2) realized that Karen had a
pretty compelling case, and treated the suit with the seriousness it
warranted. All this probably could have been avoided by some thinking and a
severance payment that was less than the time and money wasted on the legal
proceeding.

~~~
justincooke
You're right in that it was painful and frustrating and I'd be lying if I said
there wasn't any emotion involved during the process. I think some of your
criticisms are fair and provide an interesting counter-argument. (Likely
closer to her perspective)

One clarification though - we weren't looking to push her out. She informed us
(me, actually) that she was looking to quit and wanted to walk away. I'd asked
her to stay on for a while and she did. In the end, she was planning again to
quit and, instead, I offered the paid leave of absence.

We definitely could (should?) have taken steps to avoid the lawsuit early on
and we probably didn't treat the case as seriously as it ended up being, but
that's much easier seen in hindsight, I think.

I wonder if a clean break (with severance) would have avoided this issue
altogether - I'm not exactly sure that would have worked either.

~~~
hluska
As I read your article, it sounded like Joe showed up to run a company that
she had previously run. If that is correct, it was (as the OP said) a
demotion. She didn't decide that she wanted to quit until after this demotion.
When she said that she wanted to quit, she complained about Joe's management
style.

Do you realize that saving face is incredibly important in Philippine culture?
Or, more generally, how much do either of you really know about Philippine
culture? Just because they have a strong American influence, it does not mean
Philippine people are American.

Sorry you went through this, but based on what you wrote, this sounds like a
case where you didn't know enough about the culture before you set up shop.

~~~
justincooke
You've turned some assumptions you have about my knowledge/understanding of
Filipino culture into questions here. While there are some cultural
similarities (deceivingly similar, I'd add), I was under no illusions they
were the same.

I'd say my understanding was better than most Americans in my position coming
out here, but it's grown significantly in the last 4+ years, for sure. I do
think this played a role, but I don't think it was a primary issue.

As best as I tried to explain what happened factually in the 3K+ word article,
I definitely wasn't able to include everything.

As an expat entrepreneur, holding back on getting your business rolling while
you take time to learn more about the culture sounds nice, but isn't
realistic. How many months (years?) would you have spent learning the culture
before starting your business here?

~~~
hluska
If you're going to set up shop in a foreign country and hire locals, you have
two options:

a) Learn about the local culture and try your damnedest to conform to their
culture. This includes things like talking to other Americans who have started
businesses there, reading as much as possible about the culture, finding a
trusted local to serve as a de facto guide, and admitting that you don't know
what you don't know.

b) Do things the exact way you would do them at home.

In your situation, you had a trusted local guide who was doing a fine job of
running things. Then, you demoted her. When she complained about Joe's
management style, you didn't take that as a hint, instead you carried on as
you had before. In this case, option B cost significantly more time and money
than option A would have.

International business is intensely hard and I'm not criticizing you. If you'd
like to hear about my own sizable screwup, you can email me!

------
gexla
Interesting case. I also live in the Philippines and I have been looking into
starting a company here.

I have been looking into info on "PEZA" \- the Philippines Economic Zone
Authority. It appears that for corporations which have 100% income coming in
from abroad (which I assume you qualify for) you can get around many of the
painful things that other corporations have to do.

For example, your corporation could be 100% foreign owned. Could you have just
started a new corporation and simply started all business as part of that new
corporation without "Karen's" involvement?

I don't think this is a PEZA item, I believe this is the case for any business
in this situation.

ETA:

You probably can't answer this, but I noticed that if you are in a free
economic zone with the same situation as above, you can get a tax holiday for
X years. To get this, your business has to be physically located in one of
these zones though. I'm wondering about the possibility of setting up a mail
drop with a virtual office company which is located in a "PEZA" building.

ETA ETA: I can definitely identify with the feeling you get when you believe
someone is trying to rip you off. I think that's unfortunate and may hold
people back. In some cases, I see foreigners lose their professionalism and
take things way too personally. Good job on getting through this.

~~~
justincooke
Joe knows a bit more about the details here than I do, but I can say that
we've qualified for the tax exemption status.

Additionally, our corporate structure in the Philippines is like this:

\- 95% owned by a US Corporation \- 1% owned by each of us (2% total) \- 1%
owned by 3 individual Filipinos (3% total)

This approach is less common for companies as small as us, apparently, but
we're pretty happy with how it worked out. I think we lucked out working with
a law office that was aware of and familiar with this setup.

I DON'T think we could have necessarily avoided the lawsuit by just setting up
another corporation here in the Philippines. We COULD have set it up, of
course, but our attorney said it was likely to catch up with us. Something
about the new business being a mirror/shell of the old one. The worry being
that, at some point in the future, they'd latch on to our new corporation's
bank account again.

------
broolstoryco
Lost in court

> We stopped returning calls from his office. We ignored requests... we simply
> ignored the situation and continued to grow our business.

Really?

~~~
justincooke
I know what you're thinking - sounds pretty stupid, right?

But...in the heat of things and being right in the middle of it, we thought it
was likely or probable that our attorney was in on something with her
attorney.

The fact that he was asking for all that money to be place din escrow had us
thinking we'd NEVER see that money again if we handed it over. Who knows where
it would really go - so we stopped contact.

Over time our phone numbers had changed (common in the Philippines) but the
address remained the same. We figured if it was a major issue, he could still
get in contact.

------
Dayanan
It's very simple they tried to start on the cheap and when they saw things
were working out they decided to incorporate. That's when they started doing
everything wrong. The first wrong thing was not understanding Filipino
culture. Second thing not knowing the labor and business law.

Find out more here on how to register your business the correct way in the
Philippines.

[http://www.dayananconsulting.com/philippines-business-
regist...](http://www.dayananconsulting.com/philippines-business-
registration/)

------
MikeTaylor
I couldn't find the bit corresponding with "6\. Was arrested and put in a
Philippines jail cell". That links to the section entitled "Retaliation" which
doesn't say anything about being arrested or imprisoned. What am I missing?

~~~
justincooke
Hey Mike,

After our connection agreed to have some people stake out her house, we think
"Karen's" neighbors let her know what was going on. The next day she appeared
at the police station, was booked, and was put in jail.

That didn't last very long, though - I believe she was out the same day with
her attorney.

A big sticking point on coming to an agreement with us was that we gave up any
interest in pursuing the criminal case against her. That's a bit weird,
because criminal cases come from the government not us, but I think the lawyer
knew nothing would come of it if we left it alone.

------
sumedh
> The original business was established under Karen’s name and we switched
> everything over to the corporation a few months down the road.

Did you meet Karen physically before or just began to trust her virtually.

~~~
rwallace
Your choice of question implies you think it's better to trust people you've
met physically. This certainly matches typical human intuition; most people
think they can tell all sorts of things about other people from a face-to-face
meeting.

Intuition turns out to be wildly wrong in this regard. Whenever the results
are actually measured, the strong feelings we get about people from face-to-
face meetings are just noise; they aren't significantly more accurate than
random chance.

Objectively you're probably better off to trust people you've only met online
because that way you know you're working with little data (and therefore
should be cautious about degree of trust, and seek objective feedback before
committing large sums of money); you're not lulled into a false sense of
security.

~~~
sumedh
> Your choice of question implies you think it's better to trust people you've
> met physically.

I knew someone would point that out. You make a fair point but body language
can tell you a lot about the other person if you know how to read it.

~~~
travem
Perhaps, perhaps not, but body language across different cultures is not
universal.

------
meric
Would you say from her perspective, the issue was as simple as "Let's try
extort some more $$ as I leave, because I can.", or could it be more
complicated?

~~~
justincooke
My business partner and I disagree a bit on this part. If you asked him, he'd
say it was definitely a case of her looking to get out of it what she could.
Both of us agreed, though, that it seemed like the lawyer was really
pushing/driving the issue towards the end. She looked/sounded like she was
done with it and just along for the ride at that point.

I didn't think she set out to screw us. After we'd given her paid leave and
she was so stressed out with some of the employees (internal bickering) she
likely went to speak to an attorney pro bono due to some prompting from
friends/family. When she heard what might be possible she got greedy, IMO. She
also hated my business partner - there was some bad blood there, especially
towards the end of her working with us.

------
kovrik
>named Karen (not her real name)

Why don't you tell her real name and other info?

~~~
jacquesm
Because that would open them up to further trouble and because there is no
gain from it.

I write quite extensively about stuff that happened in the past and I'm always
very careful to write it in such a way that the various people involved (even
if they've done terrible things) can not be identified easily. People change.

~~~
rayiner
Here's the thing: people involved in an acrimonious breakup never have the
same story about what happened. As much as you think you're viewing the
situation objectively, any narrative you give is biased. If you name names
unnecessarily, you deserve any further trouble you get into.

------
vohof
> $1.8M pesos (over $40K USD).

The confusing dollar sign.

~~~
justincooke
Ack - thanks for pointing that out. Corrected!

