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Why I Spent $100k to Fight a $10k Small Claims Lawsuit (joelx.com)
130 points by joelx on Jan 7, 2017 | hide | past | web | favorite | 111 comments

My years of experience running service businesses has taught me that my company should not act like a bank. Instead we learned how to leverage a Factoring Company when deciding if there was any risk when taking on new clients. Factoring Companies work with banks to do credit checks on your prospective clients and provide you with a credit limit and term period of which they think it's safe to do work with them.

Service companies shouldn't act like a bank and lend money (service) to companies because we aren't equipped with tools to do it so we get burned as easy targets. The Factoring Company can do that for you and they report unpaid debts to all the major credit agencies for you. You'll very rarely regret not paying XYZ, Inc. the small service company, you'll probably regret not paying a factoring company that works with a bank like Wells Fargo for debt you signed up for. Oh and a factoring company that works with big banks like Wells Fargo will a lot more attorneys than XYZ, Inc. the small service company will ever dream of having.

I used these guys: https://www.capitalcredit.com

They took us on as a client when we got to about $40k/month in revenue. Not sure if that's still where they start. They were a lot more economical than the trendy ones that advertise on Facebook though.

i looked into factoring companies myself. I got 3 quotes and they were all an absolutely terrible deal. This is a quote i got from one of the companies, copied verbatim from the email they sent me, they were all around the same terms:

  Based on a turnover through the facility of £200,000:
  Full service Invoice Factoring – including credit control and cash allocation
  £35,000 facility review limit
  Prepayment of 75% against invoices
  12 month contract with 3 months’ notice
  Service fee – 3.5% of invoices placed through the facility,
  subject to a minimum monthly fee of £470 (the higher of these two will be taken as the monthly fee)
  Discount fee - (cost of money) – 5.5% above base rate (0.5%).
  This is an annualised fee and based on an average borrowing of £20k would be £100 per month
  Set up fee – £350
  Annual renewal fee - £350
  Security: We would take a bond and floating charge and would request a director’s
  guarantee of 20% of the facility review limit.
I decided it wasnt worth it.

The cost should depend on the credit worthiness of your client and the term you want to extend.

To me it's the cost of being able to sleep at night while running a service business. Consumers have practically forced retailers to eat credit card fees despite being able to require cash from consumers at one time. If clients keep skipping out on paying vendors then factoring will be the norm. Clients who don't have good credit will have to pay up front for service.

Please don't use two spaces to blockquote text. It's broken on mobile. Please stick to the > convention.

In my company's contract, we limit our liability to the amount paid by the client. Without a liability limitation clause in the contract, you're taking on a potentially unlimited amount of liability in each project. It's not worth the risk. A few good paragraphs in the contract make all of the difference in the world. If you don’t have a liability limiting clause, you should.

Also, this client engagement started going wrong from the very beginning, when the team allowed so many changes for free, and even launched the website without final payment.

I'm all in favor of over-delivering -- and I probably also would have fixed the problematic PSDs for free -- but 294 hours of work on a 116 hour project, launching the website without the required final payment, and then continuing to do work is way too much.

In my company's contract, we limit our liability to the amount paid by the client.

The amount paid by the client in this case was $12k so that wouldn't have changed anything except perhaps the scary lawyer letter (which they successfully deflected).

launched the website without final payment

This was perhaps the biggest mistake here. It would have been much better to fire the client: "OK, we're done here. You're fired. We're keeping your deposit, ceasing work and not launching your site."

How do you fire a client? What's your contract clause read that allows this? The challenge (as I see it), is that if you're contracted to perform X work for Y cost, if you 'fire' the client, you're the one breaching the contract and thus liable for a claim? What language do you use to 'fire' the client?

The contracts our company uses do include a limitation of liability to the amount the client pays.

I agree that the big mistake we made was to allow so many changes for free and also to launch the site prior to final payment being received. I have policies in the company against both of those things, but my project managers have a strong incentive to be lax on them. If they raise a flag, it will result in an unhappy client and an unhappy manager and they will be caught in the middle. It is easier for them to just push stuff through and hope it goes unnoticed. This has been a difficult issue for me to resolve and I am still trying to figure out better ways to incentivize my team to avoid this. It's a bit of a balancing act.

Great idea!

"However, in the second trial the small claims cap of $10,000 is removed and the judge can potentially award much more money in damages to the plaintiff."

This is wrong. $10,000 is the absolute damages cap in small claims court and the small claims appeal (which is really just a new trial). See California Code of Civil Procedure Section 116.220 and 116.221. The exact same claim is simply heard in front of a new judicial officer. It is not possible to amend the claim to add more damages in the appeal. See California Code of Civil Procedure Section 116.770(d).

A judge could award another $1000 but only if the appeal was frivilous. See California Code of Civil Procedure 116.790. This happens rarely.

* I'm a CA licensed attorney and just happened to attend the temporary judge small claims training just a couple weeks ago.

> * I'm a CA licensed attorney and just happened to attend the temporary judge small claims training just a couple weeks ago.

Fair to assume this is not legal advice to the OP (or anyone), then?

Factual statements of judicial systems and procedures (e.g. "a judge can find someone in contempt of court") is very different to legal advice ("a judge will likely find you in contempt of court").

Always show up in court if you are being sued. If no one shows up at all for one side, they lose. He sent his assistant, but I doubt that made the judge happy. That's probably the mistake that cost him 100k of his and his employees' time.

> Always show up in court if you are being sued


If nothing else, its a sign of respect.

The judge doesn't know the history, doesn't know the background. He knows there are two parties that don't agree.

He sees one side prepared, he sees the otherside who sends their assistant.

What would you do if you were the judge?

> What would you do if you were the judge?

My job, which includes attempting to determine the facts and deliver a just decision, instead of making a reality-show-style popularity contest out of it.

Proper procedure (including appearance, notice, and other jurisdictional matters) is part of the decision.

It's ridiculous how otherwise (mostly) rational professionals are so blinded by their version of facts & the adversarial nature of litigation / hearings that they act so cluelessly.

This comment included: imagine if someone had a pitch scheduled with a VC, but sent an assistant instead. The investor would correctly pass on that and HN would flip a shit. But involve lawyers, judges and the judicial process...and expecting someone to show up to court is a "reality show popularity contest"

Credibility is part of judgment.

The claim was that he didn't fully hold up his end of the contract. This isn't a criminal case with forensics; this is small claims with a lot of he-said, she-sad.

Not dodging court lends credibility to your side.

Attending certainly would add credibility, but it seems unconscionable that the judge wouldn't even let the assistant present their defense at all.

I do agree with this and should have attended the first trial myself.

I do find myself somewhat conflicted though as to what advice to offer others in the same situation. In California small claims court, it seems that you basically can appeal a decision for any reason as the defendant. You could almost make it a practice to send an entry level person to fight the first one and if you lost, go back and appeal. The other shocking thing is that if state you will not stipulate to a pro tem hearing your case, your case will most likely be delayed again and again. You could almost just do that till the other party gives up. I have doubts that a person angry enough to sue would give up though - I did not.

> Always show up in court if you are being sued.

Even then it can be hit and miss, depending upon the judge's ability to understand the case. I have been court a couple of times where the judge used my exact argument to side with my opponent. I got both decisions reversed in appeals, but that didn't make the process any less frustrating.

Unfortunately, courtrooms are not always the bastions of justice we'd like to think they are.

I think the idea behind "always show up in court if you are being sued" isn't that it will always work out for you, but that it almost definitely won't work out for you if you don't show up.

I cringed when I got to that part. Not showing up in small claims court and sending your assistant is just the dumbest thing short of not showing up at all, and not hiring a lawyer.

He acknowledges this as his biggest mistake:

> At this point, I made my biggest mistake and figured it was such an obvious win that I did not even need to attend the small claims hearing

Hopefully everyone reading can learn this lesson the easy way and save the $100k.

In this case, it was the company that was being sued, and the assistant was there to represent the company. Which sounds perfectly reasonable. It would be nice, but there's certainly no expectation for the CEO/owner to attend every single court case.

All the emails and negotiations are between him and the other guy. It's not like his company is a multinational with billions in revenue and the CEO on another continent. It was absolutely a huge mistake not to show up personally.

The abundance of comments here calling out all the author's mistakes is ... strange. My reading of the post is that the author is very aware of what could have been done better. I also think it's obvious to anyone what the missteps were.

Truth is, we all have these tales. We've all made these "blunders". What this article is about is not "Why I Let An Abusive Client Rob Me", it's an explanation of why this small business owner expended his/her own time and money to help fight injustice, and how our court system allows such injustice. Comments about what the author did wrong in their interaction with a client is off-topic, in my opinion.

Having also been on the receiving end of a frivolous lawsuit, my heart goes out to the author. May your fingernails survive until the notice from the judge arrives.

I had a few sleepless nights and a lot of days of worry over this. It wasn't even a large amount of money relative to the size of my company now, but the feelings of anger and fear are hard to deal with.

> Truth is, we all have these tales. We've all made these "blunders".

Why are you so sure of this? Don't you think it is possible others have been smarter and have avoided making these kinds of mistakes?

Just because you understand how to serialize a btree doesn't mean you know how the legal system works, and assume it should be fair.

Sure but you don't let a client run up a huge tab, throw in a bunch of hours for free then get upset when it all blows up in your face. Require partial payment up front and then sick to your own rules. Otherwise you are disrespecting you own business and that leads to others doing the same.

Did the contract in question have copyright to the work only transfer upon payment in full? That is a key piece of leverage that you should include in every contract. This way if the client continues to use the code you can inform them that it is copyright infringement, potentially send the web host a DMCA takedown notice, or have your lawyer pursue them for copyright infringement.

That said, the "self-help" takedown sounded problematic -- much better to have the option of a copyright infringement claim.

If a client pushes back on this provision you can explain that you are 100% insistent but it only comes into question if they don't pay -- that has resolved all objections in my experience, and if they pushed further I'd treat it as a major red flag.

This comment is 100% on point. I include a clause in my contracts that I own all of the work we do until payment is made in full.

It still would have been better to have not pushed the site live until the payment was made though. We have a policy for that, but the team gets a bit overeager.

You can't avoid all conflicts with clients, but clear and constant communication that feels at first like over communication is key to prevent this kind of misunderstanding.

Here's what I've seen work with regards to client communication around scope - especially scope overruns:

1) If the scope creep is minimal (like a 15 minute task that wasn't in a bulleted list in the contract), don't even mention it. Just part of being a good business partner

2) If the scope increase will be expensive IMMEDIATELY communicate to the client that the ask is out of scope. Do this with an email, and call the client and discuss the email with them - ideally before they read it (maybe even call before sending it). It's important to have what's going on in writing, but it's easy to misunderstand email and it's also important that the client understands you are just making sure everyone is on the same page about scope. Sometimes (often) the client may disagree about what is in or out of scope, or push you to include more in the scope as a way of getting additional work for free. Regardless of how this ends up , it's better to have the conversation and understand where both parties stand before you actually perform the work.

3) If you do agree to do the work you view as beyond scope for the original price, it can be helpful to explicitly show this as a discount. In the attached article, this would look on an invoice something like:

Professional Fees : 294 hours X $103/hour = $30,413 Investment: $(18,413) Fees Due: $12,000

Pitched as an investment in the relationship and discussed frequently as it happens, this is harder (but not impossible) to be angry about.

That said, this is one of the easiest things to screw up and hardest to get right. Communication with clients is hard. Some people will never be happy.

>Professional Fees : 294 hours X $103/hour = $30,413 Investment: $(18,413) Fees Due: $12,000

I REALLY like the idea of putting extra hours worked as a discount on an invoice... thank you!

> Dealing with this issue as well as other legal issues and reading multiple books on legal issues, winning at trial, etc I think has left me with the equivalent of half a law degree. I have lots of experience now writing contracts, researching and preparing for a lawsuit, and arguing persuasively in front of a judge.

After one court case? That's ... optimistic, to phrase it politely.

Great point. The "other legal issues" I mentioned were other lawsuits I have been through:

-A patent troll sue me a few weeks ago (got it dismissed voluntarily)

-Another client with a stronger case sue for breach of contract a year ago (I won that and got attorneys fees). This was extremely stressful as it was for big money. I read several law books to prep for this one.

-Six year ago my first salesperson sued for commissions after I fired her (she won because I didn't have a contract)

I also don't want it to look like I get in a lot of lawsuits. I have had over a thousand clients and only two ended in lawsuits. I have also had over 250 employees and thousands of contractors and have only been sued once there.

In these scenarios, I push really hard to have a Phase 1 and a Phase 2.

Everything that we agreed to is Phase 1 and everything is is Phase 2 and does not start until Phase 1 is complete, launched, and paid for.

In this case, it may not have protected him from all the crazy, but it would have reduced that 294 hours to something much smaller. And then he could have bailed on Phase 2 because the customer was an asshole.

How do you answer / respond to clients who commonly demand the addition of the new feature / gizmo / gadget as part of phase I (in this case, as part of a new website, they ask for a feature not originally scoped but desired to launch with the new site)?

Why didn't the author retain an attorney? If I got a demand letter for hundreds of thousands of dollars, I wouldn't trust anyone but a lawyer to help me deal with it. I certainly wouldn't send someone with even less knowledge than me.

A competent lawyer would have made very short work of this claim, would have kept the judge happy, and in the long run would have saved time and money.

The real lesson here is "know who to call and have money saved to retain them."

Remember a demand letter is just a threat... It's only when you get sued that actually need an attorney (unless you want one). The attorney who sent the demand letter apparently was not willing to represent this case in civil court, hence why we ended up in small claims.

In small claims court in California you are not allowed to be represented by an attorney unfortunately.

> Remember a demand letter is just a threat... It's only when you get sued that actually need an attorney (unless you want one). > In small claims court in California you are not allowed to be represented by an attorney unfortunately.

I'm sorry, Joel, but in my opinion this is just bad advice. In a case like this one, if an attorney sends you a demand letter, an attorney should respond. Yes, small claims court doesn't permit attorneys in all states, but the original letter was a demand for $250,000, which is well beyond small claims. Yes, it was a flatly spurious demand, but that doesn't make replying without an attorney the best course of action. You need an attorney any time someone opposed to you gets an attorney involved in a matter. Otherwise, you're bringing a knife to a gunfight. Sometimes you get lucky and it turns out the gun is loaded with blanks - that's what happened this time. You cannot be certain you'll be that lucky all the time, in fact, in most cases you won't be.

A competent attorney knows the law and knows (not just suspects) when the other side is being crazy. The letter you originally got is, on the surface, ridiculous, but sometimes, so is the law. Frankly, I think responding to their demand letter with a good, well-crafted on-law-firm-letterhead reply (telling them to buzz off) would likely have made them back down, or at least settle for a total cost less than what it cost you to deal with this on your own. Lawyers know this is a game they're playing where each side cowers the other - and if the letter writer wasn't willing to represent your former clients all the way through the process, he probably knew that if his bluff was called, his clients had no recourse. Further, an attorney would tell you right away, and probably for free, how to avoid the biggest mistake you made: not showing up to court. No half-decent lawyer would ever let you make that misstep.

Yes, you would have lost out a little in having to pay somebody to handle the response - but given the extreme risk and expense of (even frivolous) civil litigation, I think the costs of an attorney likely pales in comparison to what you did end up paying in time, money, and stress, plus the ability of an attorney to lower the risk of the situation overall, even if they did charge $1200 an hour (not all or even most do).

Edit: What I'm trying to say is - you seem intelligent and are clearly successful. It's easy for a smart, successful person who has had good luck in the past to think they've got something like this handled. What I am trying to impress upon you is that in this case, you can't afford what might happen if you're wrong, because it might cost you everything. The stakes are too high not to go with the best option.

I will take your advice and involve my attorney in the future. Thank you!

I just want to say, as someone who has dealt with a very challenging client -- who refused payment on 30-40 hours I put in to work, after weeks of being completely non-responsive before the client's deadline -- I can't say how much I appreciate hearing stories like this one. We didn't take the course to court -- we were two - three people and the contract was $10k as a whole, but it left me feeling very raw about contract work. I have to say for me, this is a great ad for this employer being a safe and employee-valuing place to work.


Responding not to throw truisms at you; checking that I'm not crazy.

> I have to say for me, this is a great ad for this employer being a safe and employee-valuing place to work.

The employer is meant to shield his employees from this kind of stuff. i.e. this is a "normal" employer.

Even if the clients don't pay the employer, the employer pays its employees -- that's the arrangement and the risk taken when you own the business (alternatively stated, as an non-exec employee, you trade a premium on salary to not deal with risk).

Oh, yeah, I think that's true that part of the employer-employee contract is guaranteeing employees payment.

I guess I mean something a little different then. That it's really heartwarming to see an employer 'go to bat' for his team's work and his company. I was resonating with the experience of directly having freelanced with a client feeling 'out of control.' I was really caught off-guard by it and it felt (in hindsight a mistake) easy to give an inch and give another inch. There's something here -- maybe I can't put my finger on it -- in this blog post that makes me thing the author would be an incredible asset in putting down hard limits and boundaries when they need to be put down.

> That it's really heartwarming to see an employer 'go to bat' for his team's work and his company

He "went to bat" in court as to not risk a default judgment or additional monetary loss. Talking about how your consulting company went far out of scope and criticizing/belittling an ex-client in a blog post is kind of strange, in my opinion.

> I was resonating with the experience of directly having freelanced with a client feeling 'out of control.' I was really caught off-guard by it and it felt (in hindsight a mistake) easy to give an inch and give another inch

Yeah, that's really common. Sometimes it's a simple situation of communicating the time demand or cost of client asks and other times, it's employing a firm "no" or calculating if it's worth firing the client (never fun).

> There's something here -- maybe I can't put my finger on it -- in this blog post that makes me thing the author would be an incredible asset in putting down hard limits and boundaries when they need to be put down.

I made another post in the thread about this if you're interested[0], but it appears as if this was an issue because of the exact opposite -- contractual scope of work was not enforced and substantial additional work was performed.

[0] https://news.ycombinator.com/item?id=13348353

This is exactly why I fight these things. Another commentator explained it much better than me:

lazaroclapp - "There is a fairly long school of thought in ethics that posits that it's an important thing for most people to sacrifice self-interest in the name of justice, since it deters injustice. Basically, if most people respond to frivolous lawsuits by fighting them instead of settling or accepting unjust outcomes (within feasibility, of course), then engaging on frivolous lawsuits becomes unrewarding, and even unethical people stop doing so. The same goes for other kinds of bullying behavior."

People like these are mentally ill sociopaths that don't care about the needs of the people they are hiring. The web development profession is filled with dealing with people like these. It's a shit job at the lower end having to deal with small business people. They are all barely scratching a living themselves and the way they are doing it via technology leaves much to be desired, and they expect you to pick up the slack. Honestly it's a shit business and really no one should try to do it at the lower end. At the higher end the same job fetches 100k and the clients are happy to pay for the work. The only catch is that you have to be rich already to make 100k for the same work that at the lower end fetches 10k. It's honestly a stupid mistake to do it at the lower end.

Lol so true.

I see small business people who try to make a sense out of all this tech stuff WHILE trying to avoid spending $$ a lot and yeah, some try to lie and cheat to get what they want. Not all, just a few.

Quite a few.

Eek. First off, joelx, sorry about the painful process. If things are truly as presented here, I hope things turn out in your favor.

I'm inferring that the post is being polite in leaving off some of the challenging aspects of the client, but as someone that's run a little consulting shop, this alarmed me:

> <Client> at this point began to make lots of requests for out of scope items not included in the contract. My team bent over backwards to accommodate him and finish these items...we had gone far beyond what he had paid for. Our team had racked up 294 hours of work on a project that TheClientCompany had only paid 116 hours for.

Why wasn't this contract closed, and a new one opened, before the 150% work overage mark?

Obviously, sometimes you need to eat a bit of work due to misestimation/unexpected-unexpecteds/reputation/keeping your client happy, but with the estimation of $12k@116 hours, this is $30k worth of work on a $12k agreement (assuming the estimation didn't account for legal/accounting/insurance/pre&post-sale time/expense, which are a bit more static in my experience).

Was the client not politely informed that the requests were going well beyond the scope of work? If you're beyond 2x of the agreement, I can understand that the client started to think of the contract as inconsequential. When dealing with customers without a technical staff (or experience in managing or running something technical) that are asking you to over-deliver, it's often just an issue of not knowing which asks are time-consuming/expensive -- and if you're making it look easy, the client will think it's easy.

> Our contract requires that before a website launches, final payment must be made. My team launched despite this and continued to work on it for him.

When you flagrantly break the parts of the contract that protect your business and interests, it's somewhat understandable that the client would expect to be able to sign-off the work before payment.

Just my two cents, but I'm positive that those two pennies have saved me a ton of money in walking away from certain clients during the negotiation phase.

> I ran right up to both of them, and punched him in the nose. I got in big trouble, but I thought it was worth it.

This metaphor, coupled with the story, makes it seem as if it's "worth it" to hit a client back in front of a judge. Super weird, IMHO.

> This metaphor, coupled with the story, makes it seem as if it's "worth it" to hit a client back in front of a judge. Super weird, IMHO.

It is an analogy. One should not copy exactly what happened in an analogy literally to a situation (what I call "greater example"); instead, one should apply the lesson of the analogy.

The situation of the analogy ("small example") was at elementary school, where someone got hit, and wanted to get justice ("an eye for an eye"). He got justice, but at a steep price. Standing up for oneself ensures they are not (or at least less likely) becoming bullied again, but it has its price (e.g. you may lose a teeth or 2, get reprimanded by school, get in contact with police or sued, etc). The goal of eye for an eye might appear as self gratification. That is perhaps part of the goal, but its a rather pointless and -to put it friendly- unintelligent one. Another, far more important part of the goal, is to ensure the other party realises (knows & feels) they were wrong so that the other party does not resort to this behaviour again. Not necessarily solely to the victim. Rather just to any potential future victims as well with whom the victim [would] share empathy and sympathy. One could regard justice as a reaction of the autonomous system (in the "greater example", called "society"), trying to correct its inhabitants/hosts, with the goal of improving the autonomous system at a whole.

Yeah, analogy -- thanks (was running on no sleep from travel).

I just don't think it fits the situation, even though I know what he was trying to say. Submitting proof to authority that you had done nothing wrong (as a defendant) is not the same as exacting revenge, even if the authority didn't see the initial harm. Along with the other descriptors of his ex-customer, it comes across as unprofessional.

> Submitting proof to authority that you had done nothing wrong (as a defendant) is not the same as exacting revenge, even if the authority didn't see the initial harm.

Its not about revenge, it is about justice. I explained revenge is not so much about the person who experienced the initial blow, more so than potential future victims.

> Along with the other descriptors of his ex-customer, it comes across as unprofessional.

I understand you feel that way but I disagree. It comes across as someone who stands up for his right when put in unjust situations. A potential customer should not need to fear him, as he is normally a solid business partner, and may even work hard in your advantage (for free). He mentions he goes out of the way for his customers, and his very example even proofs this. The people who read his blog regularly supposedly know his personality better. There's a conundrum in the fact that blog posts might be written for people who are more in the know, whereas everyone in the world can read it. We see the effects of that issue more regular, this is'd merely an example of the effect (is there a name for it?).

He is also not posting personal details of the plaintiff. Not enough to identify them. That is professional.

Then again, I am biased. I got bullied at school, and I generally didn't end up returning physical violence. I wish I did. I'd be more mentally resilient now. Not all is lost though.

> This metaphor, coupled with the story, makes it seem as if it's "worth it" to hit a client back in front of a judge.

The point I get from that is that it was worth it to him to stand up for himself even though it was costly to do so. In both cases, just letting it go would have been the easier option, but he didn't. A little stubbornness can be a good thing.

> The point I get from that is that it was worth it to him to stand up for himself even though it was costly to do so.

He was the defendant:

> A few weeks later I received a small claims notice in the mail that I was being sued for $10,000 (the small claims maximum) by Donald Deep

Not being part of the process would have come with the risk of a default judgment and the ex-customer demonstrated that he's litigious -- the "he hit me, so I hit him back in front of authority" doesn't fit when the scenario is "show up or lose more money and maybe he'll kick me."

What I got from the article is that the design firm can be manipulated into doing twice the work for the same pay as long as you're okay with the CEO vaguely mocking you later on his personal blog.

He appealed and went to court again after losing the first time. It is the appeal that corresponds to hitting the other kid in front of the teacher. He could have walked away with only a 10k instead of 100k lesson, but then Deep would have gotten his $10k. In both cases he took a loss rather than let the other party get away with something.

As with the playground games, the point is to be seen as crazy and/or principled enough that other people are incentivized to care about your principles and show you respect. That's also the message he is sending by publicizing it. The story doesn't exactly make him look like a legal or a business genius, but it shows determination and willingness to fight, which may deter others.

> doing twice the work for the same pay

Yes, hopefully he learned a lesson there. His company did extra work but resented it, and once that happened the rest really isn't surprising. It was at this point:

> Our contract requires that before a website launches, final payment must be made. My team launched despite this and continued to work on it for him. When I reviewed the situation, I was quite frustrated at having lost money on this project.

Sounds like his team didn't understand the contract, or he wasn't involved enough in the process. Either way it's his fault this happened, but it sounds like because of his frustration he took down the work already done on the client's site, which is when all the real trouble started. In hindsight it's obviously that point where he should have eaten the loss, either renegotiated a new contract or exited gracefully, and then fixed his process to make sure this didn't ever happen again.

I think it's great the author published this and we can all learn something from it.

This was the most challenging aspect I experienced when running a company targeting small businesses for four years.

About 10% of your clients will be nightmares who will hold grudges over relatively small sums of money. No amount of contract language will save you from a user who has made use of the software for two years, decides that they're unsatisfied with it and files chargebacks for every payment made over that time.

Sadly, the most rational option is to acquiesce. Even "winning" a chargeback case is a loss, as most payment providers still charge you for the handling of the case and it is a black mark on your account, possibly putting you in danger of losing payment processing ability completely.

Can't help thinking the underlying cause is here;

> my email back

...key negotiations happening over email. Make it face to face if you can or at worst by voice and keep minutes for the record. So much misunderstanding can be avoided this way.

Talk in person first, sure, but confirm in written form after, whether this be a signed piece of paper or acknowledgement over email.

Why did you post this before the actual verdict?

Writing this was cathartic after all of the stress on Friday. Also - if I didn't do it now, I probably would not have done it later.

I mostly ask because of two reasons - the first being you expressed confidence in winning earlier, but instead losing, and the second being that publicly discussing a pending court case is generally frowned upon by the courts, and pending a verdict can absolutely swing that verdict in a different direction. Depending on the district doing something like this may even be grounds to have your case thrown out, which would put you right back at the start of finding a judge for the retrial, but now with a legal strike against you. It would have been very wise to clear this with your (or even "a") lawyer.

(I absolutely understand the "getting it off your chest" aspect, but it would have been a good idea to hit "save as draft" rather than immediately publishing it)

Very interesting to read about the different conflict-resolution approaches between the Credit card company and the legal system. The CC process seemed smart, lean, fair and efficient. The legal system seems absolutely terrible.

Why do we accept that level of service (delays, waiting, etc) from one of our most important institutions?

The cynic in me says that since lawyers run the system, and lawyers get paid by hours, they have no incentive to make the system more streamlined.

294 hours on a 116 hour project sucks, but my general rule is once the code is deployed, we're not going to "take it back" over nonpayment. If you fail on your final payment we will ask politely and insistently that you remit it - and not work for you ever again if you don't. But, IANAL, but I can see doing takebacks like this potentially putting you in real civil liability.

A real world equivalent would be like hiring an interior design company to redesign your retail store, and as you're haggling over project sign-off & final payment the interior designer decides to go into your store and personally yank down the redesigned stuff until you pay. You may argue with that metaphor's precision, but I'd guess that's exactly how it feels to the e-comm shop owner. It's simply unprofessional and borderline vandalism which I could easily see a court ruling caused more damages than e.g. a 3 month late payment.

And as we see here, it's a way of pouring gasoline on a fire - a fire Joel righteously wishes to assert he wasn't at fault for, but damn what a waste of money and time. His lesson is, I was right and should have fought smarter, rather than seeing he really didn't need to fight at all.

Uhh, they don't own the IP if they haven't paid, bottom line. Having been in a very similar situation to what you just described in regards to the retail store, that is exactly what you do when they drag ass on paying, as you are not a line of credit or a bank. If the customer resists call the sheriff and recover your companies property, and invoice for damage/wear and tear/depreciation & report on the credit of the former client.

What is unprofessional is not paying, if you can't afford something, don't buy it! Also, half up front & half on completion is way too risky, it means at different parts of a contract each party has a ton of risk.

Is it that straightforward? The client may not own the IP, but does that mean you have the right to make changes to their site against their wishes? Forget civil liability, I'd be worried about criminal liability from unauthorized access etc.

If I go and take something without paying, does the party I took it from have the right to recover said object?

If you have access to the server, due to the customer adding your SSH keys or similar, and they do not remove your keys, that is implied consent. They have not bothered to close the front door, thus you can walk in and take back what you own.

Let's say you give your neighbour the keys to your front door so they can water your flowers when you're gone, and let you in if you forget your own keys.

You then borrow a bunch of books from your neighbour and fail to return them when you said you would. While you're away, and without asking for permission, the neighbour enters your home and retrieves the books.

Was your neighbour trespassing? If not, why not?

You have the right to demand that object and the court system may recover it, but you cannot simply take it.

Even in your own example, for a physical stolen object "They have not bothered to close the front door, thus you can walk in and take back what you own." is a nice way to get in jail yourself.

There is a theoretical ethical/legal view of things - and then there is a real-world practical view. If I was dealing with a company who already have lawyers, then sure, I'd go the "right" way and use the legal system (on the basis the legal system actually works...). But a bad client, who can't even run their small business in a competent manner ... and who can't hire better lawyers than me... the use of brute force (vs the legal way) is sometimes the wiser choice. It is a risk to do such a thing, so you have to know the odds, but it could save you some headache.

The legal system is nothing but a tool and a shit tool at that. People who know how to manipulate it are better off than those who think it is more than just a badly made tool - and the most frequent manipulators of it are the bad actors.

I have realized the IT community is at some disadvantage in some sense, compared to non-IT people, because we have such a implicit faith/trust/belief/respect in rules - we spend all day trying to teach computers to follow rules. The vast majority of humans on the other hand have little respect for abstract rules and will do whatever they want, coming up with justifications and rationalizations after the fact. Outside of IT, you have to realize the only rules you have to follow is 'not get caught'. I'm not saying don't act ethically, I'd encourage it, but a lot of people are not interested in acting ethically at all, especially when it is detrimental to what they want. So you have to learn how to deal with them effectively unless you want to drive yourself crazy.

Depends on your jurisdiction, if you see stolen property that you can prove ownership of (bike, computer, etc) and you recover it off someone else's property without breaking and entering in Washington State, your legally in the clear.

The court system can't effectively handle the case load that every stolen piece of property would put on it, hence why most jurisdictions are reasonable about property recovery.

It's implied consent to update their website in the way that was previously agreed, not to do anything you want with it.

Definitely, if you deface their website intentionally, they may have a case against you (a shaky one at best), but if you do the bare minimum to revert their website back to its prior state, their case will be without merit.

I don't see why. You'd still be making a change to their website that they didn't authorize you to make.

Is it common to accept payment by credit card for such contracts, with a possibility of chargeback at that? Sounds completely crazy to me (not in the US).

That surprises me too. I would expect contract work to be paid for by check or wire transfer. But it's been almost 20 years since I was doing that kind of work. Maybe these days, you have to take credit cards or lose the business.

> If I believe I am in the right I will fight through multiple appeals and beyond all financial reason to win.


As noble as your intentions are, this is not a scalable way of handling hostile clients.

> their revenues were quite small (to the best of my recollection it might have been a few thousand a month total sales)

This may sound out of touch but my advice is: stay away from small clients. They're a pain. It's their money. They're never happy. They find everything is expensive. They love their product so much they can't understand why you don't work for free, since it's such a great opportunity. They're unfamiliar with industry's best practices or fees.

They change their mind often (to be fair, everyone changes their mind but big companies understand that this means a new budget and a new contract, while small ones don't).

I agree that small clients generally are much more difficult than large clients. I would like to find more large clients.

I can say that the work we do now for large clients is light years superior to work of our competitors since we have been through the wringer with people for whom every penny they invest is important.

Title is inaccurate. At the very bottom of the post, he says that fighting the suit over the past two years has cost him about $100K in his and his employees' lost time.

That's not the same as having spent $100K to fight the suit.

It is the same! It's a huge mistake, especially as a business owner, to not make that equivalence.

I disagree. Unless that time could have been directly converted into billed client work (or something with a tangible payoff) then it isn't the same at all.

It's like people taking about their "hourly rate" when deciding to pay for some convenient service. Your time is only worth that if someone is paying you for it.

Equivalent? Perhaps, for accounting purposes. But that doesn't mean they're the same.

When you spend something, you're using money that you already have.

That's not the same as having lost out on potential income.

If I'm offered two jobs, one of which pays $10,000 more than the other, and I take the lower-paying job, I don't tell people, "Hey, I just spent $10,000," even if (in an accounting sense) it's equivalent to having spent $10,000.

It's not the same because time is not directly convertible into money(nor vice versa). Perhaps if the author had clients lined up with money in hand, but those situations are rare, especially for small shops.

yeah...somewhat misleading title...it was a $100k opportunity cost, not a $100k legal fee

>Fighting this issue for the last two years has been frustrating and has cost me well over $100k in my time and my employees time.

I am missing how/for what the 100,000 US$ were spent?

Lost time due to having to go to a Court several times + time for preparation?

>Each time I was scheduled to appear in court, I spent a couple of hours the day before refreshing my memory on the case and the facts so that I could present our side. I would miss most of the day of work.

If he lost 2 days of time each time for 5 times, that is maybe 2x5x10=100 hours.

US$ 1,000/hour sounds to me like a bit excessive as a cost.

You are correct, it is my best guesstimate on the opportunity cost of all the time I spent fighting this.

Court time: 7-8 days

Preparing 3 ring binder with ~150 pages of evidence all laid out with tabs (Exhibit A, B, C...): 5-6 days

Lost work from stress & sleepless nights: 5-10 days?

My hourly rate is hard to judge - I have 80 full time employees so I don't bill directly for my work any longer. If a client were to insist on me doing work directly for them, I would probably require $700 / hr to do so. I don't think this is unreasonable as I talked to a lot of doctors and attorneys routinely charging $600 to $1200 / hr. I think I have a similar level of expertise at this point.

My cost estimate is probably on the high side :)

>My cost estimate is probably on the high side :)

Well, at least here, you cannot confuse "missed income" with "costs".

If you are payed (or can be payed) 700 US$/hour, you should be in a range of around 1,400,000 US$/year of revenue. On this you pay taxes and you have (or should have) some costs, even if minimal.

I wouldn't be surprised if, once you have detracted those, you remain with US$ 350/hour (half of the revenue).

Then what you can spend (and that you can consider as cost) is US$ 350/hour.

And you cannot really consider the "stress and sleepless nights" as "cost", come on, this is what may eventually be "moral damages", and 5/6 days to make a binder with 150 pages? If we take the 350 US$/hour as cost, you have managed in 6 x 10 = 60 hours 150 pages, let's double them to 300 including the ones you discarded, that is 5 pages per hour or less than 1 page every 10 minutes or US$ 70 each for just reading and printing or photocopying a sheet of paper and putting in t in a binder, I understand the tabs, Exhibit A, etc. still ... Realistically it cannot take more than 20 hours at the very most to assemble such a binder.

8 days at court, 10 hours each, 80 hours + 20 hours, still 100 hours at the most, and these should be multiplied by 350 , not 700.

So why wasn't it a drop in the bucket win? I don't understand how Donald had any damage claims whatsoever.

Joel's staff hurt the customer. Not delivering your work until paid is one thing. Reverting the site is totally unacceptable. For one thing, it's use of access you were granted to help the customer to hurt the customer. I wouldn't be surprised to see CFAA prosecution for it---and despite the need to reform the CFAA, this is something that ought to be a crime.

If a tradesman does work on some other Donald's house and doesn't get paid, he can't go remove or undo the work---he can place a mechanic's lien or otherwise go through the courts. We don't accept self-help that harms another, no matter how unfair the dealing was.

Not to say it's right, but some tradesman do remove or undo their work:


There are a bunch of legal acts that explicitly give tradesmen rights to recover materials and equipment installed e.g. in a customer's building in case of nonpayment.

As currently worded (AFAIK, IANAL, depends on your jurisdiction, etc) these acts do not apply to websites in the same manner.

  > Reverting the site is totally unacceptable.
The way I read it he only threatened to do that in an email, not that the site was actually reverted.

My reaction back was poor: in my email back I told him I was stopping all work on the project and reverting his website back to his old theme until he sent payment.

It seems that after Donald's first explosion they did actually revert the site. Donald exploded again and then, a few days later, he made the full second half of payment.

Its not the customer's property, you could DMCA takedown notice the customer's host if you don't have access to the site.

In regards to hired labor undoing work done, I've done that with a hand from my local sheriff here in Washington state. Theft of services and not paying for hardware installed is stealing, which just so happens to be a crime.

Sheriffs and DMCA notices make it legal.

No, if the customer gave me authorized access, your damn straight I'm going to take down my work, and not via a DMCA as they would still have a full copy. If that were illegal under CFAA then bricking a computer using Computrace wouldn't be legal.

That being said, the CFAA is overly broad, but if something like this were to get taken to court it would almost certainly get thrown out unless its a kangaroo court.

Also, I don't involve the sheriff's office unless I feel there is likely to be significant pushback or threats when recovering said property. Involving them doesn't magically change the legal situation.

This depends entirely on the terms of their contract, which were not disclosed. There are myriad ways in which this would be entirely legal depending on phrasing around delivery and payment.

It seems a bit immature to punish a client by reverting changes without prior notice. I'm not surprised they were angry.

It's also not reasonable to spend so much money on litigation. Whenever someone talks about principles in business, in reality, it's all about ego.

Being right doesn't pay the bills.

Regardless of who eventually wins, this blog post comes off as arrogant, juvenile and whiny.

It really wouldn't surprise me if "Donald" wins the case. The author quoted 116 hours and $12k and then failed to deliver, and then acted like a big baby fighting and arguing about it.

The author gave valid reasons. One was a wrong assumption about the input files and it looks like the author was willing to absorb that. Then more changes were asked by the client.

Small fixed priced contracts are hard and limiting liability is critical. Typical is limiting it to value of contract. Otherwise it is very limited upside and unlimited downside. Key to make it work is change management but that assumes reasonable people on both sides and getting started with it early on.

Do people regularly accept payment via credit card for >1000USD in contracting work?

It seems like a bad idea, whenever I invoice payment is stipulated as being by bank transfer.

A: Enjoys throwing good money after bad.

I vehemently disagree. Like the author, I've had to defend myself from a bully abusing the legal system to enrich himself. It's not about the money, it's a matter of principle. "Throwing good money after bad." This isn't some kind of bad investment, this is a personal attack. When you get attacked, you fight back. You don't sit there and take it. Enjoyment? Are you kidding me? There's only debilitating anxiety. You have no empathy.

>When you get attacked, you fight back. You don't sit there and take it.

Why would I fight someone who's clearly more experienced at being an asshole? What am I going to "win"? I'd rather move on with my life and not waste time and energy plotting how I'm going to fight back.

Even if this guy does "win", he hasn't taught the client a lesson. A leopard doesn't change his spots. Dude's going to be awful to work with for life. All he's done is burn time, money, energy to prove a point to himself that he can't be "bullied."

I know some people are assholes and will try to take advantage of me. When one does (fortunately rarely as they're not tough to spot), I cut and run. Why continue to engage?

There is a fairly long school of thought in ethics that posits that it's an important thing for most people to sacrifice self-interest in the name of justice, since it deters injustice. Basically, if most people respond to frivolous lawsuits by fighting them instead of settling or accepting unjust outcomes (within feasibility, of course), then engaging on frivolous lawsuits becomes unrewarding, and even unethical people stop doing so. The same goes for other kinds of bullying behavior.

Let me put it this way, if someone you know pointed a gun at you and demanded $100, forcing you to give it to them. Would you later denounce them to the police? Should the state prosecute? It is likely that both you and the police (or, society) are about to spend far more than $100 in arresting and sentencing this person. Yet, it is probably a good thing to do so nonetheless, since it is still a person that has shown themselves willing to engage in armed robbery.

Don't get me wrong, if $10K are survivable but fighting the suit will bankrupt you, then you owe it to yourself and your employees to keep the bills paid first. But if you can survive either way, then clearly fighting it is the right thing to do (and, honestly, hiring a lawyer and putting an arbitration clause in future contracts would probably be a good idea, but that's beside the point).

If you want to frame it in terms of "winning and losing", how about your self-respect and dignity? It's not about proving a point or teaching a lesson, it's about being able to sleep at night. It's about taking control of your own life and seeking your own personal justice. Let people take advantage of you and roll over -- that's your prerogative. I will go to the ends of the Earth to defend myself when confronted.

I sleep fine. I know that I don't have complete control over my life (nobody does). I don't need to "go to the ends of the Earth" to defend myself. I'd rather just shrug it off and move on to what's next.

To each his or her own I guess.

Article mistakenly says the last hearing was in January 2016, instead of January 2017.

I wonder if you could counter sue him for frivolous lawsuit damages.

Not going to court summons was your $100k mistake.

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