Ropes & Gray sued for malpractice

Post Reply
User avatar
Nebby
Posts: 10188
Joined: Thu Jan 25, 2018 3:24 pm

Ropes & Gray sued for malpractice

Post by Nebby » Fri Feb 09, 2018 11:10 am

The cofounder of Xfund, a venture capital fund which has backed startups including 23andMe, has filed a malpractice lawsuit against Ropes & Gray, accusing the law firm of secretly helping his partner seize control of the $100 million enterprise.

Xfund cofounder Hugo Van Vuuren in a lawsuit filed in federal court in Boston on Wednesday contends Ropes & Gray, while purporting to be counsel to the fund as a whole, worked behind the scenes to help his ex-partner Patrick Chung gain control.
https://www.reuters.com/article/securit ... SL2N1PZ02T

If you have Westlaw, you can read the longer article here: https://1.next.westlaw.com/Document/Ieb ... c.Default)

BACKGROUND

The Inside Story of Venture Capital's Messiest Breakup, WIRED.com, Nov. 8, 2017.
I spoke with more than three dozen people over the last few months to try to understand what really happened with the Xfund. It’s a story that’s so complicated that the two parties involved disagree on the most basic facts of the timeline. What’s clear is that from the start, they had clashing visions for what they were building. The tale of Van Vuuren and Chung’s partnership and its demise offers a window into how power really works in Silicon Valley, where personal relationships are the most important currency and, in order to protect capital, investors are more likely to place their bets on people they know and trust. It’s a story that Chung is ready to archive, but one that Van Vuuren still can’t bring himself to accept. He believes he was wronged, and remains obsessed with laying bare a system that didn’t work in his favor.
...
Van Vuuren was on his way to South Africa for the Christmas holidays when the amended documents arrived via email. He was in a hurry because his mother’s living situation in a South African province had become unsafe, and he planned to use the trip to help her move to a safer home. He says he scanned over the documents quickly, paying attention to the portion that addressed the employee option pool, and signed them. The documents also contained a provision that gave Chung governance control over the fund. Although Chung says he and Van Vuuren discussed this, and in court documents he provided the court with an email trail showing he’d alerted Van Vuuren, Van Vuuren says he missed it. He didn’t discover that he’d signed away his voting rights for several months.

When he did find out, it was on a Saturday evening in the run-up to the fund’s annual investor meeting. Van Vuuren remembers that Chung convened a last-minute conference call for the four-person team. In the call, Van Vuuren says that Chung threatened to fire them. (Chung denies this, calling it “revisionist history.”) Afterwards, Van Vuuren reached out to a Ropes & Gray associate to make sure that Chung couldn’t do so unilaterally. The associate sent over the management agreement, which spelled out Chung’s full control. As he read it, Van Vuuren was confused. “I was like, ‘This is the wrong version, I’m reading this wrong,’” he says.

A few days later, students and investors crammed elbow-to-elbow inside a building on Harvard’s Radcliffe campus for the fund’s annual meeting. They also celebrated a tradition that had gotten its start in the early days of the Experiment Fund: the annual awarding of the Experiment Medal. Theranos founder Elizabeth Holmes had flown in from Palo Alto to receive it. (This was five months before a Wall Street Journal investigation raised questions about the legitimacy of her startup’s blood test technology.) Van Vuuren was distracted. As the event wrapped up, he pulled aside Ropes & Gray partner Aaron Katz, who’d done legal work for the Xfund. Katz and Chung were close friends; they’d gone to Harvard Law School together, and Katz attended Chung’s wedding.

Van Vuuren and Katz took a walk. “I said to him, ‘Look, the document I saw this morning from your associates tells me that I have one vote for every two votes Patrick has, which essentially makes me an employee,’” Van Vuuren remembers saying. “‘This is not okay.’”

Katz told him not to worry, and that he’d review the documents. Then the next morning, Katz confirmed that yes, that was correct. The revision to the voting structure had been included in the December documents Van Vuuren had signed, which enabled the fund to provide profits to employees. In effect, Van Vuuren had agreed to it.
https://www.wired.com/story/the-inside- ... t-breakup/

User avatar
jingosaur
Posts: 1465
Joined: Fri Jan 26, 2018 4:13 pm

Re: Ropes & Gray sued for malpractice

Post by jingosaur » Fri Feb 09, 2018 11:15 am

Can't trust anyone on the Patriots.

James Baxter
Posts: 578
Joined: Mon Jan 29, 2018 8:43 pm

Re: Ropes & Gray sued for malpractice

Post by James Baxter » Fri Feb 09, 2018 11:15 am

lol so this dude was told repeatedly what was happening, didn’t read his emails, didn’t read the docs and signed.

User avatar
Nebby
Posts: 10188
Joined: Thu Jan 25, 2018 3:24 pm

Re: Ropes & Gray sued for malpractice

Post by Nebby » Fri Feb 09, 2018 11:24 am

James Baxter wrote:
Fri Feb 09, 2018 11:15 am
lol so this dude was told repeatedly what was happening, didn’t read his emails, didn’t read the docs and signed.
I don't get that same read. He was told repeatedly what was happening only after the document was signed.

According to that WIRED story, the two had agreed to update the operating agreement to allow ownership by employees. Taking the events in favor of Van Vuuren, he was sent the docs, skimmed it, read the amendments pertaining to the employee ownership, and signed. According to him, he had no reason to suspect that buried in the document was a provision they did not discuss, which provided Cheung with majority ownership.

I don't know if you've ever read operating agreements before, but they are dry as fuck, long, and highly susceptible to sneaking in legalese in a way that could easily get a client to sign something without full understanding. When a client's lawyer sends them documents about X, they assume the lawyer is competent and the client signs it. The client has no reason to think that the lawyer added in additional language that the client did not discuss with the attorney beforehand.

User avatar
MKC
Posts: 4659
Joined: Thu Jan 25, 2018 2:46 pm

Re: Ropes & Gray sued for malpractice

Post by MKC » Fri Feb 09, 2018 11:30 am

Nebby wrote:
Fri Feb 09, 2018 11:24 am
James Baxter wrote:
Fri Feb 09, 2018 11:15 am
lol so this dude was told repeatedly what was happening, didn’t read his emails, didn’t read the docs and signed.
I don't get that same read. He was told repeatedly what was happening only after the document was signed.

According to that WIRED story, the two had agreed to update the operating agreement to allow ownership by employees. Taking the events in favor of Van Vuuren, he was sent the docs, skimmed it, read the amendments pertaining to the employee ownership, and signed. According to him, he had no reason to suspect that buried in the document was a provision they did not discuss, which provided Cheung with majority ownership.

I don't know if you've ever read operating agreements before, but they are dry as fuck, long, and highly susceptible to sneaking in legalese in a way that could easily get a client to sign something without full understanding. When a client's lawyer sends them documents about X, they assume the lawyer is competent and the client signs it. The client has no reason to think that the lawyer added in additional language that the client did not discuss with the attorney beforehand.
Although Chung says he and Van Vuuren discussed this, and in court documents he provided the court with an email trail showing he’d alerted Van Vuuren, Van Vuuren says he missed it.
The Westlaw article sounds like it's just paraphrasing the Complaint, and the bolded makes me think Van Vuuren was seriously checked out/not paying attention.

User avatar
Nebby
Posts: 10188
Joined: Thu Jan 25, 2018 3:24 pm

Re: Ropes & Gray sued for malpractice

Post by Nebby » Fri Feb 09, 2018 11:56 am

Interesting! I'd love to see the emails and how they fit in the timeline.

James Baxter
Posts: 578
Joined: Mon Jan 29, 2018 8:43 pm

Re: Ropes & Gray sued for malpractice

Post by James Baxter » Fri Feb 09, 2018 1:02 pm

MKC wrote:
Fri Feb 09, 2018 11:30 am
Nebby wrote:
Fri Feb 09, 2018 11:24 am
James Baxter wrote:
Fri Feb 09, 2018 11:15 am
lol so this dude was told repeatedly what was happening, didn’t read his emails, didn’t read the docs and signed.
I don't get that same read. He was told repeatedly what was happening only after the document was signed.

According to that WIRED story, the two had agreed to update the operating agreement to allow ownership by employees. Taking the events in favor of Van Vuuren, he was sent the docs, skimmed it, read the amendments pertaining to the employee ownership, and signed. According to him, he had no reason to suspect that buried in the document was a provision they did not discuss, which provided Cheung with majority ownership.

I don't know if you've ever read operating agreements before, but they are dry as fuck, long, and highly susceptible to sneaking in legalese in a way that could easily get a client to sign something without full understanding. When a client's lawyer sends them documents about X, they assume the lawyer is competent and the client signs it. The client has no reason to think that the lawyer added in additional language that the client did not discuss with the attorney beforehand.
Although Chung says he and Van Vuuren discussed this, and in court documents he provided the court with an email trail showing he’d alerted Van Vuuren, Van Vuuren says he missed it.
The Westlaw article sounds like it's just paraphrasing the Complaint, and the bolded makes me think Van Vuuren was seriously checked out/not paying attention.
Bingo. I get the feeling this guy just wasn’t paying attention. See it all the time. Far more likely than Ropes trying to pull a fast one on him (they probably sent a redline of the agreement too).

User avatar
Danger Zone
Moderator
Posts: 3798
Joined: Thu Jan 25, 2018 2:34 pm

Re: Ropes & Gray sued for malpractice

Post by Danger Zone » Fri Feb 09, 2018 2:21 pm

Read your contracts kids

Post Reply

Who is online

Users browsing this forum: No registered users and 3 guests