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The Collision of the Entrepreneurial and Litigation World

Excited. Passionate. Devoted: the foregoing describe the relationship between the entrepreneurs I have had the pleasure of representing, and their ideas. I usually get to hear the longer version of their elevator pitch. I also get to hear about how excited they were to get the angel or venture capital funding and how their investors shared their vision for the future. Unfortunately, those good feelings and promises do not always play out the way the entrepreneur expects based upon the promises of the angel or venture capitalists. The evitable result is litigation. This litigation can take a variety of forms, including fights for control, partnership disputes, securities fraud, breach of fiduciary duty cases, minority shareholder oppression, breach of contract, fraud, fraudulent inducement, non-compete issues, trade secret misappropriation, and more. Breach of contract claims, for example, will depend on the terms contained in the contract upon which suit is brought. This cause of action can lead to the recovery of actual damages and attorneys' fees. See TEX. BUS. & COM. CODE § 38.001. Minority shareholder oppression claims may result in the appointment of a receiver and/or ordered buyout of the plaintiff's ownership interest in the company. See TEX. BUS. CORP. ACT ART. 7.05; and Davis v. Sheerin, 754 S.W.2d 375 (Tex. App.--Houston [1st Dist.] 1988, writ denied). Fraudulent inducement cases involve a claim that a party was induced to enter into an agreement based upon fraudulent statements. The relief usually sought in a fraudulent inducement case is to be returned to the position you were in prior to entering into an agreement. In a recent case the Texas Supreme Court held that in the case of a fraudulent inducement (essentially fraudulent statements made to induce someone to enter into an agreement) of a contract by a fiduciary (fiduciaries can include partners, joint ventures, board members, agents etc.) can lead to a forfeiture of the fraudulently induced contractual consideration (i.e. what was paid). ERI Consulting Engineers, Inc. v. Swinnea, 318 S.W.3d 867 (Tex. 2010). The court found that this relief may apply regardless of whether actual damages are proven. Id. at 873. As you can see from these many claims, the legal landscape on which entrepreneur/venture capitalist lawsuits are fought is very broad. We will be addressing other aspects of this very important legal landscape in future posts.

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