Why I Spent $100k To Fight A $10k Small Claims Lawsuit

What follows is my personal perspective on an interesting dispute. Obviously, it is only my opinion of the situation and there are two sides to every story. I invite the other side to respond if they wish in the comments. I also made the decision to keep the other side anonymous after I first wrote the post with real names, mostly because I hope to not inflame them further and I would prefer to never hear from them again. 

When I was ten years old, I was at recess playing tag with my friends. One boy got into an argument with me about something. He stepped close and hit me, then ran away. I chased him, but he ran up to the teacher monitoring recess who had not seen anything previous. He gave her a big hug, and looked back at me with a grin.

As an adult, I was put into a similar situation. My company, Coalition Technologies, was hired by another company – TheClientCompany – to upgrade their website theme on BigCommerce starting on August 26, 2014.

It was a relatively small project that looked straightforward. The CEO and owner of TheClientCompany, a fellow named John Donald Deep (he goes by Donald), actually provided us the PSDs so it was just going to be a simple HTML / CSS build. Donald was paying us $12,000 for 116 hours of work to convert his PSDs and set up a few extra features on his website. We provided a rough estimate of 30 business days (6 calendar weeks) to complete the project.

Once the project got started, my development team realized that the PSDs provided by the client weren’t in a format conducive to a web build. We let the client know about this, and volunteered to help fix his PSDs at no additional charge to him. Our designer spent a couple of weeks fixing these PSDs and getting everything corrected, then handed it off to our developers around September 5th, 2014.

My developers worked on the construction of the website and roughly six weeks later at the end of October they were wrapping up work. However, Donald Deep 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. By the beginning of November, 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. 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.

I contacted the client and let him know that he needed to make his second half payment (he had paid the first half when we started). I also let him know that any further out of scope work would require a retainer, but that we’d be happy to help him with it.

Donald Deep’s email back to me was close to 2,000 words of outrage that I would request the final payment before he was perfectly happy with everything we did. 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. He was still able to sell and process orders like he had done for years before hiring us – it was just that he had to do it using his old theme again.

Donald absolutely exploded. His next email to me was over 10,000 words of outrage. All caps were used quite extensively, as well as many exclamation marks, and accusations of every kind. I became angry reading through this.

I replied with a short email stating we would be happy to do more work on his website, but that he still had to pay his final payment first and set up a retainer for further work.

After a couple of days, I received an email from Mr. Deep saying that his “life is amazing” and that he “was feel good today” and wanted to settle this matter. This seemed a bit crazy to me, but I was happy that he was willing to solve the issue together now. He said that he had hired a new development firm and just wanted to make the final payment to me in return for all the code we had written and have them finish the work. I agreed, with the condition that he not do a chargeback later. Donald Deep replied later that same day and agreed.

I released the code to him and he gave me the payment and I forgot about the matter…. until 3 months later I received a notice that the TheClientCompany was attempting a chargeback. Ugh, quite frustrating. I spent a couple of full days preparing all the email records, the contract, screenshots showing the website was completed and submitted all of this to the credit card company. A few weeks later, the credit card company agreed we had done the work and gave us back the money they had put on hold.

Once again, I forgot about the matter.

A full year or so later, the true drama began.

I received a letter from a law firm demanding that I pay $250,000 for damages to TheClientCompany. Not sure how they calculated that when they had only paid $12k for the website and their revenues were quite small (to the best of my recollection it might have been a few thousand a month total sales). I sent a reply back explaining my perspective on what had happened and providing evidence and that Donald Deep had of his own volition provided me a written settlement offer after all was said and done.

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. 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. After all – we had clear evidence showing we did all of the work and Donald Deep himself had proposed a written settlement agreement after all was said and done. I sent my office assistant in my place to explain the matter.

My office assistant told me that the judge did not give him a chance to present the case and appeared to be angry and berated him. He told me that in less than ten minutes total the judge decided the case and moved on to the next one. A couple of weeks later, we received a judgement stating we had to pay $10,000 to TheClientCompany. I was completely shocked as I had thought it was such an obvious decision in our favor.

I read up further on California small claims and discovered that a defendant has a right to appeal and get a trial de nuevo… basically a new fresh trial. 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 scared me, but I believed that we were in the right and had been treated unfairly in the first trial and had not had a chance to present our case. I filed the appeal.

About a month later, I appeared in court to defend our case. This time, Mr. Deep decided that he would not allow a pro tem to hear our case. A pro tem is an attorney who hears the case in place of a judge since California is very short on judges. Mr. Deep had allowed this the first time. There were no judges available to hear the case, so they rescheduled us for a month later.

This same thing repeated four or five more times.

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.

Finally, after almost a year of showing up in court only to have our case delayed again and again because Mr. Deep refused to let a pro tem hear us, a sympathetic court employee went hunting through the court house for a judge. She finally found a criminal commissioner (still not a judge), but Donald Deep agreed for the case to be heard by this individual. The criminal commissioner had left for the day though so we had to wait another month.

Both parties showed up to the court in December 2016 and the actual commissioner was there to hear the case. Unfortunately, the commissioner was a gentleman in his seventies and did not really understand even what a website was. After letting each side present their cases, he asked us to come back in a month with expert witnesses who could advise him on what was what.

Yesterday, January 6th 2017, we had our final hearing in this matter. The old commissioner had asked a younger commissioner to take his place in hearing the matter. This commissioner was very sharp and reviewed all of the evidence and asked tough questions. The commissioner ignored the usual small claims approach of each side presents for five minutes and then a decision is made; instead, she heard us for a full two hours. She even called for a break when Donald became upset. She allowed Donald to present all of his side of the story, then had me present my side.

A key moment came when I showed the judge that I had five separate sources each stating that I finished the work (Donald himself in emails from the time, BigCommerce’s agents in emails from the time, two separate digital agencies, myself, and my expert witness) and THEN showed that Donald himself had come up with the final written settlement agreement and we had agreed to it in writing over email.

At that point, the judge said “I’ve heard enough to make my decision”. This is when Donald became upset and began trying to argue that he had more information to share. The judge agreed to let him have a fifteen minute break to regroup, after which Donald present all of the other arguments and documents he could muster. I was given a chance to respond and showed my response again. The judge then told us that we will receive the decision in the mail in thirty days.

I believe that I won the case since the judge made her statement that she had heard enough after reading the key evidence of Donald’s offer of the written settlement agreement. I would put my chances at 90% of having to pay nothing, and 10% that I am asked to pay some amount back up to the price of the contract. I will update this post when the decision is returned.

Did anything good come out of all of this? Trying to look at the bright side, I think I have gained a much better understanding of the law. 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. I also believe that I am building a solid reputation for not being an easy target for the sharks out there. I was able to back down a patent troll recently- in a matter of days after filing the lawsuit they dismissed it.

Oh… to finish my story about the little boy who hit me then ran to the protection of the teacher monitoring recess. 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.

I try to live my life and run my company in a principled way. I don’t give on on principles even when it is financially the wise decision. 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. If I am in the wrong, I will try to make it right… however, if I believe I am in the right I will fight through multiple appeals and beyond all financial reason to win.

Excellent advice and commentary available on Hacker News on this topic.

Additional notes:

  1. 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.
  2. I should have attended the first hearing. 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 only if you lose, 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.
  3. 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 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.

Published by

Joel Gross

Joel Gross is the CEO of Coalition Technologies.

16 thoughts on “Why I Spent $100k To Fight A $10k Small Claims Lawsuit”

  1. Man frankly this story at times left me in tears laughing. I love nothing more then seemingly professional people spazzing out and using all caps in work related emails. I love how long he dragged this drama out with you. He sounds like a fantastically entertaining socio path and I think a reality show from his employees perspective is needed

  2. It’s a possibility he filed in Small Claims because he couldn’t find a lawyer to take his case.

  3. My recommendation: purchase Technology E&O insurance ASAP – aka sleep insurance. A policy should cost no more than 5k. http://www.nasinsurance.com/mobile__solutions/detail_product/techguard

  4. Lastly, you could get sued for libel, slander, and or defamation in your description of TheClientCompany and John Donald Deep. Are these stakeholder’s names factual?

    1. No, in the first paragraph you can read: «I also made the decision to keep the other side anonymous.»

  5. I wish if you can create a bot to help others facing such an issue. Thumbs up for your perseverance.

  6. Why would you do all of the out of scope work without quoting for the changes? If the client feels you’re doing them as part of the original agreement, and then for whatever reason you can’t/don’t deliver you’re in a bit of a situation.

  7. I went through something similar last year. I was working for a nonprofit sort of NGO that we were trying to turn into a proper non-profit. The board director in charge of marketing/PR who was the public face of the outfit decided he wanted a for-profit, run entirely by himself. Over 4 months, he bullied and emotionally abused all of us – we thought he was acting out because he mother had just died – and eventually a key volunteer who wasn’t getting paid quit. The MD suggested all of the board quit in some attempt to ‘shock’ some sense into this guy. He went and thanked us all for our service and then said he was going to start paying himself a salary… then one board member finally tells me this guy had a criminal record for embezzlement and they’d been giving him a pass for years (I had only started working for the non-profit as the IT person). So I pulled the website as I still owned copyright/hadn’t been fully paid etc. The next 6 months were spent with this clown trying to use his half assed knowledge of the legal system to use it as a club to extort me out of my property. If he’d had gone the reasonable way into small claims, he might have had a case.. but he was claiming 10k in damages, I was nothing but a volunteer, etc. Utter nonsense to scare me into handing over the code. I eventually hired a lawyer and we played him like a fish in negotiations until it was crystal clear he knew he didn’t have a case and was bluffing – stuff we could take to a judge if it went to court. The amount of lies this guy was spewing was amazing. He was telling the lawyer he was going to be disbarred because he didn’t know his job, yadda yadda. Amusing, this guy is a total idiot, but at the same time enough of a bully and knowledgeable to scare and manipulate people (if they aren’t up on the law enough and willing to go that route). I take you haven’t been in IT as long as me – never give any client freebies like out of scope work unless you’ve known them for 10 years. Anyone tries that, you push back, nicely, then hard. Clients who are not bad don’t do that sort of thing at all because they have respect for what you do. I have no more tolerance for asshole clients and this is why I’m out of contracting. I just wanted to know you aren’t alone and respect for going the extra mile dealing with your idiot. The world is in the shape it’s in now because of the lack of principles; most people just want to walk away and that only encourages the idiots.

    1. Ouch, that sounds really painful! Especially since you did the work as a volunteer! Sadly, there is a higher percentage of people out there than you might think that are just plain selfish and unethical and unreasonable.

  8. I did the same, a few times. Principles are more important to me than the fact that the bottom line means a loss. Some people tell me that I sometimes have to face reality and minimise my loss and focus on the growth of my business and my health, rather than wasting time in these fights. Good to see that I’m not alone in going with my principles!

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