1933 – Legal Hacks for Entrepreneurial Success with Grellas Shah LLP’s Seth Kugler

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1:07with us right now. It's Seth Kugler. Seth, you are an attorney with Grellis Shaw LLP. Your website is grellis.com. You're a law firm based in California and do a lot of important work for a lot of good business leaders out there, which I'm excited to talk about. And I'm hoping, Seth, that as we're chatting, maybe we can come up with some great ideas so that we don't have to do business with you. How's that? That's exactly what I'd like to talk about today. Thanks so much for having me, Josh. Absolutely. Well, tell us about Grellas. Well, we're a full-service law firm catering mostly to small and medium-sized startups in Silicon Valley, New York, and across the country.

1:53I'm largely a business litigator. I handle a wide variety of business disputes, breach of fiduciary duties, theft of trade secrets, breach of large scale contracts. But I'd say the number one thing that I handle and what I'm going to talk about today are disputes between directors and founders of companies, internal disputes. Wow. But also, in addition to the litigation work that I and my team do, uh grellis shah has a corporate side that helps structure deals structure companies and essentially do the type of planning work in advance that for a small upfront investment stops people from having to pay the big bucks for me later on yeah um you know before we get into that and kind of talk about best practices.

2:50I think that there's been recently some headlines in terms of some major changes to laws, I know certainly on non-competes. Is that something that's ever, does that come up for you? Yeah. And, you know, I'm going to talk about non-competes. I'm going to touch on that a little bit today as something that could have helped the Winklevoss twins when dealing with Mark Zuckerberg and the Facebook founding. But yeah, I've been writing on that issue lately, too. A lot of people are interested in that. I will say I don't think that the FTC rule banning non-competes is ever going to get implemented. I would expect that to be stayed by the court in Texas based on the lawsuit there by the Chamber of Commerce.

3:41and ultimately I would expect that the Supreme Court is going to overturn that as exceeding the power of the FTC. That's amazing. That's fascinating. I had no idea. I just, I heard that and I thought, wow, that's, that has, and I don't know if you want to just kind of, you know, kind of think, you know, industry-wise, if that doesn't get stayed, what is the, are there, Are there some real negative implications there? I mean, I don't know. It depends how you look at it. I think ultimately people that have no bargaining power to begin with, probably the non-competes don't matter too much. And if you do have a bargaining power, you know, an engineer, a C-suite executive, and they can't hold you to a non-compete anymore.

4:31really that's just one less thing that you're going to be able to offer in contract negotiations and you know california uh has non-competes but they're a lot tougher here and i i think the rest of the country is going to have to follow the california model which which still works uh you know there are other ways to protect your trade secrets there's the federal defend trade Secrets Act. I handle litigation with that all the time. And, you know, just because you don't have a non-compete doesn't mean that you're entitled to steal your former boss's business when you leave. Yeah. Yeah. So what would be some of the, you know, kind of the main areas of law, or I would say, you know, when you're called in, like the most common complaints or issues that are going on, you're like, all right, time to get to work.

5:30I mean, every case is a little bit different. But as I mentioned, founders disputes tend to be the bulk of my practice and some of the most interesting cases that I work on. Yeah. You know, a lot of times people found companies with their friends, or so they think. And then all of a sudden, for a variety of factors, money, uh power new players providing influence to one of the founders people start changing their behavior and maybe they're not as friendly as they used to be um you know the the facebook example is is very illustrative uh most people have seen the social network and they they see what happened to Andrew Garfield's character, Eduardo Saverin, in that movie, you know, he put a lot of weight on the relationship that he had with Mark Zuckerberg.

6:30Ultimately, he ended up assigning his voting rights to Mark Zuckerberg. And Mark Zuckerberg, in part, used that assignment of Eduardo Saverin's voting rights to issue additional stock to everybody but Eduardo Saverin, diluting him down. Yeah. I mean, when, when I watched the social network, I was shocked that, that you could do that. I mean, which is, so how do we protect ourselves from that happening? So what Eduardo Saverin could have done is been a little less trustworthy, a little less trusting at the beginning. But, you know, also a lot of times you want to cut a founder like that out of the business.

7:16And it's good to look at things from Mark Zuckerberg's perspective there. Eduardo Saverin was no longer doing work for the business. And he had been, he had been replaced essentially as the finance founder with Sean Parker, the former Napster founder who was played by like in the movie. So the reason that Mark Zuckerberg got caught up in litigation is because Eduardo Saverin got all of his ownership and power in the company right up front. And when they wanted to make structural changes, they needed Saverin's input in order to do that. So So Facebook had to use some machinations that led to a lawsuit to get Saverin out.

8:08But generally, the way you'd want to set it up is that there's a vesting schedule. And maybe Saverin owns 25 % of the company, but there's a repurchase right to 24 % of that. And then that number goes further and further down the longer he's with the company. But if he only does a few months of work, then it's easier to get him out. Uh, Seth, thinking about nearly any, but let's say they're not, you know, maybe it's just, they're just bootstrapping a business. I don't know, um, you know, if there's any, like if you were to come up with a list of like, you know, two, three or four things, you're like, listen, regardless of, you know, if you're seeking or working with investors, you're issuing chairs or whatever, listen, at the very least, every business leader, even if you're a solopreneur needs to do this, this, and this, anything come to mind on that?

9:01Obviously, articles and kind of separating entities, I would hope, but I'll let you kind of take the lead on that. Yeah, I mean, separating entities and separating your finances from the entity in case the entity gets sued. You don't want the person suing you to be able to do what's called piercing the corporate veil and come after your personal assets. Um, but also the same thing goes, the same general rule goes for any business. And that's, that's paper your deals. I mean, going back to the Facebook example, uh, what happened to the Winklevoss twins could happen to anybody, which is they hired somebody to do work for their business.

9:50And that person ended up taking the idea for their business and starting a competing business. And they had trouble enforcing that because all they had with him was a handshake deal. You know, that's, again, people work with people that they trust. And maybe there's even a long term relationship there. But then when an opportunity for a lot of money and power comes in, some people just get greedy. So I would recommend that everybody always, always paper your deals. And if somebody is contributing ideas to your company, make sure that they're assigning that intellectual property to the company.

10:33Yeah. You know, I wonder if often or if you hear this where they say, you know, we thought about doing it, but we didn't want to make it weird. You know, or just like whatever excuse that they come up with, you know, and I'm just thinking about maybe how we can present that, you know, for us, like, you know, even when we. work with clients, like even if there is something that it maybe does or doesn't require a contract, we don't require it, but we still have a memorandum of understanding, right? It's even if we don't consider it enforceable. Anyway, I'm just thinking like the way that you present that, you know, listen, just for clarity's sake, why don't we just kind of put it down on paper and then everybody knows kind of what the deal is.

11:17Like, I'm just thinking that there's no one should not get papered, right? So I'm just wondering if maybe there's any kind of rules the road for just doing it anyway, like how you would tell someone to present that. In my experience, the way to handle it is to just have a standard that you use for everything. And you can tell somebody, look, it's not personal, I trust you, but this is my standard contract that I use for everything. If you have any issues with any of the terms, let me know. We can, you know, this is negotiable if you need it to be. But generally, our lawyers make us do this. Blame it on the lawyers.

12:00I like it. Yeah. Blame it on the lawyers. We're happy to take the blame. Okay. So aside from, you know, anything else immediately come to mind that you think is just good best practice for anyone in business for themselves?

12:17Planning. I think, you know, it doesn't need to be legal planning. Always be planning what you're going to do next. Plan for contingencies and plans can change when new information comes. But if you've done that background work to think about what you're going to do in a situation, you're not going to be caught flat-footed. Yeah. When, you know, and I think that there's something to be said, you know, my background in PR, I mean, that's the whole purpose of crisis comms is that you make your decisions ahead of time when you've got a clear mind, you've got, you can spend some time and think about it when you're in the middle of something, you may or may not make optimal decisions.

12:59But if you've already thought all out, all of these situations, then I feel like we're, you know, again, making better decisions overall. Yeah, Yeah, agreed. Yeah, big agreement. Let's talk about where you come in. So when clients typically approach you at Grella Shaw, so most common complaints, again, you would say kind of founder, director disagreements? Yeah. Yeah. And that can happen while people are still at the company or it can happen when somebody leaves. Often when somebody leaves early on, the investors want them off of the cap table. They don't want them to own any stock still, or at least a very small amount, because it's going to be harder to raise later rounds.

13:58and they're going to have some element of control. And there's always the threat of litigation as long as somebody owns shares.

14:09So one of the problems that can happen there is when a founder leaves a company and they don't want to give up their stock, the investors might put pressure on their co-founder to find any excuse to sue them or even just concoct reasons to sue them for leverage. So I see that a lot. But again, I mean, all sorts of crazy things happen. I've seen people who secretly are being charged with a crime and want to cover that up and will start a dispute with their co-founder to try to push their co-founder out to help them cover up their crime. Oh, so. Yikes. Yeah. I mean, my point there is just about anything can happen.

15:06And that's really one of the things I enjoy most about my practice is every case is pretty different. I have a question. So let's say someone's listening to us and, you know, the opportunity is going to come where they're going to need counsel from an attorney that specializes some of these more complex business situations. Let's say that they're not working. Like, do you recommend like any best practices for choosing an attorney? Like what to look for, what to ask? Anything that you'd recommend there? Oh, definitely. Look for an attorney. I was hoping you'd say that. Look for an attorney that doesn't just tell you what you want to hear.

15:54Because if an attorney is telling you what you want to hear when you come into their office with a dispute, they're looking at you like a big bag of money. And what you want is somebody who's willing to tell you that you don't have a case. Even if maybe you have a case at the beginning, but don't have a case later. So, you know, you're going to want somebody who tells you all the weaknesses of your case right up front. Yeah. And in fact, that, you know, if they don't do that, you know, I wonder, like, what are good questions we could ask? So I'm just thinking that it might be helpful to say, hey, tell me why my case sucks.

16:35Tell me why my case is great. And just kind of listen to how they answer both of those, you know, as you're kind of shopping around. Should you plan on talking with more than one attorney during that process? I would imagine, but what's your rule of thumb on that? Yeah, that was going to be my suggestion. The easiest way to deal with that is just to talk to a lot of different attorneys to figure out who you want to hire. And that's true even for transactions, but especially for litigation. Uh, but also I think you raised an excellent point, Josh, you can just ask somebody, what are the weaknesses of my case?

17:16And every case has weaknesses at the very least. Somebody can tell you, well, the defendant has a right to go to a jury and anything can happen with a jury at the very least. The lawyer should tell you that. Yeah. Yeah. So your website, Seth, is grellas.com. That's G-R-E-L-L-A-S.com. It looks like you have some resources here as well. Do you mind maybe sharing, like, you know, to a friend that's been listening to our conversation right here and they want to learn a little bit more about Grellas and, you know, maybe kind of dig into content or anything that you're, any thought leadership that you're sharing, anything that you'd recommend that they take a look at?

17:59uh yeah i think they should take a look at the grellis blog um i i know that uh with regards to the transactional work and the planning that i was talking about one of the partners at our firm metal makadia has a regular column in entrepreneur magazine um and uh metal and uh another partner david siegel and i are all uh are all frequent writers and are frequently interviewed. But beyond just Grellis, I would recommend that people read things like Entrepreneur Magazine and Fast Company and maybe don't read it cover to cover, but if you look at the front and see which articles are relevant to you, you might want to grab something.

18:51Additionally, Grellis and many other law firms' blogs, as I mentioned, can keep you up to date on what the latest legal developments are that might be relevant to your business. I'm going to shoehorn one last question in here that should have been asked earlier, just simply because I found it on your blog, and that is legal issues having to do with generative AI. One thing that immediately comes to mind, I was just kind of putting together a post of like, if Mitch Hedberg were still alive, give me 25 Mitch Hedberg jokes. And so So through several prompts, I came up with a pretty good list. And I thought, I think some of these are as actual jokes.

19:32And it wasn't until like I fact check it with the generative AI. I'm like, he said this, right? And they're like, oh, yeah, no, I'm sorry. Yeah, that is actually one of his jokes. Now, I share that example in that if you're just taking the default, it just isn't an IP issue. Like you could be infringing on someone's copyright because AI is just grabbing from whatever it happens to know. And that can sometimes be copyrighted, you know, stuff, I guess. And I don't know if that's something that's been coming up or any other issues around AI that you're like, hey, you might want to be careful about this, this and this.

20:09In terms of what entrepreneurs who are just using AI rather than developing it should be concerned about, I think you hit the nail on the head. The legal landscape is still developing, but the main area of exposure for your average user of AI is going to be if they use AI generated content and present it as their own, but it's actually copyrighted by somebody else. So the way that I recommend dealing with that is just, you know, hey, I can save you a lot of time by putting something together, but at least take the time to check it to make sure that this is not something that belongs to somebody else and that they might see you over.

20:53Yeah, yeah, absolutely. Well, listen, great conversation. Seth Kugler, again, you're an attorney with Grellis Shaw. Your website, grellis.com. One last, when someone goes to the website, what do they click on? Or if they want to have a conversation with you, like, what's that process? Well, you can go through the website info portal, or you can just directly email info at grellis.com. And that's g-r-e-l-l-a-s.com. or you can email me directly, S-K-U-G-L-E-R at grellis.com. We are going to have all those links in the show notes to our friend that's listening. Just kind of click around in your podcast app and you'll see exactly where that's all linked up.

21:35Again, Seth Kugler, attorney, Grellis Shaw on the web at grellis.com. Seth, thank you for joining us. Thanks so much for having me, Josh.

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