Fact Checking Snopes On Its Own Claims Of Being 'Held Hostage' By 'A Vendor': Well, It's Complicated

Legal Issues

from the no-it's-really-really-complicated dept

Last week, I (like probably many of you) saw the news that the famous (or infamous, depending on your viewpoint) fact checking website “Snopes” was crowdfunding on GoFundMe, saying that it needed to raise money as soon as possible, because “a vendor” refused to recognize that Snopes had terminated a contract and was holding the site “hostage.”

We had previously contracted with an outside vendor to provide certain services for Snopes.com. That contractual relationship ended earlier this year, but the vendor will not acknowledge the change in contractual status and continues to essentially hold the Snopes.com web site hostage. Although we maintain editorial control (for now), the vendor will not relinquish the site?s hosting to our control, so we cannot modify the site, develop it, or ? most crucially ? place advertising on it. The vendor continues to insert their own ads and has been withholding the advertising revenue from us.

Now, let’s get this part out of the way first, because if we don’t, the comments will be full of people screaming about it: there is a segment of people who believe that Snopes is, not, in fact, a fact checking site, but a twisted leftist propaganda site, or some equivalent (there are also some who argue that it’s actually a CIA front — really). You can argue this point all you want in the comments and it will be off-topic the entire time. This story has nothing to do with whether or not Snopes is good or bad at its job as a fact checking site, or even if it’s a sneaky decades-long ploy to introduce socialism into the water. None of that matters. The site is pretty well known and many people like it and use it and it has a long history. That’s about all that matters. And the story below is messy enough without delving into the conspiracy theories about the CIA or whatnot.

However, in presenting its own predicament, Snopes… does not exactly do a credible job of explaining the full story. If Snopes were reviewing Snopes’ own crowdfunding campaign, it might have to put it in the “Mixture” category as not being fully accurate, but not being fully false either.

The reality is that the story is hellishly complicated. Like, really, really complicated and messy. The paragraph above that Snopes used to describe the situation leaves out an awful lot of details necessary to understand what’s actually happening. Snopes is run by a company called Bardav Inc., a name that was based on the first syllables of the names of the founders of the site, the previously married couple Barbara and David Mikkelson. The fact that I said “previously” married has a lot to do with this mess, but we’ll get to that. The “vendor” that David Mikkelson, who now runs the site, claims is holding the site hostage is Proper Media, a site that also runs the vortex known as TVTropes. Proper Media and Bardav are suing each other, and it’s in those lawsuits that many of the messy details come out. You can read Proper Media’s lawsuit as well as the cross complaint from Bardav at those links or down below.

So, initially, it does appear that Proper signed a contract to be a vendor to Snopes, but things got a lot messier last year. You see, rather than setting up Bardav as a typical C Corp or LLC business structure, they set it up as an S Corp. S Corps, traditionally, are used for smaller businesses. It’s a “pass through entity” in which the corporation isn’t taxed separately, but the income and losses show up on the shareholders’ personal tax returns. Also — and this is super important for understanding this story — to be a shareholder in an S Corp. you need to be an individual American citizen — no companies are allowed to hold shares in S Corps. This arrangement tends to make sense for small, very closely held (often single shareholder) businesses, but you almost never see it in the tech world (VCs will laugh you out of the room if you show up with an S Corp).

So Bardav is set up as an S Corp with Barbara and David each owning 50%. Then, there’s the divorce. Which sounds all sorts of messy, and includes some pretty inflammatory accusations (most not important for this story, but if you want a hint of how unpleasant things got, it made for quite the tabloid headlines). At some point, Proper Media agrees to buy Barbara’s 50% of Snopes. But… there’s a problem. A company can’t own S Corp. shares. So, instead, the shares are divided up among Proper Media’s board members with two of them — Christopher Richmond and Drew Schoentrup, the founders of Proper Media — each getting 20% of Snopes. The three remaining board members split the rest, with Ryan Miller and Vincent Green getting 3.33% each and Tyler Dunn getting the remaining 3.34%.

David Mikkelson was (I think it’s safe to argue) less than pleased with this situation. Part of the divorce agreement with Barbara was that if either sold their 50%, the other would have a 10 day right of first refusal, allowing the other to buy out the shares at the asking price. So, even the sale was a bit untidy, according to an excellent summary of the mess from Cyrus Farivar at Ars Technica, quoting David Mikkelson discussing what happened after Prosper Media first asked about buying Barbara’s shares:

“And then shortly after when I inquired, they told me that she had asked for a figure that was utterly ridiculous,” he said. “Multiples of what anybody would pay. After that, I never heard anything more and assumed nothing was going on.”

But, as it turned out, Barbara Mikkelson was interested in getting out of the business entirely. One day in the summer, out of the blue, David Mikkelson received an e-mail from his former wife.

“She sent me a copy of the executed stock purchase agreement between her and the five buyers,” he said, referring to the five members of Proper Media?s board of directors.

By sending that e-mail, Barbara triggered David?s 10 day right of first refusal. If David wanted to buy his ex-wife?s share, he was likely going to have to raise a large sum of money within a short amount of time. Plus, he was unhappy about being blindsided like this, particularly with his salary in dispute and a true valuation of the company still outstanding.

Still, David Mikkelson discussed it with the quintet, and he ultimately decided not to hold up the sale.

Once the deal went through, Barbara resigned from Bardav’s board, and Schoentrup from Proper took her spot, even signing the agreement to issue the necessary shares to complete the deal both as an individual shareholder, and separately as a board member:

Then, things started to get really messy, and in many ways the cross lawsuits here should be used in cases studies on how not to do a lot of things (including purchasing shares in an S Corp.). Proper claims that Mikkelson used Snopes funds for a variety of personal expenses (something that Barbara had also accused him of in the divorce proceedings), including paying for his honeymoon with his new wife (also a Snopes employee).

Now, remember how Proper split up the 50% of Snopes it had received among its five board members? Even though that was just a few paragraphs up, you’ve probably forgotten their names. But, lets return to Vincent Green. Green was Proper’s Operations VP and managed much of Snopes’ website while Proper was keeping the website running. At some point, Green quit Proper… to go work for Mikkelson and Snopes directly. And, it was done in a very convuluted way. From the lawsuit:

On Saturday, February 18, 2017, Richmond and Schoentrup had an in-person conversation with Green at Proper Media?s offices. When confronted, Green admitted that he was not acting in the best interest of Proper Media. After this conversation, Green never returned to the Proper Media office, and performed no further work for Proper Media. On Tuesday, February 21, 2017?the second business day after the conversation described above?without Richmond?s or Schoentrup?s knowledge or consent, Green removed Richmond?s and Schoentrup?s access to the Snopes content-management system, instructed three Proper Media employees not to return to work, and removed thousands of dollars of computer equipment from the Proper Media offices used by these three employees. On information and belief, Green did so in conspiracy with and at the direction of Mikkelson.

[….]

On or about March 8, 2017, Green added himself to the ?Snopes.com Staff? page on Snopes, which lists his role as ?Business Development?. Snopes.com Staff, http://www.snopes.com/snopes-staff/ (last accessed Apr. 27, 2017; archived at https://perma.cc/BRX7-C99L).

On March 10, 2017, again without Richmond?s or Schoentrup?s knowledge or consent, Green removed Snopes-related data from Proper Media?s communication and project-management tools, including Slack and Asana. On information and belief, Green did so in conspiracy with and at the direction of Mikkelson.

[….]

Also on March 10, 2017, Mikkelson purported to terminate the General Services Agreement, to be effective in 60 days, i.e., on or about May 9, 2017.

On or about April 1, 2017, Mikkelson removed Richmond?s and Schoentrup?s access to the bank account used for Snopes business by Bardav and Proper Media.

On April 3, 2017, Green gave written notice?from his Snopes email account?of his resignation from Proper Media.

During the weeks between February 18, 2017 and April 3, 2017, Green admitted that he was doing no work for Proper Media, and was instead working with Mikkelson at Bardav. Despite doing no work, until April 3, 2017, Proper Media continued to pay Green, and contributed to Green?s health-insurance premiums.

So… yeah. Drama! Also, it’s pretty cold to resign from Proper via his Snopes address. Either way, at the very least, Proper Media owns a pretty big chunk of Bardav/Snopes. Thus, calling it a “vendor” is really misleading. Now, it’s a pretty big question just how much of Snopes Proper actually owns. Again, because of the whole S Corp thing, it’s individuals who own the stock, and Green appears to have taken his 3.33% and jumped to the Snopes side, though Proper is arguing that he owns those shares on its behalf. So, the company asks the court to declare that Proper still owns 50% of Snopes, though it also offers up an “in the alternative” saying that if the court doesn’t agree with that, at least Proper’s two founders hold 40% of the shares.

Either way, Proper’s founders requested access to Snopes’ books, and have been totally ignored. In response, they filed the lawsuit. There are many, many claims, but it would appear that Proper and Mikkelson aren’t pleased with one another:

Mikkelson is guilty of fraudulent or dishonest acts, or abuse of authority or discretion. Among others, Mikkelson is guilty of: (1) misappropriating Bardav funds for personal expenses and lying about those expenses; (2) employing a scheme or artifice to attempt to defraud Proper Media and its members into agreeing to his misappropriation of those Bardav funds; and (3) committing multiple torts and other statutory violations against Proper Media, exposing Bardav to liability.

And much, much, much more. But this post is already long enough, and we haven’t even gotten to the counter suit.

Not surprisingly, Mikkelson’s counter suit tells a different story. Despite the signature shown above, Mikkelson claims that after Barbara sold her shares and resigned from the board, he became “the sole member on the Bardav board of directors.” The filing also spends a lot of time trying to argue that Proper is little more than a vendor that Bardav hired and one that didn’t do a very good job. Part of the messiness comes from a disagreement over exactly what the agreement between Proper and Bardav actually covered. Mikkelson claims Proper was never supposed to handle the hosting of Snopes:

Notably, the GSA did not require or enable Proper Media to host the Snopes.com website or to control its hosting. Rather, the GSA provides that “[Proper Media] shall consolidate [Bardav’s] existing server configuration to use load-balanced Linux servers paired with a MySQL database server and a content delivery network[,]” without granting Proper Media ownership or control over those servers. At all relevant times, the decision of how and where to host the Snopes.com website remained within Bardav’s sole ultimate discretion.

Mikkelson also argues that Proper, in fact, owns no shares in Bardav, because it’s just the individuals and they can’t hold the shares on behalf of a company. He also claims that the claim that Shoentrup is a board member is false because there was no resolution making it so:

Despite holding no ownership interest in Bardav, Proper Media has recently held itself out as “the beneficial owner of 50% of the shares in Bardav.” Presumably based on this false assertion, Proper Media has improperly attempted to exercise rights of a Bardav shareholder, including attempting to call a special meeting, attempting to appoint directors, and attempting to inspect corporate records.

Despite no corporate resolution appointing him to Bardav’s board of directors, Schoentrup has held himself out as a Bardav board member. Presumably based on this false assertion, Schoentrup has improperly attempted to exercise rights of a Bardav director, including attempting to call a special meeting, attempting to appoint directors, attempting to manage business decisions, and attempting to inspect corporate records.

So… yes. Saying that Proper is “just a vendor” is clearly misleading. But, Mikkelson at least has some argument that Proper itself doesn’t own a large chunk of Bardav/Snopes… even if its founders do on their own behalf. The flip flopping of Green certainly makes it all the more complicated. The Ars Technica article notes that the other Proper board member with 3.33%, Ryan Miller, has also since joined Snopes as an employee, making all of this even messier.

Either way, Mikkelson terminated the vendor agreement that the two companies had from before all of this, which is allowed under the contract. However, there’s a question of whether or not he can do that single-handedly as a 50% owner of the company. Or does he need board approval? And if he does… then… who’s actually on the board? Suffice it to say, this is going to take some time for the courts to figure it out, and it seems like much of this could have (and probably should have) been figured out earlier with the lawyers drafting some of these agreements, rather than now at the messy end.

No one comes out of this looking good. It’s pretty clear from what’s been presented that Proper Media wanted to buy Barbara Mikkelson’s 50%, but the way in which they went about doing so made things really, really complicated. Someone should be pretty upset with their lawyers in that transaction. The most sensible thing probably would have been to convert Bardav into a C corp. or something, though I’m guessing David Mikkelson would have (perhaps reasonably) resisted that. But, then, if they were to keep it as an S Corp., the agreement on the sale of the shares should have been a hell of a lot clearer, because just handing it over to 5 people, on the assumption that they’d always represent Proper Media’s interests, seems like something a lawyer should not have allowed to happen without clear language to that effect.

That said, Mikkelson’s behavior here doesn’t seem particularly stellar either, and that includes misrepresenting the situation in the crowdfunding appeal. Leaving out nearly all of the details that caused all of this really seems, well, less than upfront for a site that claims to debunk misleading stories.

Filed Under: barbara mikkelson, david mikkelson, drew schoentrup, s corps., snopes, vincent green
Companies: bardav, proper media, snopes