California | Business Law
Legal Question
We are strategic and creative consultants.
Last year we entered into a contract, which essentially entailed my firm providing a client with services, whereby we would be compensated for our costs, and then share in the business profits once profitable.
We entered into the agreement having been given specific information by the client, and while we understood any business has risks attached, we believed that, based on the data provided and our experience, this risk had reasonable balance.
The data that was provided proved to be wholly inaccurate, in measurable terms this meant that the business in question realized 35% of the customer traffic count than had been stated – to be clear; the traffic count was already in existence therefore this information was at hand and NOT a forecast or new business estimate. We would never have entered into the agreement had we been given the correct data.
Needless to say the business has not been profitable, and while we have invested about $100,000 in fee value, have not seen any income. Meanwhile, the client is using our systems, intellectual property, and advice.
The client is also not adhering to other components of the contract that would make a material difference to our ability in earning fees.
We addressed this with the client, who is in denial, and have presented what we believe to be fair and reasonable settlements and revised terms in order to resolve and move on with the client.
These proposals have been rejected without any counter proposals being provided, (other than to keep working for free).
Our contract clearly states that in the event of a dispute we can opt for mediation, and the mediator’s decision is binding, it also defaults to California Law.
We have issued the client with Notice of Mediation, and while he has initially replied and acknowledged the deadline to respond with his choice of mediator, he has now missed the deadline we set, and has not responded with either a choice of mediator or agreement to mediate.
The questions are as follows:
1. What should we do if the client fails to mediate, even though this is a clear contractual obligation?
2. Given we were [intentionally] misled into this agreement, and suffered losses as a result, what are our rights to recover losses?
3. At what point does this situation move from civil to criminal [if at all], if we can reasonably prove malicious intent or intention to mislead to appropriate services for free?
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