February 08, 2011
Huffington Post Has Facebook Formation Problem
Posted by Christine Hurt

This week, the media is abuzz with the announcement that AOL is acquiring The Huffington Post for $315 million.  (In contrast, few people seem to have noticed that Ensco and Pride International are creating the second-biggest deep-water drilling company, at a pricetag of $7.3 billion.)  But, for corporate law scholars, the interesting twist is not who will own Huffington Post, but who owns it now.

OK, you can understand college kids not getting everything in writing, but middle-aged millionaires?  Really?  This month's Vanity Fair has an interesting article about the behind-the-scenes fight that officially began with Peter Daou and James Boyce sued Arianna Huffington and The Huffington Post.com in mid-November 2010 claiming that they were the creators of The Huffington Post.  (The complaint is here.)  They allege breach of contract, idea misappropriation, and most importantly to us business law professors, breach of fiduciary duties because they formed a "joint venture."  Bingo!  However, they don't want damages, they want the credit (and a donation to the charity of their choosing).

 So, is the claim a worthy one?  Well, according to the facts alleged in the complaint, there's a lot more there to hang one's partnership hat on than in Holmes v. Lerner (Urban Decay), which Gordon has blogged about before.  But, after the launch of site, neither Daou or Boyce's actions look like someone who believes that he is a partner in anything, unlike the other case where Patricia Holmes worked for the venture for a year with no salary.  The site apparently was the product of a brainstorming session on December 3, 2004 at Huffington's home, where she invited a group of disappointed Kerry supporters and Hollywood movers and shakers to discuss the creation of a "liberal Drudge Report."  However, prior to this breakfast confab, Daou and Boyce had dreamed up this idea in the hours after the presidential election and presented it to Huffington, their close friend.  On November 14, 2004, they gave to her a 15-page memorandum outlining the idea behind "1460," a blog they hoped would mobilize the Democratic base prior to the next election (there are 1,460 days between presidential elections).  Here is the November 14, 2004 proposal for "1460."  The two met with Huffington the morning before the Dec. 3 breakfast to prepare for the larger meeting, and then discussed the idea further with her and Kenny Lerer, who would end up financing the blog.  Lerer apparently did not like Daou and Boyce, and after he and Huffington asked the two to write up a strategic plan ("blueprint") for the blog, the blog was financed and launched on May 9, 2005, without them being investors or employees. 

(What is interesting to remember, way back then at the early stages of blogging, is that the crowd was very skeptical of professional blogs, including The Huffington Post.  Here was Gordon's first take; here was one of Ann Althouse's first thoughts.  Even Larry David, the actor and investor in The Huffington Post, said "“All I remember is Arianna telling me about this on a number of occasions and feeling sorry for her because I thought it was such a terrible idea.”  I guess we didn't call this one very well.  However, the launch of The Huffington Post was the beginning of the maturation of the blogosphere from when David Lat and Wonkette blogged for free to the current state of institutional, professional blogging.)

However, for six years, Daou and Boyce never complained about either not being credited as founders or receiving any sort of remuneration/ownership interest.  The two blogged from time to time on the site and never said an ill word to or about Huffington.  However, after Andrew Breitbart, a conservative blogger who wrote Huffington blog posts under contract at its inception, claimed to have founded The Huffington Post, Daou and Boyce were dismayed to hear Huffington say in public that Breitbart had nothing to do with the creation of the website, but not mention Daou or Boyce.  After bringing up this slight with Huffington via email, they were eventually rebuffed and redirected to "legal."  Of course now, one wonders if the timing coincides more with the market putting a price on the website.

So, how does this play out now that AOL has put a $315 million pricetag on The Huffington Post?  The lawsuit seems to fail on the de facto partnership front for no other reason than Daou and Boyce do not seem to have thought that they were partners for over six years.  The website received venture funding during that time, and the two were not involved in any of those conversations.  Had they believed themselves to be owners of the website, then surely they would have chimed in at that time.  I don't know enough about the "misappropriation of idea" cause of action to opine.  I have not been able to find a copy of the answer, which should have ben filed by now, but it might give more clues to the future of the claim.

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