51.ca is a successful social media website serving the Chinese community for over a decade. While Zhao Pingyuan designed and created the website, his older brother Zhao Pingbo, contributed to its success by putting blood and sweat. However, as the company started to take off in late 2003, tension between the brothers quickly surfaced, which eventually sparked a legal battle that ranged from claims to lengthy trials and lasted for almost 5 years. Needless to say, such a court battle would not only cause emotional trauma to the brothers, but also serious financial drain to the company. After 14 trial days’ trial, the court issued “reasons for judgement” in April 2016 and “supplemental reasons for judgement” in Nov.2016, putting an end to a lengthy and costly legal battle.
Court: Pingbo not a 40% shareholder, let alone a 40% partner
Part of Pingbo’s legal claim intended to seek court’s recognition that prior to Aug. 2010, he forged a relationship with the business as a de facto 40% partner, which would give him more say over the business and put him in a better position in splitting the profit with his brother. Pingbo believed that he became a partner of 51.ca through his “sweat equities”, and played a critical role in turning 51.ca from a little known, non-profitable website into a successful internet portal and a social media giant. He particularly cited his efforts in creating a forum after the shocking incident of Cecilia Zhang’s murder in 2003. Comments from the community members flooded into the forum, in responding to his relentless coverage on the incident that carried from day to night. He also cited his efforts in turning a $2 million legal claim against 51.ca in May 2004 into a public event, which resulted in the withdraw of the claim and fueled the further growth of the site.
But Pingbo’s argument that his efforts and achievements entitled him to a 40% partnership interest was rejected by court, stating that Pingyuan had never agreed to such a partnership deal in recognitions of Pingbo’s sweat equity，neither did the parties intend to carry on the business as a partnership. It further stated that Pingbo had failed to assert his partnership position through his 2007 memorandum. It concluded that the business was owned by Pingyuan, the creator of the website and that Pingbo was acting as an independent contractor compensated by commission prior to Aug. 2010. However, the court recognized his relationship with the company as a 15% shareholder, as Pingyuan offered the shares to him as a gift when the company was incorporated.
Aug. 2010 was a tumultuous month for 51.ca and testing time for the brother’s relationship, when the brothers’ fight over profits escalated into more serious blaming game and aggressive actions. On Aug. 25, Pingyuan took away Pingbo’s signing authorities in the companies’ bank accounts, and a few days later, Pingbo, out of his anguish and despair, published a shocking open letter to the community, which he disclosed the financial dispute between the brothers and the allegedly unfair revenue-sharing structure. His open letter, whether out of his expectation or out, had contributed to Pingyuan’s decision to end his contract job with 51.ca, and threatened his shareholder position in the company.
Pingbo contended in his legal claim that he was wrongfully dismissed by Pingyuan, an argument also rejected by the court. Despite Pingyuan’s warning that Pingbo’s action (releasing the open letter) may indicate that Pingbo no longer wanted any involvement with the business, the waning was ignored by Pingbo who proceeded to publish the letter two days later. Pingbo’s action ruined any remaining trust in the relationship, says the court. And by showing his blatant attempt to seek intervention from a third party, it represented the ignorant of his duty of loyalty he owed to his employer. As such, Pingbo’s claim for wrongful dismissal was dismissed by the court.
However, Pingbo didn’t lose the battle entirely. He was able to keep his 15% shares at the company, despite Pingyuan’s adamant position that when Pingbo’s contractor job ended on Aug 28, so did his relationship with the company as a 15% shareholder. We will cover the court decision on that matter in the next article.
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