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TexLaw, Attorney
Category: Business Law
Satisfied Customers: 4430
Experience:  Internationational Commercial Attorney
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I was hired as an "acting CIO" under a 1099 contract agreement

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I was hired as an "acting CIO" under a 1099 contract agreement to perform services. These services were ambiguous in nature as follows:

"Your agenda is to reduce operating costs, improve the brand and image of the Company with the help of marketing, triage the core products and services for the Company, work with everyone to devise a product roadmap and architect and design tactical plan to achieve the strategy as set forth by the CEO, and to either greatly improve the output of the existing staff and/or hire or replace the staff with better quality employees that are more cost efficient for the Company."

The contract reads like an offer letter and has no warranties, liabilities, or any other clauses governing refunds or any language about non-performance.

While I was under contract, I was asked to do many more things outside of the scope of my work, including hands on IT and programming, either due to lack of resources or ineptitude in the staff working for the company.

One of the projects involved an new IT environment which cost $300,000 and would save the company money (per my agreement) if it was deployed. This was purchased and put into place, but took 6 months longer to implement than the original 3 month schedule due to a number of reasons outside my control (incompetence, sabotage, and deceit of staff and/or outside contractors, some of which I helped hire).

I complete the projects, but their staff fails to complete their security audits which I help for free for a month and complete on their behalf. After I complete it, they have no confidence in their staff, because their staff claims problems that don't exist because they would rather go to a full outsourced solution due to their lack of knowledge and expertise. This prompts the company to file litigation if I don't recover the $300k because they feel I haven't delivered on something that was part of my plan.

What liability does a 1099 contractor have in California when a project fails to be completed because the staff and management of the company change their mind about the strategy or plan 6-9 months after the plan is underway?

If I acted in good faith and tried to remedy to my best ability, completing the work needed and they still change their mind, am I liable for Malfeasance?

What if I recommended staff that turned out to have lied about their capability, or simply exploited the management's lack of knowledge and experience causing the project to fail?

Thank you for your question. This is a very interesting situation.

I just want to make sure I understand you correctly.

1. You are being sued individually by the company for the $300K that the company paid to who?

2. Is the company suing you for breach of contract? What is the exact nature of their legal claim?

3. Have you answered their lawsuit? Do you have a defense attorney?

4. Did you as acting CIO, have the authority to authorize spending in the amount of $300K without first obtaining direct spending authorization from the board or from the CFO/CEO?
Customer: replied 4 years ago.

1> I am being sued 300k that the company paid to third parties for equipment and services that those parties performed.


I specified which equipment to purchase, and I designed an architecture to allow the equipment to work in a fashion that complies with their proprietary software. (i.e. connect it all up, and configured the software features to work together). There was some security hardening that was needed which their staff was unable to complete but I was able to do on their behalf after my contract terminated.


2> They claim to be suing me for breach of contract and malfeasance, however I have not received the complaint, just understand from their meet and confer.


3> I have not retained counsel yet as I haven't gotten the complaint.


4> No. I had to get approval, and the COO and CEO both approved the expenditure.





Well, just based on the facts, I think you have a very defensible position.

First of all, you are not an employee and not an actual officer of the company, so it is unlikely that you have any duty to the company against which they could put a malfeasance claim against you. Second of all, it appears that your actions were reasonable and prudent, which entitles you to the business judgment rule defense (which says that if you used reasonable business judgment but the strategy failed and you end up losing money, you are not liable).

Finally, the contract you have with them is too vague to actually serve as a basis on which they can claim that you guaranteed the work. I find it ridiculous that they are trying this. However, I am often surprised by what my colleagues in California will attempt to do in forcing baseless legal claims for their clients.
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