We sit down with lawyer, Andy Contiguglia, to discuss contracts for Motion Design.
If you’re reading this article there’s a really good chance that you love Motion Design topics like design or color. You probably live and breath creativity. But what about legal contracts? When’s the last time you took a good, hard look at how you manage contracts and invoicing? Do you own the rights to your finished work? What if your client doesn’t pay?
If you’re anything like us you probably have a million-and-five different questions about the legal side of Motion Design. Unfortunately a lawyer can be quite expensive. If only there was a Motion Design podcast willing to interview a lawyer to help with legal Motion Graphic questions…
SAY HELLO TO ANDY THE LAWYER
Andy Contiguglia is a lawyer with years of experience representing small businesses and freelancers in legal affairs around the United States. Andy was kind enough to come on the podcast and answer our burning legal questions. His brain has more legal knowledge than we knew how to handle so we broke this episode up into 2 parts. In part one Andy talks about contracts for Motion Design work. You owe it to yourself and your business to listen to this one.
WANT SOME CONTRACTS FOR MOTION DESIGN WORK?
Do you need a contract to use in your motion design work? Well we have a recommendation for you… Motion Hatch has created contract templates specifically designed for motion design projects. The pack includes a Commissioning Contract Template and a Terms of Service Contract Template. The templates can be used for hourly rates and direct-to-client work. Motion Hatch even hired two lawyers to help with the creation of the contracts.
If you do a lot of motion design work we can’t recommend them highly enough. Also, check out this sweet video demo for the contracts. I think it’s safe to say that this is the coolest contract demo ever made.
We have to put this legal information here...It’s very exciting. Legal Stuff: Communication of information by, in, to or through this Web site and podcast and your receipt or use of it (1) is not provided in the course of and does not create or constitute an attorney-client relationship, (2) is not intended as a solicitation, (3) is not intended to convey or constitute legal advice, and (4) is not a substitute for obtaining legal advice from a qualified attorney. You should not act upon any such information without first seeking qualified professional counsel on your specific matter. The hiring of an attorney is an important decision that should not be based solely upon online communications or advertisements.
LEGAL ADVICE TRANSCRIPT:
Joey Korenman: Excellent. Well let's start with you know, there's probably some questions I'm going to ask you that are really kind of very, very, very basic, you know, so I'm sure a lot of people listening here know what a lawyer is but you know, there's a lot of different kinds of lawyers apparently. I'm wondering if you can just give us a little background on what kind of law you practice you know, who your clients are generally and what you do.
AndyContiguglia: Absolutely. Let me give you a little bit of background about me. I did my undergraduate at Columbia University in New York City, and then I went to law school here in Denver at the University of Denver. I graduated in 1995. I've been practicing law primarily in Colorado for the last almost 22 years now. And I'm also licensed in California, also licensed in New York. I do have clients in all of those states. And really, what my practice consists of is representing entrepreneurs and small business owners and even larger companies in their day-to-day operations, their contracts, making sure that their corporations are set up properly, making sure that they are in legal compliance when it comes to regulations and intellectual property issues, and most importantly helping them avoid litigation.
Making sure that their actions as businesses and as business owners don't create conflict and keep them out of the courtroom. I have this sort of philosophy of preventative law, where it's my objective with my clients to prevent them from getting into trouble. My philosophy here is much like you go to the doctor, you don't wait for your heart attack to happen before going to the doctor. You go to your doctor ahead of time to make sure that you are taken care of and you don't suffer from that heart attack. My philosophy here is let's do everything that we can now to prevent the problems later on. And I have this unique perspective as a trial lawyer and also a business lawyer, that I can plan and have really good strategies for my clients, so they don't run into these pitfalls that I've seen so many other people run into operating their businesses.
Joey Korenman: Yeah. I think that's perfect for our purposes here, Andy, because you know the focus of this episode is really about how probably mostly freelancers, and maybe even people starting to create small businesses around motion design can avoid those pitfalls because nobody wants to end up in a lawsuits or anything like that. I think that most of the value from this episode is going to be obtained from freelancers. I don't know how familiar you are with our industry, but there's really two main ways people can operate. Either as an employee, they go find a job, they get hired at an advertising agency or an animation studio.
And in those cases you know, those motion designers don't need lawyers as much, because they have companies that are dealing with lawyers. But it's very popular, and it's a very growing kind of slice of the pie for artists to be freelance. And there's a lot of questions around that. If someone's going to go freelance, and now they're essentially operating as a one-person business, what type of lawyers should they be looking for? If they get on Google and they type in Denver law firm, they're going to see criminal law, they're going to see business law. They might see lawyers that specialize in medical cases. What are the words that they should look for?
AndyContiguglia: I think, there's some lawyers who are really niched down in the type of work that they do. But I think you know, your general business lawyer, small business attorney or corporate lawyer, any type of phrase like that is going to really get you to the right attorney that you're looking for. Now let me put on a quick resource to your listeners here. There's a great website. It's a lawyer referral website called the AVVO, AVVO.dot com and it is really organized around helping out the individual. It's really customer centric. It's not really put out there for the attorneys. The attorneys pay fees.
They go ahead and they put out information about themselves and then people basically can go through search lawyers, find reviews and leave reviews about attorneys, and really find out information about other legal questions that they might have. It's a really good resource there, but I think to answer your question specifically, we've got small business attorney I think, really is what your listeners are probably looking for. As a freelancer, you want to make sure ... The primary issues are making sure that the deal that you're entering into with your customer is well-defined and I see so many people making handshake deals and just putting trust in the person that they have negotiated the project with that everybody is going to go ahead, and agree with all of this at the end of the day.
And the reality of it is, a handshake deal is only going to get you so far, because you need to be able to prove the existence of your agreement in court at a later time. And if it's just a what-he-said/she-said conversation, it's going to be difficult to prove exactly the existence, and what the terms of that contract are. From a primary standpoint, I think freelancers really need to make sure that they have their agreements in place and that they have an independent contractor agreement put together that they have drafted, that supports them, and favors them and has the terms that are most favorable to them when they then contract with their customer moving forward.
Joey Korenman: All right, so that's really good advice. And I think we should dig into this a little bit because I've heard arguments both ways, and when I was freelance, I very rarely had contracts, and I'm sure you're probably shaking your head, clicking your tongue at me right now. I kind of want to play devil's advocate. Let's say, the average freelance job that someone might do might pay them 2500 bucks. And you know, it's a relatively simple thing. And, you know. Okay. So, I want to have a contract in place that spells out all of the details of what I'm going to do, and how I'm going to do it, and how we're going to interact, and how payment's going to be set up, and what happens if you don't pay, me and I'm going to have to pay a lawyer to do that. And lawyers ain't cheap, man you know?
On a 2500 dollar job, if I got to spend 20% of that just to get a contract and back and forth, and on top of that, a lot of times for freelancers, these jobs come in right at the last second. Hey, can you start in three days? And there's not always time to work out the perfect contract with a lawyer, with the client. Their lawyer gets involved. You go back and forth. I'm wondering, if you can talk a little bit about that. Is there sort of a balance between the ideal situation, which is a rock solid contract both sides agree on, and the realities of contracts cost money, and they take a lot of time.
AndyContiguglia: Yeah. Let's dig into that a little bit more. The idea here is, again, think back to my premise, which is preventative law. As you develop your business, as you develop your brand, as you develop the way that you operate as a business, not as a photographer or designer or anything like that, but as a business in general, my hope is that you have more than one deal. You're not hiring a lawyer for one deal. You're hiring the lawyer to put together a contract that you can use on every deal. Let's just say you're going to spend 1000 bucks for a lawyer to draft you a really good contract that is then something that you use for every deal that you do, and you do 10 deals a year, and you've made 25 grand on your animation, that 25,000 a pop. You've now spent a 1000 bucks to get 25,000 dollars in business. Now, the percentage there, it's not eating up half of what you're making. You're protecting yourself later on down the line. You're protecting yourself from maybe not this first person that you're doing business with, but maybe the tenth person that you're doing business with down the line, who is going to be upset, because it wasn't well defined.
And what these contracts do is they allow you to really outline in detail the scope of work that you're going to do, how much money needs to be paid upfront, how it's going to be earned over the scope of the work that you're going to do and then when the due date for the project is going to be. And then a big thing here and I've seen people run into this is who owns it? Who owns the work at the end of the day? And what happens if you don't get paid? Do you still have to supply the work? You know there's a lot of those little nuances I think that people need to really take into consideration as part of their contracts, and then assignment of the intellectual property because if you create a logo for somebody, and you animate a logo and then that has copyrightable value, but under the copyright laws, somebody has to own that. And if you are creating it, by nature of the fact that you are the creator, you own the copyright in it until you transfer the interest in that copyright to somebody else. As part of these agreements, your listeners need to able to take the information or take the design that they've created and transfer the intellectual property rights to their customer, who can then go and copyright it with the Copyright Office at that point.
Those are some of those smaller nuances I think that people just forget about. They think it's just a matter of I'm going to design and you're going to pay and it's as simple as that. But there are many, many more things involved in that. I think one of the questions that recently came up you know, which is, "Let's say, I can design the logo for you or I can design the animation for you. But who owns the raw files at the end of the day? Who does that get to go to? Does the designer get to keep it or is it part of the intellectual property that needs to be transferred to the other person, you know to the customer that they're doing?
Those are the types of details that you can work into a contract that you can really sort of draft favorably to yourself, that your client will get the ultimate product, but you get to keep the raw files, or that you want to maybe get a license back, so to speak, that you can use what you created as part of your portfolio for other people to look at to see what you're capable of doing. If you were to give over all copyright interests in it, you would not be able to do that kind of thing. Giving yourself back a license to be able to use what you have created for your own marketing purposes for your own portfolio purposes, that's something that's really important to be taken into consideration too.
Joey Korenman: Okay. There's a lot there, man, and it's interesting you know, it kind of seems to me just the reality of working in the industry, you know things move quickly. There's just sort of a baked-in aversion I think, from a lot of artists to stuff like this, where it's like we just kind of want to do our thing and make the pretty-looking animation and this kind of stuff feels difficult and alien and foreign to us.
And in 90% of the cases, everything kind of works out okay even though there is no contract. I'm wondering, what should we be worried about? I mean, personally I've only had a couple of jobs in my entire career that didn't have contracts go south. But I'm sure, you've seen many situations where there was no contract and things go south. I'm wondering if you can kind of imagine a motion designer gets hired by a client to make a commercial. They make it, and they don't have a contract. What are the types of problems that can pop up at the end of a project with no contract?
AndyContiguglia: Let me sort of clarify one little piece of information that you're passing on. You talk about the existence of a contract and not a contract. And I think really, what you need to clarify here is a written contract versus an oral contract, because parties can enter into an agreement through just verbal communication or just through identifying what the terms and scope of the agreement is going to be just through interchanges of emails, that kind of thing. The nature of agreement really comes down to an offer and acceptance and exchange of consideration. That is the bare-bones legal definition of a contract. Somebody makes an offer. The other person accepts it. There's a mutual exchange of promises and the exchange of money and services. And you have a valid contract. There is not a requirement that it be in writing unless it falls into a category of contracts that must be in writing. I don't want to get into that detail because that's a whole nother conversation. But for the purposes of your listeners, the agreements that they're entering into can be oral. And that really is what it comes down to. And at the end of the day, the hardest part is proving what the terms are. A real quick story. Are you familiar with Marcus Lemonis' The Profit?
Joey Korenman: No.
AndyContiguglia: Okay. He's a millionaire. He owns a number of businesses. He has a TV show on CNBC called The Profit.
Joey Korenman: Oh, I've heard of that. Yeah.
AndyContiguglia: And so what he does is he goes around and he buys distressed businesses and he helps them get back up on their feet. Anyway, there was an episode a few years ago and in his most recent series starting, season, he was talking about sort of the problems that you ran into. He went and he purchased part of a meat company in Brooklyn, New York and part of it was that he was going to purchase the hamburger division of it. He was going to buy the hamburger patties, and he ended up getting into a dispute with the company and actually suing them, because they refused to hand over the product that he purchased and then instead he said, "Fine, then give me my 250,000 dollars back", and they said, "It's gone and we're not going to give it back to you." He sued them and he took them to court, and he presented the case to the judge, and the judge found that there was no contract, because it wasn't written and of course, Marcus Lemonis is like, "What are you talking about? I have the video footage that shows them entering into this deal with me, that they owe me this money back, and that they didn't perform, and I'm entitled to damages, which is the return of my money for their breach of the contract."
And the judge is like, "Hey, this is reality TV. I don't know what's real and what isn't, and found against him." Here, you have a situation, where it was all on videotape. I mean, everything there was recorded, the handshake, the words, the nature of the agreement, everything. And the judge is saying, "I don't know if it's real. That's troubling to me, because I think the judge really overstepped his boundaries in making that decision. But again, maybe he was like, "Hey here's you know, a big old TV star trying to sue this small company in Brooklyn, New York, and here we are in New York." Who knows what was going through his mind? But that just goes to show you that the nature of agreement is always ambiguous. The more proof that you can provide, the better it is. And I remember a time, this was a few years back, where one of my clients was sued by a photographer, who alleged that my client had hired him to do some photography work, and my client's like, "I never hired this guy to do anything. All this guy wanted to do was have access to my property, because I had neat things on my property, and he needed to run around and wanted to take pictures of things on my property."
And he was like, "That's all I thought I was giving him access to do." So the guy comes onto his property, spends a day on his property, takes some pictures of some really neat things that are on his property, and then manages to send him a bill for 3500 bucks, and he's like, "What the hell are you doing?" And he's like, "This is what you asked me to do." He's like, "No. I gave you access to my property to take pictures for yourself. And if you had been able to take a picture that I wanted you to take, I would buy that picture from you." And the guy said, "Nope, sorry that wasn't our deal", and we ended up going to court over this and my client lost over that.
The judge believed the photographer in that situation you know, that that was the agreement. It was like the sitting fee. "You're going to pay me 3500 bucks just to come and shoot, and then, after that if you want other pictures that are there, that I've taken, you can buy those individually". I mean, that case still leaves a real bitter taste in my mouth over that, because you know it was really ambiguous about what was the nature of the deal here, and it's about what you can prove at the end of the day, and a written agreement really settles all questions about what the deal is. That was a really long way of getting around to answering your question, which is about these contracts. Do they have to be in writing? No they don't. Why should you put it in writing? It's better. It's easier to prove.
Joey Korenman: Let's do a hypothetical here. Let's say a client contacts me, and they say, "Hey, we want you to create a one minute video for us, and we're going to put it on YouTube." Okay, great. And I send them ... The way I used to operate is I would send a deal memo. All right. And the deal memo would say, "Here's the amount I would charge you. Here is exactly what I will provide. Here are a list of services that if I provide them I'll build that separately, that you will pay me this way 50% upfront, 50% upon completion, net 30 payment terms." You know it really spells the whole thing out. And then at the end of that, the client would look it over and they say, "Yes, I agree to these terms. Now doing that, is that legally binding?"
AndyContiguglia: Absolutely it is. Absolutely you have put out the offer, which is your scope of services, the details of what your expectations are from your standpoint, in terms of what you are going to do, and then it also sets forth the expectations of your client and what they are supposed to do. I'm going to do these list of things A through G, and when I'm done with it, you're going to pay me 2500 dollars for completion of these services. You know, sign here to agree to these terms. Boom. That's the offer, your offer, their acceptance, the exchange of consideration, which is the exchange of those promises, the exchange of money and the exchange of services. You've got a valid agreement there.
Absolutely, that has everything in there, and that's really, what I'm suggesting that your freelancers do is put together a deal memo for every deal that they do, and get the opposing side, get the client to, here I'm talking in litigation terms, get your client to sign off on this, so everybody understands the nature of what everyone's obligations are. And you know, you could certainly create a form contract or a form letter, where you're just sort of changing the scope of services, you're changing the price, you're changing the due date. But it's really important to really have that dialogue with your client, not only to build a relationship with him or her, but to make sure everybody is on the same page concerning the obligations that each party is expected to do.
Joey Korenman: Running School of Motion, I've had plenty of experience doing contracts with lawyers and things like that, and one of the things that always happens is, you know, lawyers are very good at thinking about all the angles and all the potential things that could happen. And so, looking back at my old deal memos that I would do with clients. There were a million things that were not in there. What happens if the job gets killed in the middle? What happens if the day before I'm supposed to start something bad happens and I'm unable to do the job? What happens at the end of the job if they don't pay me on time? And like you mentioned earlier, who owns the files used to create the final work? In the absence of all of that stuff, what happens legally if there's a disagreement at that point?
AndyContiguglia: Well, that's a good question. If it's not in the contract, then you're going to have a real hard time enforcing those extraneous aspects of it. The more detail you can put into that contract the better it's going to be for you, and the better it's going to be for your client actually, because then everybody is on notice as to what they have to do. If you're just putting forth the deal points, "I'm going to animate, it's going to be a one minute short, it's going to include these items. You're going to pay me." And something real simple that you could put in there, which is I'll deliver it to you once you pay me. Or what you can do is ... And that's really sort of the hard thing to do.
And there are ways that creative people can protect what they have put together by putting like watermarks across the image that says, "This is a draft" or "Created by Contiguglia." That way, nobody's going to be able to take it and put it up on a website without giving you credit. And people will see, that it hasn't been paid for. But those are the types of things, I think, you can do to protect yourself. But getting back to the contractual agreement, you need to really define those extra pieces of it, because a deal memo isn't going to really include those things, because deal memos typically are real short and basic. If you can elaborate on it and create it into a more detailed contract and include those, I think you're better off protecting yourself that way.
Joey Korenman: I really like the idea of this, and let me just make sure I understand it. And I'll sort of act as everyone listening. Using a deal memo, and the reason I used it was because it was simple, it was one page, it had 90% of what needed to be on there, and it was really easy for both sides to look at, but maybe a better solution would be to take that deal memo and just extend it a little bit, and work with a lawyer to put all of the other "what ifs" in there, "Who owns the IP at the end? Are there any ..." A lot of times it depends on the job. Sometimes clients won't let you put things on your reel, and so if they say, "We want to pay you to do this, but you can't tell anyone you did it." Well, then what happens? Does that increase the price? Are there other terms that get changed? And basically create a deal memo that's maybe two pages, and has all of those details in it, and then modify it a little bit each time for various jobs?
AndyContiguglia: Yes. I think what you need to do is create a sort of a template that you're able to manipulate a little bit. The template should have who the parties are, obviously you need to know that, the terms of the payment, the scope of the work. But then there are other things that I think should be included, which is who's going to own the intellectual property at the end of the day, at the end of the project? Nowadays, when you're doing business over state lines and I would expect that many, if not all of your listeners are doing work for people in other states, at least at some point in time. But what happens if there is a dispute concerning this contract? There is a principle of law called jurisdiction and venue and that is basically where can you sue somebody. And you can contract for those things. Typically, what you do is you put into a contract, "In the event of a dispute, the parties agree that I get to sue you in Tampa, Florida, or I get to sue you in Denver, Colorado." Typically, it's going to be where you are, so the other party doesn't get the advantage when you have to fly to New York and sue them in Manhattan.
You put, you contract that in there, and it's called a choice of venue clause. And there's also what's referred to as a choice of law clause. You can contract to determine what state's law is going to govern your contract. If you're doing work and you're in Florida, then you'll put provisions in your contract that are going to be favorable to Florida law, and you'll put in there that the parties agree that Florida law will control. And if I'm ever going to sue you, I get to sue you in Florida, and you agree that I can sue you in Florida, and that becomes something that's very advantageous to you to do, if you ever get into a contract dispute. And that's something that the other side has to think about when they are like, "Oh great, I'm in a fight with you. It's a 2500 dollar contract. Do I really we want to go down to Florida and spend a day in Tampa having to defend this damn thing? It's going to cost me more to go down there and do it and hire a lawyer and everything like that." You're trying to draft these contracts that give you as much advantage as possible.
Joey Korenman: All right, so you brought up two things I want to talk about. Why don't we first talk about this? You brought up a very good point about defending contracts. I can't remember who said this, but I've heard many times, "A contract is only worth what you're willing to pay to enforce it." I want to look at this from the other side. Typically, the biggest complaint that I hear from freelance motion designers is, "The client hasn't paid me yet. They're three months late. I'm still waiting on the check." And even if you have a contract that the client agreed to that said, they would pay you 30 days after receiving the invoice, well if it's a 2500 dollar, let's say they owe you 2000 dollars. How much is it going to cost to take them to court to get that 2000 dollars? Is it even worth it? Can you talk about that a little bit? What happens if they won't pay you or they're just dragging their feet and now you have to pay to sue them?
AndyContiguglia: Welcome to what we refer to as a business decision. And I am a firm believer that ... You know, I've put out a number of videos on this, which is the last thing you ever want to do is go to court. I mean, look at the example with Marcus Lemonis. It's never clear cut, because what I have seen happen is this. I've been on both sides of that hypothetical. I have represented people who don't want to pay somebody and now their website is being held hostage because of it. I've been on the other side where people are like, "Well, I gave them the information. I gave them the website design, and now they're not paying me." And then when you go and you reach out, and you go, "All right, listen I'll send a demand letter out for you. It'll cost you an hour of my time. You know I'll go ahead and put it out and see what happens."
And then what ends up happening is, "Yeah, I'm not going to pay that guy anything, because he did a shitty job." And now you're into this, you know, great, the scope of the work now is different. Or now, you're being accused of not living up to what you were asked to do. I wanted this website or I wanted this animation that did X, you provided me a website or animation that did Y. You didn't live up to the terms of it. Guess what? You can redo it to my specifications or just leave it where you are. And now you've just, you know, the only thing you've lost at that point is time, if you haven't really submitted everything over. But you know, there are other ways that you can manage that too. Here's what I think from a real practical standpoint, people can do when it comes to this type of services. And I think, what you do is you put what's called milestones into the contract.
What you do: you'll have a meeting, and this is why communication is so very important. And this is where you got to be a business owner. If you don't want to be a business owner then go work for somebody, go become a creative in an advertising agency, where you can just sit down and create, create, create and not have to worry about the business aspects of it. But if you're going to freelance, put on your business hat and act like a business owner first, because it's your livelihood that's at stake. Sorry, let me step down from my soapbox here-
Joey Korenman: No, I love it.
AndyContiguglia: But what I think you can do, and this is what I've counseled people to do is put in milestones. Milestones will basically say, I will have a representation of what I'm planning on doing to you in 14 days. I will send it to you. And we will sit down and we will talk. You tell me if you like the concept that I've come up with. You tell me if you like the colors that I've come up with. You talk to me about whether you like the way that I've animated this or whatever it is, and this concept. "Yes I do. I love it. I like this. I don't like this. I like this. I don't like this." And you make those changes. Then you come back and say, "Great. I will have these changes to you in another two weeks." Then you go ahead and you make those changes and then they look at it again, and they say, "Yes, this is exactly what I like. This is exactly what I want to do." And then you can finalize it, put together the final product, and then they've looked at that and said, "Yes, I think this is great. This is exactly what I want." And then you can pull the trigger and execute. And each of those milestones what you can do is have a portion of your payment given to you.
Let's say you have a 2500 dollar job. You can have half of it done upfront. You give me a down payment of half of my fee, 1200 bucks, 1250 bucks. And then at the first review you'll pay me ... Once you have accepted the first review, you pay me a quarter of the remainder. And then at the final product, you give me the last quarter of my money. And now, you've got the complete product. You've received all your money. They've got what they want, and you've had that opportunity to communicate, to make sure that everybody is on the same page in terms of the product that is going to be delivered at the end.
Joey Korenman: That's very smart, and that's always the way that I've done it. It's very common to do 50% right up front, and then 50% upon delivery, and then for bigger jobs to split it into 33% or 25% and have milestones like that. And I think that's really helpful because then at the end of the day, if you deliver the project and they don't want to pay you that last payment, it's a much smaller percentage. Can you give us some sense of you know, let's say that someone owes you 10 grand. You didn't have a good contract. You didn't do milestones, they owe you 10 grand. What's it going to cost? And assuming that you have it in writing somewhere that they actually do owe it to you, what's it going to cost to bring someone to court and get that 10 grand back?
AndyContiguglia: Well, good question. And that sort of leads to another provision that I think is very important in contracts and that is an attorney's fees clause. Depending on the state that you live in, you are only entitled to attorneys fees if the law that you're suing under allows for it. Like you're suing, like employment discrimination or something like that, that provides an attorney's fees, you know, recovery if you prevail in the litigation, or if the contract that you are litigating about provides for it. If you just do a deal memo and it doesn't have an attorney's fees clause, you're going to be throwing money at a lawyer and never getting it back. But if you put in an attorney's fees clause into your contract that says, "In the event there's a dispute about this contract, the prevailing party will be entitled to a reasonable attorney's fees."
If you don't get paid for the work that you've done then you can hire a lawyer, go ahead and pay the lawyer, and then add what you have paid to your lawyer as part of your damages when you seek your recovery later on in court. An attorney's fees clause is really important in recovering and getting back what you're putting out to enforce the agreement. Absent that, you're not going to be entitled to attorneys fees. You'll be entitled to your costs, but you won't be entitled to your attorney's fees. Now again, I preface that very generally because, some states allow for it, and it's really a state by state specific thing. Depending on where your listeners live, they need to check locally on that. But for the most part, the general rule is, you're only entitled to attorney's fees on a breach of contract case, if the contract allows for it.
Joey Korenman: Got it. Okay, so let me try to recap this to make sure ... I feel like I want to do this a lot this episode, just to kind of recap, make sure I understand it, make sure the listeners can grab everything. If someone owes you money, and they're not paying, they're dragging their feet, you question whether you're ever going to see that check, you have three options. Option one: you talk to your lawyer and you have them send a demand letter, I think you called it.
Joey Korenman: That's a really brilliant idea, because I suspect that a well-worded letter from an attorney on an attorney's letterhead, that probably has some weight to it. And I guess that, that probably works a lot of the time, and that's one hour of lawyer's time, a few hundred bucks, no big deal. You also, as a business owner, have to weigh the cost and the benefit. If you're owed 10 grand, it's probably worth going to a certain amount of trouble to get that. If you're owed 1000 dollars, and the demand letter doesn't work, you might ... Honestly, the best thing to do might be to just kiss it goodbye.
AndyContiguglia: Well, it depends. Sorry to interrupt you, but I think that most states have small-claims courts, and for a small sum of money, you can certainly bring a lawsuit against somebody for a small sum of money in a small-claims court. And small claims courts are designed for people without lawyers to litigate their cases. I think Judge Judy or Judge Wapner in that respect, that is a very simplified version of a small claims court, where people are representing themselves. You know, you don't have the formal rules of evidence. You don't have the formal rules of procedure. You get up at your podium, the other person gets up at their podium. The judge says, "All right, you're suing for 2500 bucks. Tell me what happened." "I created this website, and he didn't pay me." "Great. What's your side of the story."
"Yeah. He created a website but it sucked. I don't want to pay him." All right. Now, we've got to come up and decide, you know, why did it suck. "Yes it did. No it didn't." And the judge has to ultimately decide. "Great pay him his 2500 bucks, or don't." At the end of the day, anybody can go to small-claims court, and really all they're losing is their time. Most small-claims court here in Colorado, have a limit of the amount of money that you can recover. In Colorado, it's 7500 dollars. If you're asking for more than that, you need to go to a different court to do it.
You can't recover that in a small-claims court. But if you're looking at higher amounts like 15, 20, 30, 50,000 dollars in fees, which do exist. I've litigated those. You're going to be typically in the district court. You're going to be fighting it at a higher level, but it's very expensive, and having litigated breach of contract claim, I've got one going on right now, I mean, it's a 600,000 dollar breach of contract case. But our clients are going to spend 100 grand just trying to litigate this stuff in district court. It's not cheap to do it at that level. I always look at it like, "All right, listen, you can hire a lawyer to do this for you. If there's an attorney's fees clause, it becomes a better investment.
If there isn't an attorney's fees clause, then you're going to be throwing good money after bad." If you're hiring me to go after somebody for 5,000 dollars, you're probably going to pay me close to 5,000 dollars to do it. Question then is, "Is it worth it in the end?", because you also have, on top of that, your time, your energy, your anxiety, your efforts, fighting with your spouse. I mean, everything that's going on that have an emotional toll on you, and take away value from the whole prospect of this. And sometimes you have to really take your knocks in that. And even as a lawyer, I've run into that with my clients who don't want to pay.
And whether it's something that I want to go do and spend my time and energy chasing after 900 bucks? The other option is, send them to collections. A lot of collection agencies go ahead and take care of it. And you pay the collection agency a small fee to go ahead and collect it. If you have a written contract, collection the agency is going to take that and go, "Great. We'll go ahead and do it, and they'll go forward for you." That's always a nice option.
Joey Korenman: Okay. You just added two more options to the menu.
AndyContiguglia: This is what I do, just talk it through, and eventually it will all make sense at the end of the day.
Joey Korenman: All right. Let me try and lay this spread out here. So you can decide, it's not worth the time and effort to go after the money. It's a valid option.
AndyContiguglia: Right. Absolutely.
Joey Korenman: You can have a lawyer send a demand letter to see if that works. It's fairly inexpensive.
Joey Korenman: You can take them to small claims court, which I'm assuming doesn't cost you money, but it's going to cost you probably a lot of time, I'm imagining. And you know as a motion designer, that can charge four or 500 bucks a day, you've got to decide, if I'm going to go spend two days in a courtroom dealing with this, plus phone calls and finding contracts, and organizing things, and printing things, is it worth it? You can send it to a collection agency, which had never occurred to me. That's a really smart idea. And then you can have the nuclear option of hiring Andy to go get your money, but you may have to pay money, that you're not going to get back, depending on which state you live in and things like that. Did I get that right?
AndyContiguglia: Yeah. That's a real good summary.
Joey Korenman: Okay. Wow, okay. I want to say to everyone listening you know, this problem of not getting paid, this is like the most common issue that I hear about, and people get so angry about it, and I think you did a really good job, Andy, of pointing out that this is just unfortunately the way the world works. And if you're in the game of business, sometimes this happens, and it's just, there is options to deal with it, but one option and an option that I've taken in the past is just say, "Okay, I'm not getting that money," and move on with your life.
AndyContiguglia: And that's why I started this entire conversation with, "It's a business decision." I mean, you really raised some really good points, which is great, if I have to go spend a day in court to get 800 bucks, what am I losing in the process of doing that? Well, it's a day that I can't work. And if you're making 500 bucks a day doing animation, then that is a loss that you have as well. And that is a recovery you don't get back, whether it's networking, whether it's, "Great. This is a day that I don't get to spend with my kids", that has value.
This is a day I don't get to spend with my spouse, that has value. This is a day that I don't get to meditate, walk my dog, go to the park, whatever it is that you have set up for that day. All of those things have value, and it's important, before you really make the decision to pull the trigger on bringing a lawsuit against somebody. What's the toll going to be on you from not only a business standpoint, but from a financial standpoint, from an emotional standpoint. All of those things people don't take into consideration.
And I have had this conversation with so many people when they come and they go, "Yeah, I want to sue somebody over 25,000 dollars", and I start looking at the facts of the case and running it through and I'm like, "All right, great. Why do you think this person didn't pay you?" "Well, they don't want to pay me because they weren't happy with the work that I did." Okay. "Did you talk to them about it?" "No I didn't." "Well, do you think you provided the service that they contracted for?" "Absolutely." "Well, you've got two different opinions here. This is going to be a conflict.
They believe you didn't do the job. You believe you did. And so, now there's a chance that you could lose." There's always that option, which is, "Do you want to go to court and risk losing?" Because that is always a possibility, e.g. look at Marcus Lemonis, showing up with video footage of his contract, and he lost. There's always that possibility. You could put in all of this effort, lose all of this value, and in the end still get nothing. All of these factors need to be taken into consideration. And oh by the way, if you've paid your lawyer to represent you, guess what? If you lose, you still got to pay your lawyer.
Joey Korenman: Yeah. Oh, man, there's so much good stuff in here. I have one more question about contracts then I want to move on. Let me think about how to put this. I think one of the things that holds people back from dealing with contracts and lawyers and things like that, is that there is sort of this power imbalance. If you're a freelancer, your livelihood, your ability to pay bills, it depends on clients being willing to book you. And so, when someone comes to you and says, "Hey, I have a job. I'd like you to do it," you feel very grateful to them and they in that relationship have the power, because they could hire anybody, but you need them.
Essentially, it feels like you need them more than they need you. And so, there's a little bit of fear. "Okay. Well, I have this deal memo that Andy built up for me and it has all these terms that are very favorable to me," but when I show this to them, their lawyers are going to look at it and laugh and say, "We are going to cross that out. We are going to cross that out. We are going to cross that out." I'm wondering if you can talk a little bit about that and how does it work, if you show a contract to someone, and they're like, "Well, that's just not what we do. We only pay once you've delivered. We're not going to do 50% upfront," stuff like that.
AndyContiguglia: Yeah. The hardest thing you'll ever have to do in business: walk away. I understand and I appreciate that people want to find value within themselves and that they want to be able to do business. And believe, me I've been there too. I started my business. I mean, I've been a lawyer for 20 years, but I only started my company 10 years ago. And believe me, I still have the ups and downs, and I have people coming in trying to change my fee agreement. "Well, I'm not going to agree to this, and I don't want to do this, and all of this thing, and all of this," and of course I can look at it and I can decide. "All right. Is it really a big deal to me if they don't put half the retainer down now?" Whatever. And I can sort of make a decision and make a gauge as to whether I want to make changes to my agreement. But if somebody comes to me and starts saying, "Well, I'm not going to agree to this one term, and it's a deal breaker for me", I'm like, "Great. Then you're going to have to go find another lawyer."
It's as simple as that. And I think the hardest thing for people to do, if your client really wants you, Joey, they will accommodate what you do, and you need to have the guts to stand up to people and say, "Listen, this is the way I do business. If you want me to do your animation, and oh by the way, I'm better than anybody else around, you're going to have to agree to my terms. That's how good I am." But if you're starting and you're struggling, you might have to make a few little changes, and you have to make the decision. "Is it worth it to me to take this one provision out because it protects me or not?" Or go forward with that?
Joey Korenman: Yeah. I love you know, what I'm getting out of this conversation so far, and you're being super honest, which is awesome, like there is no right answer. Like you know, there's a best case scenario, where you have this contract that protects you financially, it protects you in terms of, you own the work that you did, or you own the rights to display it on your portfolio.
And there are times when clients are going to say, "No, we don't want you to do that," and you either make the really difficult decision to walk away, or you make a calculated bet and you say, "You know what? I think, in this case it's worth it for me to give up that protection, because I think in the long run it's going to help me."
And I think everyone listening should just kind of just realize that in the game of life, in the game of business there are no guarantees, and you're going to get burned regardless of how well you prepare eventually, and everything Andy is saying is just smart things to think about and to slowly piece by piece build this armor around yourself, I think, to try and avoid these types of situations.
AndyContiguglia: Right. And the hardest thing that I've seen people do is have to walk away from a deal. I mean, maybe you've got your cable bill come in due, and you're like, "Shit, I'm low on money. I need this extra ... I need this deal." And you sort of sell yourself out to go ahead and get this deal only to have it come back and bite you. You know, that is a problem. But I think, you know, everybody listening to this needs to be confident in their abilities, understand that yeah, people can go someplace else, but everybody has the line that's important to them.
And I would rather err on the side of caution, and hope nothing ever happens, or walk away from a deal. And as I've said, I've walked away from deals. I've counseled my clients to walk away from deals. It's a very difficult thing. And after long conversations, and I have had long conversations, I mean, this one that you and I have been chatting about now for the last hour or so, Joey, you know we've gone through the gamut of all the possibilities and the reality at the end is, well you could just walk away from this. Is it really worth it in the end? Go find another deal.
And you know, it's kind of like dating. I mean, do you want to date somebody who's asking you to change you? And no. You don't. You want to be you. And I think when you start establishing a precedence as to, "This is the way I do business. I'm not going to change. You don't don't like it that way? Go find somebody else. You don't like my McDonald's hamburger? Go down the street to Wendy's." You don't have to do it. You know this isn't Burger King. You don't need to have it your way. It's my way.
Joey Korenman: We're going to leave it there for now. And I know you're dying to hear the end of this conversation, so don't worry, it's coming. In the next episode we'll cover the topic of incorporating and it's a deep topic, and in the meantime, head over to contiguglia.com/schoolofmotion. That's C-O-N-T-I-G-U-G-L-I-A. Contiguglia.com/schoolofmotion. Andy has left a little gift there for our listeners, and you can learn more about Andy's law firm, and get a bunch of great legal tips at the same time. As always, all the show notes are available on our site. I want to say thanks so much to Andy for coming on. Thanks to you for listening. And stay tuned for Part two.