As of Tuesday evening, Snopes.com , one of the Internet’s most longstanding fact-checking websites, successfully raised over $600,000 in less than 48 hours—an effort to stay afloat while an ugly legal battle is underway.

Snopes’ founder, David Mikkelson, told Ars in a lengthy phone interview that a Web development company, Proper Media, and two of its founders have essentially held the website "hostage" for months, keeping both data and money that should have gone to Snopes’ parent company, Bardav.

Bardav and Proper Media, which also runs other websites including TVTropes.org, made a business deal together that Bardav then cancelled in March 2017. Proper Media sued in May, alleging breach of contract, among other allegations. Mikkelson and Bardav countersued in June 2017.

"If they had not been wrongfully withholding revenue, we would have surplus of several hundreds of thousands of dollars—then we would not have to run a donation campaign," Mikkelson said. "It’s only a temporary fix. We’ll ultimately find a way to raise our own revenue without them."

A lawyer representing Proper Media, Karl Kronenberger, denied any impropriety.

"Nothing is being held hostage by Proper Media," he e-mailed Ars. "All key files have been delivered to Bardav, so they can run the site themselves, just as they did for years prior to doing the deal with Proper Media."

For his part, Mikkelson countered that the relevant WordPress "content, themes and templates, and the database" were only handed over Monday night, after Snopes’ fundraising campaign began.

It’s still not clear what effect, if any, the lawsuit will have on the future of Snopes. For now it remains operational.

A decades-long saga

Snopes was founded way back in 1994 as a website that aimed to prove or debunk urban legends. For nearly a decade, the site was run exclusively by David Mikkelson and his wife, Barbara Mikkelson, as essentially a fun side project.

But the site grew and grew, and, by 2002, David Mikkelson quit his day job and started running it as a full-time business. In 2003, he and his wife founded a company, Bardav (a portmanteau of their names), specifically an S Corporation, where the profits and losses are felt by the individual owners, rather than by a corporate entity, like an LLC. Each of them held 50 percent of the company, which was founded as a way to manage Snopes’ business aspects.

The site continued along for over a decade with no issues, until 2014 when the couple’s marriage fell apart. They formally divorced by mid-2015 but had not finalized their property arrangement—specifically how the company would be divided or how much David Mikkelson would be paid. Around that time, David also decided that he wanted to grow the business more and ride the wave of the looming 2016 presidential election—he had noticed that the site’s traffic spikes around election times.

"We had always run the site by ourselves, but my now-former wife was no longer contributing anything," he said. "And secondly, up until that point we had been a unique entry in this field and in the years around it, other sites like PolitiFact and Factcheck.org sprang up."

When Ars pointed out that PolitiFact, which won a Pulitzer Prize in 2009, dates back to 2007—David Mikkelson elaborated that he meant that these sites, like his, were gaining ground in the run-up to the election. If he wanted to stay relevant, he felt, he had to make a bold move.

So, David decided that the time was ripe to staff up. He hired several editors and writers, many of them former journalists. In August 2015, he also contracted with a fellow San Diego-area company, Proper Media, to help manage the site. The deal was that Proper Media would provide various services, including Web development, hosting, advertising, and more in exchange for a portion of the site’s revenue.

That deal, known internally as the "General Services Agreement," (GSA) was first published as part of Bardav’s June 2017 countersuit against Proper Media. While it was a one-year contract, the deal also contained a provision that let either party terminate it at any time, with 60 days' notice.

As part of the Mikkelson’s divorce settlement, they each agreed to allow the other to retain half of Bardav. However, the other partner maintained a 10-day "right of first refusal," if one partner wanted to sell. According to David Mikkelson, around the end of 2015 or the beginning of 2016, Proper Media asked about possibly buying out his wife’s share of Bardav.

"And then shortly after when I inquired, they told me that she had asked for a figure that was utterly ridiculous," he said. "Multiples of what anybody would pay. After that, I never heard anything more and assumed nothing was going on."

But, as it turned out, Barbara Mikkelson was interested in getting out of the business entirely. One day in the summer, out of the blue, David Mikkelson received an e-mail from his former wife.

"She sent me a copy of the executed stock purchase agreement between her and the five buyers," he said, referring to the five members of Proper Media’s board of directors.

By sending that e-mail, Barbara triggered David’s 10 day right of first refusal. If David wanted to buy his ex-wife’s share, he was likely going to have to raise a large sum of money within a short amount of time. Plus, he was unhappy about being blindsided like this, particularly with his salary in dispute and a true valuation of the company still outstanding.

Still, David Mikkelson discussed it with the quintet, and he ultimately decided not to hold up the sale. The five Proper Media board members would hold Barbara’s share, with Drew Schoentrup and Christopher Richmond holding 20 percent of Bardav each, and the three other men holding 3.33 percent. However, because of the way Bardav was set up initially, as an S-corporation, its shareholders had to be individuals rather than corporations.

The five men convinced David Mikkelson (who still retained his 50-percent stake in Bardav) that Snopes would be more profitable if they all worked together. The deal was signed, with Schoentrup taking Barbara Mikkelson’s Bardav board seat. This now created a bizarre situation where half of one company (Bardav) was owned by a different company (Proper Media) that had previously done, and continued to do, substantial contractual work for it.

Pieces of the pie

This unusual corporate setup is one of the crucial elements of this case: Mikkelson argues that he is the majority shareholder of Bardav and as such can fully exert control. But the five board members believe that they collectively hold it on behalf of Proper Media and as such hold equal weight in terms of ownership as Mikkelson.

Then, in February 2017, one of the five men, Vincent "Vinny" Green, who had one of the tiny shares of Bardav (3.33 percent) resigned his position at Proper Media and joined Mikkelson as an employee of Bardav. According to Proper Media, with Mikkelson and Green combining their shares of Bardav, Mikkelson erroneously believed this made the two of them the majority shareholders. Later, Ryan Miller, another person with 3.33 percent of Bardav, also joined Snopes as an employee. Green is now listed on the Snopes website as the vice president of operations.

Michael Chasalow, a business law professor at the University of Southern California, told Ars that this setup isn't as clear as it could have been.

"Of course the underlying issue is whether the sale resulted in five individual owners or ownership by Proper Media," he e-mailed. "It seems most likely that Proper Media assumed that the individual owners would act in Proper Media’s interest, but it is not clear whether the five individuals had contractual obligations to do so. If the sale resulted in five owners who were not bound by contract to act in a certain way, then any one of the owners would, in theory, be free to act individually, with Mikkelson. On the other hand, the five individual owners could have contractually agreed to vote for a certain director or directors (for example the president of Proper Media), but such a provision would need to be clearly articulated along with consequences for not following such a provision."

Chasalow also pointed out that California state law requires that corporations have a minimum of three directors if there are more than three shareholders—if Mikkelson’s interpretation is right, and his wife’s share was divided into five parts, then there should have been a third board seat added.

In any case, in March 2017, Mikkelson opted to invoke termination of the GSA within 60 days. It is this GSA that has now proved to be the thorn in the side of both Mikkelson and his legal adversaries.

"We don’t need most of the services that we contracted with Proper Media to provide anymore and the few that we might we can contract out on an as-needed basis on a much lower cost," Mikkelson told Ars. "It’s utterly ridiculous for us to be continuing to be feeding them 40 to 50 percent of our gross revenue for services that we don’t need. It was costing us like $700,000 to $800,000 a year that we didn’t need to spend."

Essentially the case boils down to this: can Mikkelson, as a 50-percent owner of Bardav, single-handedly end the GSA under the termination provision?

Karl Kronenberger, the lawyer for Drew Schoentrup, says no.

"Our position is that David Mikkelson cannot terminate this major contract of the company without board approval, especially because the other board member (Drew Schoentrup) repeatedly demanded a board meeting prior to the attempted termination," he e-mailed Ars.

According to Proper Media’s lawsuit against Bardav, Mikkelson used company money to fund numerous and expensive non-work-related items, including legal fees for his divorce and his honeymoon with his new wife, Alyssa Young (now a Snopes employee), among other items.

When Ars asked Kronenberger if he had encountered any similar situations like this during his 14-year career as an attorney, he quipped: "This is quite a unique case."

The two sides are set to appear before a San Diego Superior Court judge on August 4.