Legal Question in Business Law in California

Re: Unpaid loan to limited partner by General Partner

If other people are suing them, maybe you had better also -- before you get nosed out of the doggie dish.

Aside from your being out the money, you were defrauded in that they concealed their insolvency from you at the time you extended them credit. Fraud could get you punitive damages, and/or a ruling from a bankruptcy court that the debt is not dischargeable in their upcoming bankruptcy.

Obviously any written evidence in addition to your cancelled check will be useful in evidence. One thing you could do immediately is to ask for a promissory note evidencing your agreement, but I wouldn't forbear very long from filing suit.

Possibly you could also file a writ of attachment and also claim an interest in whatever assets the other people are attempting to attach.

I, of course, am unaware of many facts including whether your suing to recover your investment would possibly impair the viability of one or more of your projects.

Re: Unpaid loan to limited partner by General Partner

Please understand that you need not only a lawyer, but the right lawyer, or you will not get your money back. I would first look at this situation to see if you arguably legally made a loan to them as individuals, and not to the business. I do not know the answer to this question yet and neither do you. If you have a lawyer smart enough to get the facts to prove this, it is possible that everyone else will be fighting over business assets they have insulated themselves from, and you may be able to go after them directly, which is usually better. Fraud is another basis by which you can go after them personally, but you have to be very careful and strategic in how you go about it. If other suits are against these guys personally, then you have an even bigger challenge. I have experience litigating securities matters like this one. You must act smart, quickly. Let me know if you want my help.

Best,

Daniel Bakondi

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Re: Unpaid loan to limited partner by General Partner

"What rights"? The right to sue, and the right to hope that they have the ability to repay, or have assets you can collect against. There is no magic wand here. If you're serious about taking action to protect yourself as best you can, and the case is in SoCAL, feel free to contact me to discuss the risks and costs of suit.

Re: Unpaid loan to limited partner by General Partner

The first thing to keep in mind is that the statute of limitations on an oral contract is two years. That would be measured from the time of breach, 30 days after the loan was made, so suit should be filed not later than April 2010, the day before the anniversary of the due date. Arguably, the check might be a sufficient writing to put the case under the four-year written contract rule, and/or suit could be brought on a fraud theory (three years), but I would recommend prompt action.

Sounds to me as though your loan was made to the individuals - but how were the payees named on the check? As "John Doe and Michael Roe?" Or Doe & Roe, L.P.? How was it endorsed?

As general partners, they are ultimately liable for the debts of the limited partnership, but I'd think they would be more motivated to settle with you if a personal suit is possible. Also, under Corporations Code section 15904.05. a judgment against a limited partnership cannot be enforced directly against a general partner unless the GP is also a judgment debtor.

A possible advantage to suit against the LP instead of the individuals is that your partnership agreement may allow you to collect attorneys fees.

The general partners are in a fiduciary relationship with both the limited partners and the partnership itself. CC 15904.08. The duties are loyalty and care. If a breach can be shown, punitive damages may be awarded on a constructive fraud theory. This would also be the case for actual fraud, but it's harder to prove.

I would avoid lining up to be paid from the sale of the projects as my only step, especially if you'd have to sign a settlement agreement or otherwise relinquish your right to proceed directly and immediately. You'll likely discover upon investigation that you'd be in about 22nd position among secured creditors if you filed a security interest at this stage of the game.