Legal Question in Business Law in California

I am a 50% partner in an LLC. My partner has breeched his fiduciary duty and used company loan money for his personal use. He has admittly defaulted on several company and personal loans. I am concerned with my liability for his misappropriation of funds and excecutive misconduct. I am aware now that multiple law suits are being brought against my partner personally and now our companies are listed in the lawsuits as well. What action can I take to remove my liability from his misapropriation and/or file a lawsuit against him for his misconduct. I am aware of the involunanty dissolution order but would like to make sure I have my day in court and all outstanding loans are paid at time of disolution. My partner has also locked me out of the office and is withholding all my personal effects and state regulated documents that I must retain to be in complilance. He also is contacting all of our business partners and sending them letters tha I am no longer a partner and not involved.

Asked on 1/08/10, 7:18 am

4 Answers from Attorneys

Cathy Cowin Law Offices of Cathy Cowin

Your post cannot be answered completely in this forum and probably should not be. You need to talk to an attorney and provide more detailed information to create a plan toward resolution. I can, however, give you some general thoughts. You could, for instance, seek an immediate receivership from the court where you or a third party is put in charge of the business to ensure that it is run properly and funds, compliance, etc. are all accounted for properly until this can be sorted out. Economics may also play into what strategy you employ next. Depending on what happened to get you to this point and your partner's disposition, mediation may be appropriate. You have already mentioned the dissolution road. You may need to file cross-complaints in the lawsuits against the company and, if so, there are strict time deadlines and so I urge you to have an attorney review those promptly.

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Answered on 1/13/10, 9:07 am

Jonathan Reich De Castro, West, Chodorow, Glickfeld & Nass, Inc.

Run, don't walk, to an attorney. You have a serious problem and need to take immediate steps to protect yourself.

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Answered on 1/13/10, 9:49 am
Terry A. Nelson Nelson & Lawless

For any claim of misuse of partnership or company money, you have grounds for a lawsuit against whoever is committing fraud, theft, misuse, etc. It appears you are in serious legal problems. You will have to defend the company against these suits to avoid you losing your investment and rights. If serious about getting counsel to help you, feel free to contact me.

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Answered on 1/13/10, 10:53 am
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Fortunately for you, the co-owners of an LLC are not partners (at least not by virtue of co-owning an LLC). This will probably protect you from personal liability (let's hope).

However, your investment in the LLC and perhaps your reputation are threatened. You and your new lawyer need to address the following immediately:

1. Investigating and filing answers (or demurrers?) to any lawsuit that has been served on you, or on the LLC if this is within your powers under the LLC Operating Agreement, and doing so within the 30-day time window; and

2. Taking pro-active preventive measures to prevent further harm to your interests. Things that should be considered are taking control of the cash and cash flow, and/or the business premises, passwords, computers, records and the like; notifying vendors and customers appropriately; filing suit and asking for a TRO, and so forth.

A good business lawyer will know your rights and how to protect them.

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Answered on 1/13/10, 12:18 pm

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