Legal Question in Business Law in California

I recently found out that my business partner was using our company credit card for personal use. She essentially ruined our business credit, hurt my personal credit and we are dissolving our successful business. 2 months after I confronted her she paid off the debt in full, but I can no longer trust her and this has been a major falling out. She is being very combative and won't agree to terms on our dissolution. If I was to pursue charge or a lawsuit, could I be compensated for having to end our successful business due to her breach in duty? Or compensated for the costs related to having to start my own business (she is giving me our current clients so I have to rush to get a new business going). What are my options if she won't agree to my terms of dissolution?

Asked on 10/20/13, 9:32 pm

2 Answers from Attorneys

Timothy McCormick Libris Solutions - Dispute Resolution Services

You have a number of options and potential legal claims. First and foremost, if partners cannot agree on terms of a dissolution, there is a legal proceeding you can file for a "dissolution and accounting" of a partnership. If you think about it, however, it will come as no surprise that those kinds of cases tend to make the nastiest divorces look like friendly encounters. For that reason, the partners often run up more in legal fees than they were fighting about. It would also not address any damages you might claim. A dissolution proceeding is just a court supervised and if necessary court ordered winding-up of the business when the partners can't agree.

On the damages side, you probably have a viable cause of action for breach of fiduciary duty. Every partner owes the other a duty to put the partnership interests on at least equal footing if not ahead of their own. That is what a fiduciary duty is. Considering she repaid the money, however, your damages for breach of fiduciary duty are more nebulous than in most cases where one partner just took money or stole an opportunity and set up a competing business, etc. The costs of starting a new business would not be something you could recover. The loss of the successful business might be compensable, but would be diminished by the success of your new business going forward. So if you do as well or better in your new business, your damages would be little or nothing.

The other problem with pursuing legal action is that it will take time, money and focus away from getting your new enterprise up and running. These kinds of lawsuits can be incredibly draining, both in resources and personally.

If I were in your position, I would point out to her that if you can't reach agreement the only alternative will be a very costly and ugly dissolution action, and propose hiring a mediator to help you work things out instead. If she won't go for that, however, you will need to file the partnership dissolution action and wait until she realizes just how much it is going to cost both of you if you don't reach an agreement. That is when people have always come to the table in the dissolution proceedings I have handled, because actually going to trial in a partnership dissolution invariably costs well more than the issues in dispute.

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Answered on 10/21/13, 8:43 am

Keith E. Cooper Keith E. Cooper, Esq.

Unfortunately, it is not possible to really help you in a forum such as this. Yes, you might be able to get compensation for damage to your credit rating and loss of business, as well as other things you feel are appropriate. But that would be the result of negotiation or settlement, and it sounds as if the emotions between the two of you are such that you are not able to communicate in a conciliatory manner.

You need to consult with an attorney who can look at your situation, negotiate on your behalf, and perhaps minimize the damage. In the long run, it will be less expensive to pay an attorney than to make mistakes trying to navigate this yourself and end up with less that you're entitled to.

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Answered on 10/22/13, 11:14 am

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