Business Litigation
Have you just been served with a lawsuit claiming you breached your fiduciary duty? It can feel like your business partner suddenly turned a business disagreement into something personal. Don’t panic. In California, suing a business partner takes more than just feeling upset. Your partner has to prove specific points under the law. Understanding these early can help protect your partnership, reputation, and finances.
The Three Core Duties in California Business Partnerships
In California, each business partner owes the others a legal duty of trust and honesty. Simply put, you must place the business ahead of personal gain. California law lays out the following obligations:
- Duty of Loyalty: This is the duty most often fought over. It bars you from quietly profiting at the partnership’s expense. Self-dealing is a classic example, such as selling your own property to the business at an inflated price without telling your partners.
- Duty of Care: Business partners are required to avoid gross negligence, intentional misconduct, recklessness, or knowingly breaking the law. An honest mistake or a decision that simply failed does not usually qualify.
- Duty of Good Faith and Fair Dealing: You must deal honestly and fairly with your business partners. Hiding financial records, concealing profits, or attempting to undermine the partnership’s purpose can violate this duty.
What Your Partner Must Prove in Court
If your business partner accuses you of breaching your fiduciary duty, the claim can only succeed if they prove all four of these elements:
- A fiduciary relationship existed between the two of you.
- You broke one of your duties, whether by acting or failing to act.
- Your conduct was a substantial factor in causing the harm.
- Your partner suffered actual damages as a result.
Even when losses are hard to measure, courts can still order a partner to return profits earned through a breach.
Defending Yourself
If you are facing such claims, you may have a strong defense if you did not actually violate a specific duty, your actions didn’t cause the losses your partner claims they suffered, or if your partner consented to your actions after being fully informed.
Evidence that you acted honestly and followed your partnership agreement can also be crucial. For instance, emails, transaction details, and partnership records can help show your actions were genuine and not self-serving.
Why You Should Act Fast
When defending against a breach-of-fiduciary-duty claim, what you do in the early stages matters a lot. Start gathering all relevant documents, including bank statements, partnership contracts, emails, and any other documents related to the dispute as early as possible. Keeping these records safe can allow your attorney to figure out what really happened and determine whether the evidence actually supports (or does not support) the allegations. Acting quickly can give you the best shot at a positive outcome.
Contact SAC Attorneys LLP
Is your business partner accusing you of breaching your fiduciary duty? Our skilled business litigation lawyers at SAC Attorneys LLP can review your situation, explain your options, and build a strategy to protect you. Contact us today to schedule a consultation.