San Francisco Embezzlement and Mismanagement Attorneys

When you form a business partnership or an LLC, you and your partners agree to work together to facilitate the success of the venture. In establishing a legal business entity, you also establish a fiduciary duty to one another and the business. This provides you with legal recourse if one of your partners does not act in the best interests of the company. You can also pursue a claim in civil court to recover certain damages if one of your partners engages in certain types of criminal acts.

As a California businessowner, you may need to consider litigation against one of your partners if:

• A partner embezzles, or steals, from the company. Business partners cannot siphon company money or physical assets from the venture without explicit permission and agreement from the other partners. A lawsuit can help you recover the value of stolen funds or assets.
• A partner abuses or steals the company’s intellectual property and/or trade secrets. Your business may hold and maintain copyrights, trademarks, and patents that protect its intellectual property and other forms of proprietary and sensitive information. A partner cannot use company intellectual property or trade secrets for their own gain without explicit permission. They also cannot share trade secrets or protected information with a competitor. 
• A partner violates contractual agreements. Creating a business entity involves preparing and executing formation documents that establish (among other things) the business’s leadership structure. In a partnership, this is called the “partner agreement,” and in an LLC, it is called the “operating agreement.” All partners and members must abide by the terms of these agreements as well as any other enforceable contracts, including nondisclosure agreements.
• A partner breaches their fiduciary duty to you and the company. As fiduciary, partners and LLC members must do what is best for the venture and not act in their own interest when acting in their capacity as a business owner. When a partner does something that harms the company but benefits them, they have likely breached their fiduciary duty.
• A partner is negligent in managing or grossly mismanages the company. Partnership agreements and operating agreements should establish each owner’s role in managing the business as well as the specifics of their responsibilities. If a partner egregiously fails to fulfill these responsibilities through negligence or ineptitude, you can potentially sue them for malpractice and may need to explore your legal options for extracting them from the venture.

Alternatives to Litigation

While our San Francisco embezzlement and mismanagement attorneys have a tremendous amount of jury trial experience, we also recognize that litigation is not necessarily the best strategy for every business owner dispute. Lawsuits can be public, messy, time-consuming, and expensive. Many companies understandably look to avoid litigation wherever possible. Fortunately, several alternatives are often available.

Alternative dispute resolution seeks to negotiate a settlement without going to court. Mediation and arbitration are perhaps the most common and popular forms of alternative dispute resolution. 

Mediation involves a structured series of negotiations led by a trained mediator. The mediator will be a neutral third party that works to help the disputing parties navigate the conflict and find common ground through hands-on, guided discussion. In a successful mediation, all parties will voluntarily agree to a settlement.

Arbitration in many ways resembles a traditional trial. Legal representatives for each party will participate in a hearing, present their cases, and call witnesses to give testimony. A neutral arbitrator – often a retired judge – will preside over the proceedings and ultimately make a binding decision. The parties involved decide who will serve as the arbitrator, and the process is entirely private. However, arbitration does not include a discovery process, meaning you will not be able to obtain potentially valuable evidence from the other party. You also cannot appeal an arbitrator’s decision.

You may have limited options when choosing how to pursue an embezzlement or mismanagement claim. Many partnership agreements and operating agreements require that business owners resolve irreconcilable disputes through mediation or arbitration. We can review all relevant legal agreements and help you understand the options available to you. Our team can also weigh the pros and cons of each potential dispute resolution strategy.